ITAT Ruling: Deduction under Section 80P Inapplicable for Income Generated through Commercial Activity

Case Title                 Jetalpur Seva Sahkari Mandali Ltd Vs DCIT

Citation                 ITA Nos.156 & 157/Ahd/2023

Date                         14.06.2023

Assessee by       Shri Pankaj Shah, AR

Revenue by       Shri Sanjay Jain, Sr. DR

Ahmedabad ITAT    Read Order

The Income Tax Appellate Tribunal (ITAT), Ahmedabad bench, has made a ruling stating that income earned from commercial activities cannot be claimed as a deduction under Section 80P of the Income Tax Act, 1961.

In this case, Jetalpur Seva Sahkari Mandali Ltd. filed an income tax return for the assessment year 2017-18, reporting a total income of Rs. 21,52,910/-. The return was filed u/s 143(1) of the IT Act, and the case was chosen for scrutiny due to a substantial deduction claimed as per Chapter VI.

The Assessing Officer observed that the assessee had claimed a deduction of Rs. 33,21,232/- under Section 80P, which included interest income of Rs. 9,43,000/- derived from its Petrol Pump branch business. Consequently, the officer sought clarification from the assessee regarding the eligibility of the interest income for deduction under Section 80P of the Income Tax Act.

In response, the assessee argued that the interest income of Rs. 9,43,000 from the Pump Division was eligible for deduction under Section 80P(2)(a) of the Income Tax Act because the primary function of the head office division was to provide financing.

The authorized representative (AR) acknowledged that the appeal had been delayed by 103 days, but it was deemed legitimate and accepted.

Additionally, it was mentioned that the head office division carried out diverse activities for its members, including the sale of fertilizers, seeds, and agricultural equipment, and providing exclusive credit financing. These activities fell under the purview of various types of deductions permitted under Section 80P of the Income Tax Act.

The Departmental Representative contended that the interest income generated was directly related to the commercial activities of the Pump Division and thus should not be exempted from taxation under Section 80P.

Moreover, it was argued that the taxpayer did not meet the criteria to be classified as a Consumer Cooperative Society since its members did not utilize the products it offered, such as petrol and diesel. The Commissioner of Income Tax (Appeal) upheld the decision of the Assessing Officer to disallow the deduction under Section 80P(2)(a)(i) of the Income Tax Act.

The bench, comprising of a sole member, Suchitra Kamble (Judicial Member), reached the conclusion that the operations conducted by the Pump Division were subject to full taxation and did not qualify for the benefits provided under Section 80P of the Income Tax Act.

Consequently, both the Assessing Officer and the Commissioner of Income Tax (Appeal) rightly rejected the assessee's deduction claim under Section 80P pertaining to the Pump Division hence the court has dismissed the appeal of the assessee.

Also Read: IT Dept: Verification of Reporting Entities Conducted By Income Tax Department

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