Dividend From Cooperative Societies Remains Deductible Despite Erroneous Claim: ITAT New Delhi

On 19 June, the New Delhi Bench of the Income Tax Appellate Tribunal (ITAT) held that a bona fide claim made under an incorrect provision does not disentitle a taxpayer from claiming a deduction otherwise available in law, and that dividend income received from a co-operative society remains eligible for deduction even if it cites the wrong exemption provision.

Vice President Mahavir Singh and Accountant Member Manish Agarwal dismissed the Revenue's appeal and allowed the cross-objection filed by Zila Sahkari Bank Limited, Bulandshahr, holding that the Assessing Officer wrongly made the addition on the society. The Bench held:

“The amount of Rs. 1,82,02,860/- being dividend received from the aforesaid cooperative societies is expressly exempt u/s 80P(2)(d) of the Act. Similar view has also been taken by the CIT(A) in appellant's own case for earlier years. In view of the above, it is held that the Assessing Officer is not justified to make the addition.”

The taxpayer, a co-operative society engaged in banking activities, received dividend income of Rs. 2.22 crore from IFFCO and U.P. Cooperative Bank Ltd. and claimed exemption under Section 10(34).

The Assessing Officer denied the claim on the ground that the dividend had not suffered dividend distribution tax and added the amount to the society's income.

Before the Tribunal, the society argued that it had wrongly cited Section 10(34), but it remained entitled to deduction since the income came from other co-operative societies. It also pointed out that authorities had granted identical relief in earlier years. The Revenue supported the orders of the lower authorities.

The Tribunal examined the record and noted that earlier decisions in the society's own case already settled the controversy. It held that the principle of consistency applied since no distinguishing facts existed. The Bench observed:

“We find that the issue in dispute is squarely covered by the decisions of this Tribunal in assessee's own case. There is no need to interfere with the findings of the CIT(A). Thus, we are following the rules of consistency and the appeal of the Revenue is dismissed.”

The Bench also upheld deletion of an addition of Rs. 2.12 crore relating to alleged unexplained investment arising from an incorrect disclosure of depreciation in the return.

It noted that the society maintained audited books of account and disclosed depreciation under “other expenses”. The members also held that an error in the return filing could not justify treating part of the fixed assets as unexplained investment.

Accordingly, the ITAT dismissed the Revenue's appeal and allowed the society's cross-objection.

For Assessee: Shri P.S. Kashyap, FCA

For Revenue: Ms. Ankush Kalra, Senior Departmental Representative