ITAT allows deduction for interest income on bank deposits under section 80P

The Income Tax Appellate Tribunal (ITAT) allowed the Cooperative Credit Society's appeal, holding that interest income on deposits with a nationalized bank is eligible for deduction under section 80P of the Income Tax Act. Despite conflicting decisions, the ITAT followed the jurisdictional High Court's precedent favoring the assessee and directed the Assessing Officer to permit the deduction. The ITAT rejected the Revenue's argument and emphasized that the nature of the deposits was not specified in the assessment order, thus upholding the assessee's position.

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Issues:
Disallowance of deduction u/s 80P of the Income Tax Act for interest earned on bank deposits.

Analysis:
1. Background: The assessee, a Cooperative Credit Society, filed an appeal against the disallowance of a deduction claimed under section 80P of the Income Tax Act for the assessment year 2012-13.

2. AO's Observation: During assessment proceedings, the Assessing Officer (AO) noted that the assessee collected share capital and thrift contributions to provide credit facilities to members. The AO observed interest on deposits amounting to Rs. 77,44,295 in the income and expenses statement. The AO questioned why interest earned on bank deposits should not be treated as income from other sources and disallowed the deduction under section 80P.

3. Assessee's Argument: The assessee contended that as a Cooperative Society, it deposited reserves and surpluses with nationalized banks as mandated by law. The assessee argued that interest earned on such deposits should be eligible for deduction under section 80P, citing decisions of the Tribunal and jurisdictional High Court.

4. Judicial Precedents: The assessee relied on the decision of the jurisdictional High Court in a similar case where it was held that interest income on fixed deposits made in banks is eligible for deduction under section 80P. The assessee also highlighted a previous Tribunal decision in its favor, upheld by the High Court.

5. Revenue's Counter-Argument: The Departmental Representative (DR) cited a case where the High Court ruled against the assessee based on a Supreme Court decision. The DR argued that a similar issue was decided against the assessee in a case involving SBI in Gujarat.

6. ITAT's Decision: The ITAT noted conflicting decisions by different High Courts but followed the jurisdictional High Court's ruling favoring the assessee. Referring to the principle of judicial precedent, the ITAT allowed the appeal and directed the AO to permit the deduction under section 80P for the interest income earned on deposits with a nationalized bank.

7. Conclusion: The ITAT allowed the assessee's appeal, emphasizing that the interest income on deposits placed with the nationalized bank should be eligible for deduction under section 80P. The ITAT rejected the Revenue's attempt to distinguish the case based on the nature of deposits, as the assessment order did not specify fixed deposits.

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