Tribunal orders deduction under Section 80P(2)(d) and Section 57, remands cash deposit issue for verification

The Tribunal directed the Assessing Officer to allow the deduction under Section 80P(2)(d) for interest earned from cooperative banks and related administrative expenses under Section 57 in all three assessment years. Additionally, for the assessment year 2017-18, the Tribunal remanded the issue of cash deposits during demonetisation to the AO for verification in line with CBDT instructions. All appeals by the assessee were allowed for statistical purposes.

---

---

Issues Involved:
1. Disallowance of deduction claimed under Section 80P(2)(a)(i) and 80P(2)(d) of the Income Tax Act.
2. Disallowance of cash deposits during the demonetisation period.

Issue-Wise Detailed Analysis:

Assessment Year 2015-16:

1. Disallowance of Deduction under Section 80P(2)(a)(i) and 80P(2)(d):
- The assessee, a cooperative credit society, filed a return declaring NIL income after claiming a deduction under Section 80P(2)(a)(i) amounting to Rs. 60,70,430/-. The Assessing Officer (AO) disallowed the deduction.
- The CIT(A) upheld the AO's decision, stating that the interest income of Rs. 21,56,028/- from investments with various banks was not eligible for deduction under Section 80P(2)(a) or 80P(2)(d) as the banks were neither members of the society nor cooperative societies/banks.
- The Tribunal noted that the CIT(A) relied on the Supreme Court decision in Totgar's Cooperative Sale Society Ltd. v. ITO, which held that interest earned on surplus funds is "Income from Other Sources" and not business income, thus not eligible for deduction under Section 80P(2)(a)(i).
- The Tribunal also considered whether cooperative banks qualify as cooperative societies under Section 80P(2)(d), concluding that they do, thus making interest earned from deposits in cooperative banks eligible for deduction.
- The Tribunal restored the issue to the AO for fresh consideration, directing the AO to allow the deduction under Section 80P(2)(d) for interest earned from cooperative banks and to allow related administrative expenses under Section 57.

Assessment Year 2017-18:

1. Disallowance of Deduction under Section 80P(2)(a)(i) and 80P(2)(d):
- The assessee declared total income of Rs. 1,17,760/- after claiming a deduction of Rs. 72,23,512/- under Section 80P(2)(a)(i). The AO disallowed Rs. 73,41,272/- from the exemption claimed, stating that the interest was earned from investments in scheduled banks and cooperative banks other than cooperative societies.
- The CIT(A) upheld the AO's disallowance.
- The Tribunal applied the same reasoning as for the assessment year 2015-16, restoring the issue to the AO for fresh consideration and directing the AO to allow the deduction under Section 80P(2)(d) for interest earned from cooperative banks and to allow related administrative expenses under Section 57.

2. Disallowance of Cash Deposits during Demonetisation:
- The assessee accepted cash deposits during the demonetisation period, which the AO did not verify according to CBDT Circulars.
- The Tribunal noted a violation of natural justice due to insufficient time granted to the assessee for representation.
- The Tribunal remanded the issue to the AO to verify the cash deposits in accordance with CBDT instructions, directing the AO to grant the assessee a proper opportunity to substantiate its claim.

Assessment Year 2019-20:

1. Disallowance of Deduction under Section 80P(2)(a)(i) and 80P(2)(d):
- The assessee declared total income of Rs. 6,09,700/- after claiming a deduction of Rs. 1,03,11,674/-. The CPC disallowed the deductions under Section 80P(2)(a)(i) and 80P(2)(d).
- The CIT(A) directed the AO to verify the claim.
- The Tribunal applied the same reasoning as for the assessment year 2015-16, restoring the issue to the AO for fresh consideration and directing the AO to allow the deduction under Section 80P(2)(d) for interest earned from cooperative banks and to allow related administrative expenses under Section 57.

Conclusion:
In all three assessment years, the Tribunal restored the issues to the AO for fresh consideration, directing the AO to allow the deduction under Section 80P(2)(d) for interest earned from cooperative banks and to allow related administrative expenses under Section 57. For the assessment year 2017-18, the Tribunal also remanded the issue of cash deposits during demonetisation to the AO for verification in accordance with CBDT instructions. All appeals filed by the assessee were allowed for statistical purposes.

---