Deduction Granted for Interest Income from Cooperative Bank Deposits u/s 80P(2)(d.

The Tribunal partially allowed the assessee's appeals, granting a deduction under Section 80P(2)(d) for interest income of Rs. 16.74 lacs earned from deposits with cooperative banks. Other issues were either not pressed or deemed moot due to the primary decision. The ruling was delivered on 27/10/2020.

---

---

Issues Involved:
1. Exemption of interest income on the principle of mutuality.
2. Deduction under Section 80P(2)(d) of the Income Tax Act for interest income earned from cooperative banks.
3. Netting off interest received against interest paid.

Issue-wise Detailed Analysis:

Issue Nos. 1.1 to 1.3:
These issues pertained to the exemption of interest income of Rs. 86.53 lacs earned from providing credit facilities to its members on the principle of mutuality. The assessee argued that the CIT(A) erred by not allowing this exemption. However, these issues were not pressed by the representative of the assessee during the hearing. Consequently, these issues were decided in favor of the revenue and against the assessee.

Issue No. 2.1:
The assessee challenged the disallowance of deduction under Section 80P(2)(d) concerning interest income of Rs. 16.74 lacs earned on deposits kept with Bombay Mercantile Co-operative Bank Ltd. and Maharashtra State Co-operative Bank Ltd. The assessee argued that the issue was covered by the decision of the ITAT Delhi Bench in the case of ACIT Vs. M/s. Jawala Cooperative Urban Thrift & Credit Society Ltd. and by the Karnataka High Court in Tumkur Merchants Souharda Credit Co-operative Ltd. Vs. ITO. The revenue, however, supported the CIT(A)'s order.

The Tribunal referred to the ITAT Delhi Bench decision, which held that interest income from fixed deposits with cooperative societies is exempt under Section 80P(2)(d). The Karnataka High Court in Tumkur Merchants Souharda Credit Co-operative Ltd. also supported this view, stating that interest income from short-term deposits attributable to the business of providing credit facilities to members is deductible under Section 80P. The Gujarat High Court in Surat Vankar Sahakari Sangh Ltd. further supported the assessee's claim, emphasizing that the benefit of deduction should be consistent across assessment years. Consequently, the Tribunal allowed the deduction under Section 80P(2)(d) for the interest income of Rs. 16.74 lacs.

Issue Nos. 2.2 & 2.3:
These issues were related to the disallowance of the deduction under Section 80P(2)(d) and were not pressed by the representative of the assessee. Therefore, these issues were decided in favor of the revenue and against the assessee.

Issue No. 2.4:
The assessee sought an alternate plea for netting off the interest received of Rs. 16.74 lacs against the interest paid of Rs. 34.64 lacs to the same cooperative banks. Since Issue No. 2.1 was decided in favor of the assessee, there was no need to address this alternate plea.

ITA No. 4824/M/2016:
The facts and issues in this appeal were similar to those in ITA No. 3583/M/2014, with different figures. The Tribunal applied the same findings and reasoning as in the earlier case, thereby partly allowing the claim of the assessee.

Conclusion:
The appeals filed by the assessee were partly allowed, with the Tribunal granting the deduction under Section 80P(2)(d) for interest income earned from deposits with cooperative banks. The other issues were either not pressed or rendered moot by the primary decision. The order was pronounced in the open court on 27/10/2020.

---