Cooperative Bank Claimed Rs. 2.22 Crore Dividend Exemption Under Wrong Section; ITAT Allows Deduction Under Section 80P(2)(d)

The Income Tax Appellate Tribunal (ITAT) Delhi held that a genuine claim of depreciation cannot be denied, nor can provisions of Section 69 read with Section 115BBE be invoked merely because the depreciation amount was disclosed in an incorrect column of the Income Tax Return.

The assessee, Zila Sahkari Bank Ltd., is a cooperative society engaged in banking activities that filed its return of income for assessment year 2016-17 declaring a total income of Rs 6.59 crore and claiming exemption in respect of dividend income amounting to Rs 2.22 crore. During assessment proceedings under Section 143(3), the AO made two additions amounting to Rs 4.34 crore.

Firstly, the exemption claimed on dividend income received from IFFCO and U.P. Cooperative Bank Ltd. was disallowed. Secondly, an addition of Rs 2.12 crore was made under Section 69 read with Section 115BBE on the ground that the assessee had allegedly overstated its fixed assets by not claiming depreciation in the appropriate column of the Income Tax Return.

Aggrieved by the order, the assessee preferred an appeal before the CIT(A), who deleted the addition made under Section 69 but sustained the disallowance of dividend income.

The Tribunal observed that the assessee had maintained regular books of account, which were duly audited. It noted that although depreciation had been shown under the head “Other Expenses” instead of the required column in the ITR, the claim was duly reflected in the calculation of income and in the profit and loss account.

The Tribunal held that such a technical lapse could not justify application of Section 69 and Section 115BBE and thus, the Tribunal upheld the order of the CIT(A) deleting the addition of Rs 2.12 crore and dismissed the Revenue’s appeal.

With regard to dividend income, the Tribunal found that the exemption had been claimed under Section 10(34), though the correct provision applicable was Section 80P(2)(d). Since both IFFCO and U.P. Cooperative Bank Ltd. are cooperative societies, the dividend received from them constituted income derived from investments with other cooperative societies and was fully deductible under Section 80P(2)(d). The Tribunal noted that similar relief had been granted to the assessee in preceding years and following the principle of consistency, it deleted the addition by the CIT(A) and allowed the assessee’s cross-objection.