Facts of the Case

The assessee, Bhiwani Central Cooperative Bank Ltd, filed its return of income for AY 2018-19 declaring Nil income after setting off brought forward losses.

During processing of the return under Section 143(1) by CPC Bengaluru, the following adjustments were made:

  1. Addition of ₹1,42,85,950 towards dividend income under Section 115BBDA after allowing deduction of ₹10,00,000.
  2. Disallowance of ₹5,67,129 for delayed deposit of employees’ contribution to Provident Fund under Section 36(1)(va) read with Section 2(24)(x).

The dividend income comprised mainly of ₹1,52,83,950 received from Haryana State Cooperative Apex Bank Ltd (HARCO Bank). The assessee claimed that the amount represented share of profit from an Association of Persons (AOP) and was exempt under Section 86 read with Section 67A.

The JCIT(A) upheld the additions and also withdrew the deduction of ₹10,00,000 allowed under Section 115BBDA, thereby holding the entire dividend amount taxable.

Aggrieved by the order, the assessee filed an appeal before the Income Tax Appellate Tribunal (ITAT), Delhi Bench.

Issues Involved

  1. Whether dividend received from Haryana State Cooperative Apex Bank Ltd represents share of profit from an AOP and is therefore exempt under Section 86 read with Section 67A.
  2. Whether CPC could make adjustment under Section 143(1) on such debatable issues.
  3. Whether disallowance of employees’ contribution to PF under Section 36(1)(va) was justified when delay occurred due to technical issues on the PF portal.
  4. Whether CIT(A) could enhance income by withdrawing deduction without issuing proper notice under Section 251(2).

Petitioner’s Arguments

  • The amount received from Haryana State Cooperative Apex Bank Ltd was not dividend but share of profit from an AOP.
  • Since the AOP had already been taxed at the maximum marginal rate, the member’s share is exempt under Section 86 read with Section 67A.
  • The assessee had not claimed benefit under Section 115BBDA in its return of income.
  • The adjustment made under Section 143(1) involved a debatable legal issue, which cannot be adjusted during return processing.
  • The delay of one day in depositing PF contribution occurred due to technical glitches on the PF portal, which was beyond the assessee’s control.

Respondent’s Arguments

  • The assessee is a cooperative bank and not an AOP, therefore the dividend received is taxable in its hands.
  • The income was correctly treated as dividend taxable under the Income Tax Act.
  • The disallowance under Section 36(1)(va) was justified since the contribution was deposited after the statutory due date.

Court Findings / Order

The ITAT Delhi held as follows:

1. PF Contribution Disallowance

The Tribunal observed that the delay of one day in depositing PF contribution occurred due to technical issues on the PF portal and was beyond the assessee’s control.

Accordingly, the addition of ₹5,67,129 under Section 36(1)(va) was deleted.

2. Taxability of Dividend / Share of Profit

The Tribunal noted that the assessee claimed that the amount received from Haryana State Cooperative Apex Bank Ltd represented share of profit from an AOP and therefore exempt under Section 86 read with Section 67A.

However, this issue was not properly examined by the lower authorities, and no clear finding was recorded regarding the status of the entity and nature of income.

Therefore, the Tribunal restored the matter to the Assessing Officer for fresh adjudication with directions to examine:

  • The status of the assessee, and
  • Whether the amount received constitutes share of profit from an AOP or taxable dividend.

3. Result

  • Ground relating to PF disallowance allowed.
  • Remaining issues restored to the Assessing Officer for fresh consideration.

Thus, the appeal was allowed for statistical purposes.

Important Clarification

  • Debatable issues relating to the nature of income should not be decided through adjustments under Section 143(1).
  • Proper examination of legal status and nature of income is necessary before taxing share of profit from cooperative or AOP structures.
  • Minor procedural delays caused due to technical system failures should not lead to disallowance of statutory deductions.


    Link to download the order -  https://itat.gov.in/public/files/upload/1735627326-yFRfGY-1-TO.pdf

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