Navsari Khedut Sahkari Society Ltd. Vs ACIT (ITAT Surat)
Section 80P Claim Requires Examination of Actual Receipts: Inter-Departmental Interest Sent Back for Verification
Background of the Case
The assessee, a cooperative society, filed its return declaring gross total income of ₹26,87,815 and claimed deduction of the entire amount under section 80P, resulting in nil taxable income.
While processing the return under section 143(1), the deduction was partly disallowed to the extent of ₹9,72,930. This comprised interest income of ₹2,55,865 and rental income of ₹7,17,065.
The society filed an application for rectification under section 154. By an order dated 14 August 2020, the Assessing Officer accepted the claim relating to rental income under section 80P(2)(e). However, he rejected the deduction claimed in respect of the interest income.
The assessee’s appeal before the CIT(A) was unsuccessful. The society consequently approached the Tribunal, where the surviving dispute concerned the treatment of ₹2,55,865 described as interest income.
Assessee’s Explanation Before the Tribunal
Before the Tribunal, the assessee sought admission of additional evidence under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963.
Referring particularly to a Chartered Accountant’s certificate, the assessee explained that two amounts included in the disputed interest income—₹58,968 and ₹93,089—represented inter-departmental interest within the same society.
According to the assessee, one department recorded these amounts as income while another department recorded the corresponding expenditure. They therefore did not constitute interest income in the real sense at the level of the society.
The two internal entries together amounted to ₹1,52,057. As regards the balance interest income, the assessee contended that it was eligible for deduction under section 80P(2)(a)(iii).
The society submitted that these factual aspects concerning the nature of the receipts had not been examined by the lower authorities. It therefore requested restoration of the matter to the Assessing Officer for verification and fresh adjudication.
The Revenue relied on the orders of the lower authorities but did not seriously oppose the proposed remand.
Tribunal’s Findings
The Tribunal observed that the central issue was the eligibility for deduction under section 80P in respect of the disputed interest income.
It found that the additional evidence, particularly the Chartered Accountant’s certificate, had a direct and material bearing on the nature and character of the receipts. Accordingly, it admitted the evidence under Rule 29.
The Tribunal noted the assessee’s specific contention that part of the amount represented inter-departmental interest and that the remaining interest qualified for deduction under section 80P(2)(a)(iii). Since these matters had neither been examined nor verified by the lower authorities, a fresh factual enquiry was necessary.
The issue was therefore restored to the Assessing Officer with directions to examine the additional evidence, verify the nature and character of the receipts, and adjudicate the deduction claim in accordance with law after providing a reasonable opportunity of hearing.
The appeal was allowed for statistical purposes. The Tribunal did not itself exclude the internal entries or finally grant deduction for the remaining interest income.
Author’s Comments
Before deciding whether interest income qualifies for deduction, it is necessary to establish whether the disputed amount represents income of the assessee at all. This case illustrates the importance of distinguishing an external receipt from an internal accounting allocation.
Where departments form part of the same assessee, an interest charge between them may appear as income in one departmental account and expenditure in another. The society’s consolidated accounts and tax computation must therefore be examined to determine the actual effect. The description “interest income” in a departmental ledger does not, by itself, settle its tax treatment.
However, the Chartered Accountant’s certificate is supporting evidence, not a substitute for reconciliation. On remand, the society should establish the corresponding debit and credit entries and demonstrate how they were treated in arriving at its gross total income.
The remaining interest presents a separate question. The assessee invoked section 80P(2)(a)(iii), but the Tribunal did not determine whether the receipts satisfied that provision. Their source and connection with the qualifying activity will require examination.
The decision should therefore be cited for admission of material additional evidence and the need to verify the actual character of receipts. It cannot be presented as a blanket ruling allowing deduction under section 80P for interest income earned by a cooperative society.
Cases Discussed
- Totgars Co-operative Sale Society Ltd. Vs ITO (Supreme Court)– (2010) 322 ITR 283 (SC). Referred to in the assessee’s additional-evidence application. The application cited this decision while discussing the society’s claim for deduction. The Tribunal did not decide the present appeal by applying this precedent.
FULL TEXT OF THE ORIGINAL ORDER OF ITAT SURAT
Feeling aggrieved by the order of first appeal dated 28.01.2025 passed by learned Commissioner of Income-Tax (Appeals)-NFAC, Delhi [“Ld. CIT(A)”], which in turn arises out of the rectification-order dated 14.08.2020 passed by learned ACIT, Navsari Circle, Navsari [“Ld. AO”] u/s 154 of Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2016-17, the assessee has filed this appeal on the grounds as mentioned in Appeal Memo (Form No. 36).
2. The background facts leading to present appeal are such that the assessee-society filed its return of income of AY 2016-17 declaring a Gross Total Income of Rs. 26,87,815/-, deduction u/s 80P of Rs. 26,87,815/- and Total Income of Rs. Nil. The return was processed u/s 143(1) wherein the deduction u/s 80P was partly disallowed to the extent of Rs. 9,72,930/- in respect of two components of income, namely (i) interest income – Rs. 2,55,865/- and (ii) rental income – Rs. 7,17,065/-. The assessee filed rectification application u/s 154 to Ld. AO. The Ld. AO disposed assessee’s application vide rectification-order dated 14.08.2020 accepting the claim of deduction qua the rental income of Rs. 7,17,065/- u/s 80P(2)(e) but, however, the Ld. AO rejected claim of deduction qua interest income of Rs. 2,55,865/-. Aggrieved, the assessee carried matter in first-appeal before Ld. CIT(A) but did not get any success. Now, the assessee has come in next appeal before us.
3. Ld. AR for assessee at first invited our attention to the Application under Rule 29 of Income-tax (Appellate Tribunal) Rules, 1963 filed by assessee and requested to admit the additional evidences. We re-produce below the Application filed by assessee and the Index of Additional Evidences filed therewith:
PAN: AAAJS0533J
NAVSARI KHEDUT SAHKARI SOCIETY LTD.
Maneklal Road,
Navsari, Gujarat – 396445
May 12, 2026
To,
THE ASSISTANT REGISTRAR,
The Income Tax Appellate Tribunal,
Surat
Respected Sir,
Re: Appeal Number 362/SRT/2024
Assessment Year 2016-17
Sub: Application Under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 For Admission of Additional Evidence
With reference to the above-mentioned appeal, we request you to please place this letter before the Hon’ble Members constituting the Division Bench with a request to please admit certain additional evidences which are enclosed herewith.
The sole issue agitated in our appeal pertains to disallowance u/s 80P of Rs.2.55 lacs in respect of interest income. Originally, an amount of Rs.9.72 lacs was disallowed vide intimation passed u/s 143(1) dated 29.10.2016. thereafter, an application u/s 154 of the Act was filed before the Assessing Officer physically, requesting him to accept the Returned income of Rs. NIL.
By allowing a deduction of Rs.7.17 lacs u/s 80P, the Ld. Assessing Officer once again upheld disallowance u/s 80P of the Rs.2.55 lacs citing the reason that the disallowance was applicable in terms of u/s 80P(2)(d) and the decision of Karnataka HC in the case of Totgars Coop. Soc Ltd. v. ITO (322 ITR 283).
Before the CIT(A) too, we made submissions on the same ground that the said amount was never claimed u/s 80P(2)(d). The interest income of Rs.2.55 lacs which had been disallowed by the Ld. AO u/s 80P(2)(d) was never claimed u/s 80P(2)(d). And we were under the bonafide impression that the Ld. AO and the CIT(A) have yielded to a computational error in technical terms which was erroneously made by the Centralized Processing Centre’s automated return processing system. There was never any shred of doubt as regards the facts of the matter since primarily, the root cause of this matter was an automated adjustment carried out by the computerized system at the Centralized Processing Centre, Banglore.
Therefore, we had inadvertently and under bonafide belief not furnished documentary evidences to demonstrate the nature of interest income the same was in any event, not claimed u/s 80P(2)(d). We were also not advised by our tax consultants and Chartered Accountants to provide and furnish documentary evidences to demonstrate the nature of interest income.
While preparing for the appeal to be argued it came to light that the nature of interest income which has been disallowed can be explained in depth to give a holistic view of the matter. Though the break up of interest income of Rs.2.55 lacs was furnished before the lower authorities, the documentary evidences to substantiate the break-up thereof unfortunately could not be furnished.
Majority part of the said interest i.e. Rs.152057/- represents inter-departmental interest earned by one department of our society from another i.e. it is merely an inter departmental entry within the organization and does not represent any real income. As regards the balance amount of interest of Rs.81020 represents interest income which is inextricably linked to the business activity of our co-operative society and cannot be taxed under income from other sources.
Therefore, for the sake of completeness and clarity we humbly request that the attached evidences in the form of supporting documents and statutory auditor’s certificates be admitted as additional evidences in terms of Rule 29 and oblige as non-admission of these evidences, will lead to undue financial burden on our co-operative society which would be against the principles of natural justice. Therefore, for the cause of substantial justice, it is prayed that the additional evidences may please be admitted.
We also state that the non-submission of these documents at the earlier stages of proceedings was purely unintentional and was neither willful nor unreasonable.
Yours faithfully,
Authorized Signatory
Encl: As above
BEFORE THE INCOME TAX APPELLATE TRIBUNAL, SMC BENCH, SURAT
M/s NAVSARI KHEDUT SAHKARI SOCIETY LTD.
v/s
THE ASSISTANT COMMISSIONER OF INCOME-TAX NAVSARI CIRCLE, NAVSARI
ITA No.362/SRT/2025
ASSESSMENT YEAR 2016 – 2017
INDEX TO COMPILATION OF ADDITIONAL EVIDENCES
| Sr. No. | Particulars | Page Nos. |
|---|---|---|
| 1 | Statement giving detailed break-up of Interest Income of Rs 3,06,366 as appearing in the audited accounts | 1 |
| 2 | Documentary evidences in support of interest income of Rs 3,06,366 as appearing in the audited accounts | 2 – 9 |
| 3 | Certificate issued by statutory auditors confirming break up of Interest Income of Rs. 3,06,366 as appearing in the audited accounts | 10 – 10 |
| 4 | Statement giving detailed break-up of Interest Expense of Rs 7,58,277 as appearing in the audited accounts | 11 – 11 |
| 5 | Documentary evidences in support of interest expense of Rs 7,58,277 as appearing in the audited accounts | 12 – 24 |
| 6 | Certificate issued by statutory auditors confirming break up of Interest Expense of Rs. 7,58,277 as appearing in the audited accounts | 25 – 25 |
4. Thereafter, referring to the Certificate of Chartered Accountant placed at S.No. 3/Page No. 10 of the above Index of additional evidence, Ld. AR submitted that amounts of Rs. 58,968/- and Rs. 93,089/- included in the impugned interest income of Rs. 2,55,865/- represent inter-departmental interest charged and paid by one department to other department of the assessee-society and, therefore, do not constitute interest income in real sense. In one department, it is income and in other department, it is an expenditure. It is further submitted that the remaining interest income is eligible for deduction u/s 80P(2)(a)(iii). Ld. AR submitted that these factual aspects about the nature of the interest receipts were not examined by the lower authorities and, therefore, the matter may be restored to the file of Ld. AO for verification and fresh adjudication.
5. Ld. DR for Revenue, though dutifully relying upon the orders of lower authorities, did not seriously object to the restoration of the matter to the file of Ld. AO.
6. We have considered rival contentions of both sides and perused the orders of lower-authorities as well as material held on record. The core issue involved in the grounds raised by assessee is with respect to the allowability of deduction u/s 80P qua interest income of Rs. 2,55,865/-. Considering that the additional evidence furnished by assessee, particularly the certificate of Chartered Accountant, has a direct and material bearing on the nature and character of the impugned receipts, we find it just and proper to admit the additional evidences under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963. The assessee has specifically contended that amounts of Rs. 58,968/- and Rs. 93,089/- included in the impugned interest income represent inter-departmental interest and that the remaining interest income is eligible for deduction u/s 80P(2)(a)(iii). Since these factual aspects have neither been examined nor verified by lower authorities, we deem it appropriate, in the interest of substantial justice, to restore the matter to the file of Ld. AO for examining the additional evidences, verifying the nature and character of the aforesaid receipts and thereafter adjudicating the assessee’s claim of deduction u/s 80P in accordance with law, after providing reasonable opportunity of being heard to the assessee.
7. In result, this appeal is allowed for statistical purpose.
Order pronounced in open court on 09/10/2026
