Kendrapara Credit CoOperative Society Ltd. v. ITO

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The Tax Publishers2020 TaxPub(DT) 3199 (Ctk-Trib)

INCOME TAX ACT, 1961

Section 80P

Where assessee was eligible for deduction under section 80P(2)(a)(i) and AO made two disallowances, i.e., provision for bad and doubtful debts and provision for gratuity, then in view of Circular issued on 2-11-2016, specific disallowance made by AO related to business activity against which Chapter VI-A deduction was claimed, result in enhancement of profits of eligible business, and that deduction under Chapter VI-A was admissible on the profits so enhanced by disallowance.

Deduction under section 80P - Disallowance made by AO of provision for bad and doubtful debts and provision for gratuity - Disallowance whether result in enhancement of profits of eligible business, and that deduction under Chapter VI-A was admissible on the profits so enhanced by disallowance made by AO -

Assessee was a credit co-operative society registered under Odisha Cooperative Society Registration Act, 1962. It derived income from doing banking business. While framing assessment, AO disallowed provision for overdue principal under section 36(1)(vii). AO also disallowed sum debited under head provision for gratuity fund on allegation that it was not as per section 36(1)(v). AO further denied deduction under section 80P. CIT(A) partly allowed appeal of assessee and held that assessee was eligible for deduction under section 80P(2). Held: Assessee was accepting deposits of money from its members and advancing money to members. In view of same, assessee was eligible for deduction under section 80P(2). AO made two disallowances, i.e., provision for bad and doubtful debts and provision for gratuity. These two additions were resulting to enhancement of profit of the assessee-society which were specific disallowances related to the business of assessee. Circular was issued on 2-11-2016, whereas case of the assessee was pertaining to assessment year 2009-10 and 2010-11. The Circular is clarificatory in nature. Therefore, it would be presumed that the benefit of Circular will apply to the assessee. It was also clear that the additions made by AO were covered by this Circular. Above mentioned additions are eligible for deduction under Chapter-VIA and under section 80P. Thus, relying on Ozone Pharmaceutical, appeal of assessee was allowed.

Followed:Ozone Pharmaceutical Ltd. v. Addl. CIT [ITA Nos. 2935-2937/Del/2015, Order, dated 15-4-2019] : 2019 TaxPub(DT) 2426 (Del-Trib).

REFERRED : UP Co-operative Cane Union Federation Ltd. v. CIT (1999) 103 Taxman 370 (SC), Madhya Pradesh Co-Operative Bank Ltd. v. Addl. CIT (1996) 84 Taxman 640 (SC) : 1996 TaxPub(DT) 843 (SC), Pr. CIT v. Surya Merchants Ltd. [I.T. Appeal No. 248 of 2015, dt. 3-5-2016, Allahabad High Court] : 2018 TaxPub(DT) 5539 (All-HC), CIT v. Sunil Vishwambharnath Tiwari [ITA No. 2 of 2011, dt. 11-9-2015], ITO v. Keval Construction [Tax Appeal No. 443 of 2012, dt. 10-12-2012] : 2013 TaxPub(DT) 1595 (Guj-HC), CIT v. Co-operative Supply & Commission Shop Ltd. (1993) 204 ITR 713 (Raj.) : 1993 TaxPub(DT) 741 (Raj-HC), Kerala Co-operative Consumers' Federation Ltd. v. CIT (1988) 170 ITR 455 (Ker.) : 1988 TaxPub(DT) 412 (Ker-HC), Rodier Mill Employees' Co-operative Stores Ltd. v. CIT 1982 TaxPub(DT) 978 (Mad-HC) CIT v. Co-operative Cane Development Union Ltd. (1979) 118 ITR 770 (All.) : 1979 TaxPub(DT) 966 (All-HC), CIT v. UP. Co-operative Cane Union (1980) 122 ITR 913 (All.) : 1980 TaxPub(DT) 0481 (All-HC), Andhra Pradesh Co-operative Central Land Mortage Bank Ltd. v. CIT (1975) 100 ITR 472 (AP) : 1975 TaxPub(DT) 9 (AP-HC), CIT v. Karnataka State Co-operative Apex Bank (2001) 251 ITR 13 (SC) : 2001 TaxPub(DT) 561 (SC) and Madras Auto Rickshaw Drivers' Co-operative Society v. CIT (2001) 117 Taxman 370 (SC) : 2001 TaxPub(DT) 133 (SC).