ITAT Surat Directs Fresh Examination of ₹2,55,865 Interest Income Claimed as Section 80P Deduction by Cooperative Society
Case Overview
Case Name: Navsari Khedut Sahkari Society Ltd. Vs ACIT (ITAT Surat)
Assessment Year: 2016-17
Section(s) Involved: Section 80P, Section 154, Section 143(1), Section 80P(2)(a)(iii), Section 80P(2)(e), Section 80P(2)(d)
Rule Involved: Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963
Background and Genesis of the Dispute
A cooperative society — Navsari Khedut Sahkari Society Ltd. — filed its return of income for Assessment Year 2016-17, declaring a gross total income of ₹26,87,815 and claiming deduction of the entire amount under Section 80P of the Income Tax Act, 1961, thereby arriving at nil taxable income.
When the return was processed under Section 143(1), the deduction was not fully allowed. The Centralized Processing Centre disallowed ₹9,72,930 on account of two specific income components:
- Interest income: ₹2,55,865
- Rental income: ₹7,17,065
The assessee thereafter filed a rectification application under Section 154 before the Assessing Officer. By an order dated 14 August 2020, the Assessing Officer accepted the deduction claim with respect to the rental income of ₹7,17,065 under Section 80P(2)(e). However, the deduction in respect of the interest income component of ₹2,55,865 was rejected.
The assessee challenged this rejection before the Commissioner of Income-Tax (Appeals) – NFAC, Delhi [CIT(A)], but the first appeal was decided against the society by an order dated 28.01.2025. The assessee then approached the Income Tax Appellate Tribunal, Surat, where the only surviving controversy related to the interest income of ₹2,55,865 and its eligibility for deduction under Section 80P.
Assessee's Position Before the Tribunal
Admission of Additional Evidence Under Rule 29
The Authorised Representative for the assessee initiated proceedings by drawing the Tribunal's attention to a formal application filed under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963, requesting admission of additional evidence that had not been placed before the lower authorities.
The assessee explained that the original proceedings arose from an automated adjustment carried out by the CPC's computerized processing system. Since the assessee had proceeded under the bona fide belief that the matter was essentially a computational or technical error, and because the deduction had never actually been claimed under Section 80P(2)(d), documentary evidence to establish the true nature of the interest income was not furnished before the Assessing Officer or the CIT(A).
It was only while preparing for the Tribunal appeal that the assessee realised the importance of placing on record the detailed character of the disputed interest income.
Nature of the Disputed Interest Income
The additional evidence compiled by the assessee included the following documents, as reflected in the Index to Compilation of Additional Evidences:
- A statement providing a detailed break-up of interest income of ₹3,06,366 as per audited accounts
- Documentary support for the said interest income (Pages 2–9)
- A certificate issued by the statutory auditors confirming the break-up of interest income of ₹3,06,366 (Page 10)
- A statement providing a detailed break-up of interest expense of ₹7,58,277 as per audited accounts
- Documentary support for the said interest expense (Pages 12–24)
- A certificate issued by the statutory auditors confirming the break-up of interest expense of ₹7,58,277 (Page 25)
Referring specifically to the Chartered Accountant's certificate at S.No. 3/Page No. 10 of the Index, the assessee's representative submitted that out of the total disputed amount of ₹2,55,865, two components — ₹58,968 and ₹93,089 — represented inter-departmental interest. These amounts were charged and received between different departments operating within the same cooperative society.