2018 (8) TMI 1722 - AT - Income Tax

Tribunal upholds disallowance of deduction for interest income from investments in nationalized banks

The Tribunal partially allowed the appeal for statistical purposes, upholding the decision of the Revenue authorities to disallow the deduction under ... Claim of deduction u/s 80P(2)(a)(i) disallowed - Held that:- We find that Assessee is a cooperative society registered under Gujarat Cooperative Societies Act, 1961 and engaged in providing credit facilities to its members. We find that in the case of State Bank of India Co-operative Society [2016 (7) TMI 516 - GUJARAT HIGH COURT] has held that interest earned from investment made in nationalized bank by a cooperative society engaged in providing credit facilities to its members, is not eligible for deduction under section 80P. The Tribunal in earlier occasions on similar issue has taken a consistent view by following above judgment of the Hon’ble jurisdictional High Court. Any expenditure incurred by the assessee for earning such income could be allowed to it, if not already allowed. AO has to determine the net interest income as well as misc. income earned by the assessee, and only thereafter that income has to be excluded from the admissibility of deduction under section 80P(2) of the Act. Appeal of the assessee is partly allowed for statistical purpose. Issues:Challenge to disallowance of deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961.Analysis:The appeal was against the order of the ld. CIT(A) confirming the disallowance of the deduction claimed under section 80P(2)(a)(i) of the Income Tax Act, 1961. The assessee, a cooperative credit society, had filed its return of income showing NIL income, which was selected for scrutiny assessment. The issue arose when the AO disallowed the claim of deduction under section 80P(2)(a)(i) as the interest income earned by the assessee from fixed deposits with banks was not considered eligible. The assessee argued that the investment in scheduled banks was related to its business and hence eligible for deduction. However, the AO disagreed, stating that the deduction was only allowable if the investment was made in other cooperative societies and not in scheduled banks.The assessee contended that the segregation of investment between cooperative banks and scheduled banks by the AO was unjustifiable. The assessee argued that the investment in scheduled banks was made for safety, security, and easy liquidity, which were essential for its business of providing credit facilities to its members. The assessee sought the allowance of the deduction under section 80P(2)(a)(i) and requested the impugned orders of the Revenue authorities to be set aside.The Revenue, on the other hand, relied on a judgment of the Hon'ble jurisdictional High Court, which held that a cooperative society earning interest income on surplus funds parked with nationalized banks is not eligible for deduction under section 80P(2)(a)(i) of the Act. The Revenue argued that since the impugned orders were consistent with the High Court judgment, no interference was necessary, and the appeal should be dismissed.After considering the arguments from both sides and reviewing the record, the Tribunal found that the interest earned from investment in nationalized banks by a cooperative society engaged in providing credit facilities to its members was not eligible for deduction under section 80P. The Tribunal noted that its decision was in line with the High Court judgment and previous consistent views on similar issues. The Tribunal confirmed the orders of the Revenue authorities and allowed any expenditure incurred by the assessee for earning such income. The Tribunal directed the AO to determine the net interest income and miscellaneous income earned by the assessee, excluding which from the admissibility of deduction under section 80P(2) of the Act.In conclusion, the appeal of the assessee was partly allowed for statistical purposes, maintaining the decision of the Revenue authorities in disallowing the deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961.