2022 (8) TMI 36 - AT - Income Tax

Interest Income from Co-op Bank Deposits Qualifies for Deduction under Section 80P(2)(d)

The tribunal reversed the Principal Commissioner of Income Tax's revision directions, allowing the assessee's appeal. It held that interest income from ... Revision u/s 263 - as per CIT AO had wrongly accepted its section 80P(2)(a) deduction claim regarding interest income derived from deposits made in the co-operative banks - HELD THAT:- We find no merit in Revenue’s arguments supporting the learned PCIT’s revision directions as this tribunal’s recent co-ordinate bench’s order in Rena Sahakari Sakhar Karkhana Ltd [2022 (1) TMI 419 - ITAT PUNE] wherein as held - A.O while framing the assessment had taken a possible view, and allowed the assessee‟s claim for deduction u/s 80P(2)(d) on the interest income earned on its investments/deposits with co-operative banks, therefore, the Pr. CIT was in error in exercising his revisional jurisdiction u/s 263 for dislodging the same. Accordingly, finding no justification on the part of the Pr. CIT, who in exercise of his powers under Sec. 263 had dislodged the view that was taken by the A.O as regards the eligibility of the assessee towards claim of deduction under Sec. 80P(2)(d), we set-aside his order and restore the order passed by the A.O under Sec. 143(3) - Decided in favour of assessee. Issues Involved:1. Correctness of the Pr.CIT's revision directions under Section 263 of the Income Tax Act, 1961.2. Eligibility of the assessee's claim for deduction under Section 80P(2)(a) and 80P(2)(d) regarding interest income from deposits in co-operative banks.Detailed Analysis:1. Correctness of the Pr.CIT's Revision Directions under Section 263:The primary issue raised by the assessee challenges the Pr.CIT's revision directions, which held the regular assessment dated 30.12.2019 as erroneous and prejudicial to the interest of Revenue. The Pr.CIT's contention was that the Assessing Officer (AO) had wrongly accepted the assessee's Section 80P(2)(a) deduction claim without properly verifying the principle of mutuality concerning loans taken from members and investments made. The Pr.CIT noted that the AO failed to verify whether the loans/deposits taken were given back to the members as loans/advances, rendering the assessment legally unsustainable.The Pr.CIT also highlighted that a significant portion of the assessee's income was derived from interest on deposits with various banks, which should not be considered attributable to the business of providing credit facilities to its members. Citing the Supreme Court and Karnataka High Court decisions in Totgar's Cooperative Sale Society Ltd. vs. ITO, the Pr.CIT argued that interest earned on such deposits should be brought to tax and not allowed as a deduction under Section 80P.The Pr.CIT further pointed out the lack of detailed submissions by the assessee regarding the deposits made with different banks and whether these were out of member deposits or surplus funds. Additionally, it was unclear whether the co-operative banks where the deposits were made were registered with the RBI, which would affect the eligibility for deduction under Section 80P(2)(d).2. Eligibility of the Assessee's Claim for Deduction under Section 80P(2)(a) and 80P(2)(d):The tribunal examined whether the interest income earned from investments/deposits made with co-operative banks qualifies for deduction under Section 80P(2)(d). The tribunal referenced its recent decision in Rena Sahakari Sakhar Karkhana Ltd. vs. PCIT, which clarified that the interest income derived by a co-operative society from investments with any other co-operative society is deductible under Section 80P(2)(d).The tribunal noted that while sub-section (4) of Section 80P, inserted by the Finance Act 2006, excludes co-operative banks from claiming deductions under Section 80P, it does not affect the eligibility of a co-operative society to claim deductions on interest income from investments with co-operative banks. The tribunal emphasized that a co-operative bank, being a co-operative society, allows the interest income from such investments to be deductible under Section 80P(2)(d).The tribunal also considered conflicting judicial pronouncements and chose to follow the decisions favoring the assessee, as per the principle established by the Bombay High Court in K. Subramanian and Anr. Vs. Siemens India Ltd. and Anr.Conclusion:The tribunal found no merit in the Revenue's arguments supporting the Pr.CIT's revision directions and reversed the directions, allowing the assessee's appeal. The tribunal affirmed that the interest income derived from deposits made in co-operative banks is eligible for deduction under Section 80P(2)(d).Order:The assessee's appeal is allowed. The tribunal pronounced the order in the Open Court on 29th July, 2022.