Income Tax Deduction Allowable To Interest Income 'Attributable' To Cottage Industry Business: ITAT

The Chennai bench of Income Tax Appellate Tribunal (ITAT) has held that the income tax deduction allowable to interest income 'attributable' to cottage industry business.

The bench of S.S. Viswanethra Ravi (Judicial Member) and S. R. Raghunatha (Accountant Member) has observed that the assessee is a 'cottage industry' and the interest income earned by the assessee is in its regular course of its operations and does forms part of the revenue 'attributable' to the operations of the society as a cottage industry and in our considered view the assessee is eligible for deduction under Section 80P(2)(a)(ii) of the Income Tax Act.

The appellant/assessee is a co-operative society formed and managed by the Govt. of Tamilnadu through the department of Social welfare. The main object of the co- operative society is to provide livelihood as well as development of poor women. All the members of the society are women who are below the poverty line (BPL). The Society is executing only the Government of India Scheme of providing nutritious food mix to the children below 5 years who are studying in the Anganwadis run by the Government of Tamil Nadu and destitute pregnant women.

The Appellant is getting allotment of wheat from the Tamil Nadu Civil Supplies Corporation Ltd., through the Government of Tamil Nadu. Also getting the blend (a mixture of various nutritious grains and nuts) through the Government approved sources. The members of the Society receive grains, clean it, dry the wheat through the heating process, grinding the wheat into flour, mixing the wheat flour and the blend, packing the same into 1 kg packs and delivering it to the designated Anganwadi centres.

The Assessee is a cottage Industry assessed as AOP (Co- operative Society) under the Income Tax Act, 1961 and has been allowed deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961 on its entire incomes being attributable to the carrying on the business of cottage industry.

For the Assessment year 2017-18 the Assessee had filed the Return of Income on 31-10- 2017 declaring NIL income by claiming deduction us 80P(2)(a)(ii) of the Income Tax Act, 1961 on its whole incomes as attributable to the carrying on the business cottage industry.

Initially the assessment was completed by passing orderssubsequently, order was passed on 27-03-2022 setting aside the assessment orders passed earlier u/s.143(3) and directed the Assessing Officer to examine the issues in the order under section 263. The Assessing Officer, has revised the orders and disallowed the interest income received from State Bank of India and TAICO Bank being not eligible under section 8OP for the reason that the State Bank of India is a Commercial bank and TAICO Bank is not a cooperative society but only a bank.

The assessee contended that the interest income earned by the society is in its regular course of its operations and forms part of the revenue attributable to the operations of the society as a cottage industry and hence it is eligible for deduction 80P(2)(a)(ii) itself.

The department contended that the assessee is not eligible for deduction U/s.80P(2)(d), as the interest income on deposits has been received by the assessee from the banks and not from the co operative societies.

The tribunal while allowing the appeal held that the interest earned from the deposits made out of the idle funds of the assessee, the said interest income is attributable to the profits and gains of the business only. Therefore, the lower authorities have grossly erred in disallowing the said deduction, without appreciating the fact that, the claim of the assessee as a cottage industry and the entire Income was claimed as deduction.

Counsel For Appellant: I. Dinesh

Counsel For Respondent: Aroon Prasad

Case Title: Potheri Village Weaning Food Manufacturing Womens Development Industrial Coop Versus ITO

Case No.: ITA No.: 1055/Chny/2024

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