Interest income on bank deposits qualifies for deduction under section 80P(2)(a)(i) of Income Tax Act.

The Tribunal affirmed the first appellate authority's decision, holding that interest income on fixed deposits and savings bank accounts is part of the banking activity of the assessee, making it eligible for deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961. The Revenue's appeal was dismissed as the Tribunal found no contrary decision and noted the similarity of facts to a previous assessment year. The order was pronounced on 21.2.2012, with both parties' representatives present.

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Issues Involved:
1. Eligibility for deduction u/s 80P(2)(a)(i) of the I.T. Act, 1961.
2. Validity of the decision of the first appellate authority in allowing the appeal of the assessee.

Summary:

1. Eligibility for deduction u/s 80P(2)(a)(i) of the I.T. Act, 1961:
The Revenue contested the first appellate authority's decision, which allowed the assessee's appeal by relying on a prior decision of the ITAT in the assessee's own case (ITA No.41/Ind/2007 dated 16.5.2008 for A.Y. 2003-04). The Revenue argued that the assessee was not eligible for deduction u/s 80P(2)(a)(i) of the I.T. Act, 1961, and noted that the said decision was not accepted by the Department, with an appeal u/s 260A pending before the Hon'ble High Court at Jabalpur.

2. Validity of the decision of the first appellate authority in allowing the appeal of the assessee:
During the hearing, the learned counsel for the assessee asserted that the issue was covered in favor of the assessee by the Tribunal's decision. This assertion was not contested by the Revenue. The Tribunal reviewed the material and found that the issue was indeed covered by its latest decision in ITA No.54/Ind/2011 (A.Y. 2007-08), which considered the order for A.Y. 2003-04. The Tribunal reproduced relevant portions of the order dated 4.11.2011, which concluded that the interest arising from investments made in compliance with statutory provisions to enable the assessee bank/federation to carry on banking business out of reserved funds is exempt u/s 80P(2)(a)(i) of the I.T. Act, 1961. The Tribunal cited various judicial pronouncements, including decisions from the Hon'ble Supreme Court and High Courts, supporting this conclusion.

The Tribunal affirmed the first appellate authority's decision, noting that the interest income on fixed deposits and savings bank accounts is part of the banking activity/business of the assessee. The Tribunal dismissed the Revenue's appeal, stating that no contrary decision was presented, and the facts were identical to the assessment year 2007-08.

Conclusion:
The appeal of the Revenue was dismissed, and the order was pronounced in the open Court in the presence of learned representatives from both sides at the conclusion of the hearing on 21.2.2012.

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