Income from term deposits of a cooperative society, intended for lending to members, is eligible for deduction under Section 80P(2)(a)(i), as it is attributable to the business of providing credit facilities.

ORDER

PER: RATHOD KAMLESH JAYANTBHAI, AM

Aforesaid appeal by the assessee for Assessment year 2010-11 arise out of the order of the learned Addl./Joint Commissioner of Income Tax (Appeals)-03, Bengaluru, National Faceless Appeal Centre [ for short CIT(A) ] dated 18/12/2024 in the matter of an assessment framed by the Income Tax Officer, Ward 2(1), Jaipur [ for short AO ] under section 143(3) of the Income Tax Act, 1961 [ for short Act ] on 11.12.2018.

2. In this appeal, the assessee has raised the following grounds: -

“1. That, on the facts and in the circumstances of the case, the Ld. CIT(A), NFAC, is wrong unjust and has erred in law in confirming the action of Ld. Assessing Officer in holding that average proportionate interest income of Rs. 7,84,876/- is not business income and is not eligible for deduction under section 80P(2)(a) (i) of the Income Tax Act, 1961 .

2. That the appellant craves his right to add, annul, amend, alter, withdraw and/or substitute any/or all of the grounds of appeal before the finalization of the appeal.”

3. Succinctly, the fact as culled out from the records is that return of income for the assessment year 2010-11 was E-filed by the assessee on 14.10.2010 in the Office of Income Tax Officer, Ward 2(1), Jaipur vide Acknowledgement No. 171249720141010 in the status of trust declaring total income Nil. The case was picked up for the scrutiny. Notice u/s 143(2) was issued on 24.08.2011. Ld. AO noted that the details in response to query letter/order sheet notings have been filed which was placed on record by him. Books of account were produced during the course of proceedings which have been examined on test check basis with reference to the details filed as noted by the ld. AO. Ld. AO while examining the details noted that the assessee is a co-operative society and is availing deduction u/s 80P of the Act. During the year under consideration the assessee has shown income from business of providing credit facilities to its members. The assessee shown gross total income of Rs. 12,91,250/- out of which it claimed deduction u/s 80P amounting to Rs. 12,91,250/- and declared total income at nil. Ld. AO noted that the assessee has claimed deduction u/s 80P of the Act. In this case, clause (i) of section 80P(2)(a) is applicable and therefore, he noted that assessee is not a bank but it is providing credit facilities to its members. Deduction of whole profits and gains of business attributable to activity of providing credit facility to its members is available to assessee. In this case, it is observed that assessee's income is mainly from two sources one is interest received on loan given to members from which income is Rs. 59,61,182/-. Other source is interest received on term deposit amounting to Rs. 28,83,835/-. Interest received on term deposit is not entitled for deduction u/s 80P(2)(a)(i) because it is not profit and gains of business, but it is income from other sources received on idle funds of the assessee cooperative society. Without prejudice to it, even of is treated as business income, it is not attributable to the activities of providing credit facility to the members and so it is not entitled to deduction u/e 80P(2)(a)(i). Ld. AO also noted that the assessee has claimed expenses of Rs. 11,16,046/- in P&L account as provision for AGM which is disallowable as this is merely a provision and expenditure is not incurred actually. In view of the above facts, vide order sheet entry dated 19.02.2013 AR was asked to explain as to why interest received on term deposit of Rs. 28,83,835/- be not treated as income from other sources and deduction to that extent be not disallowed as available u/s 80P(2)(a)(i) of the Act. Thus, finally ld. AO made addition of Rs. 7,84,876/- by observing as under:

Since, interest on term deposit is not eligible for deduction u/s. 80P, gross total income will be bifurcated in the ratio of interest on loan to members and interest on term deposit. Accordingly, gross total income