Vazhayoor Service Co-op. Bank Ltd. Vs ITO (ITAT Cochin)
Additions Enhance Business Income & Qualify for Deduction u/s 80P – Relief to Service Co-op. Bank: ITAT Cochin
Cochin Tribunal in allowed the appeal of a cooperative society by holding that disallowance of provisions for bonus, leave salary & similar items would only enhance business income & such enhanced income also qualifies for deduction u/s 80P.
Assessee, a cooperative society registered under the Kerala Cooperative Societies Act, 1969 & classified as a Primary Agricultural Credit Cooperative Society, filed return of income declaring nil income after claiming deduction u/s 80P. AO completed assessment u/s 143(3) at Rs.1.72 crores by denying deduction u/s 80P on the ground that the Assessee was a cooperative bank hit by section 80P(4).
On appeal, CIT(A) directed AO to allow deduction u/s 80P but confirmed addition of Rs.5,96,757/- relating to disallowance of provisions for bonus, leave salary & other similar items.
Before Tribunal, it was argued that such disallowances enhanced business profits which continued to qualify for deduction u/s 80P. Tribunal agreed, relying on CBDT Circular No. 37/2016 dated 02.11.2016 which clarified that business disallowances increasing business income would still be eligible for deduction. Tribunal also referred to Gujarat High Court ruling in ITO vs Keval Constructions (354 ITR 13) & Bombay High Court ruling in CIT vs Vishvambharnath Tiwari (ITA No. 02/2011), both supporting the same view.
