Cooperative society cannot claim Section 80P(2)(d) deduction on interest from Regional Rural Bank

ITAT Jodhpur held that deduction u/s 80P(2)(d) was not allowable on interest received by appellant cooperative society from Baroda Gramin Bank Ltd., as this entity is a Regional Rural Bank and not a cooperative society as required under the provision. Following SC precedent in Kerala State Co-Operative Agricultural Rural Development Bank Ltd., the tribunal distinguished between cooperative banks and regional rural banks. However, deletion of addition regarding interest from Central Cooperative Bank was upheld. Revenue's appeal was partly allowed, sustaining the addition for interest from the regional rural bank.

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Issues Involved:
1. Eligibility for deduction under Section 80P(2)(d) of the Income Tax Act, 1961.

Summary:

Issue: Eligibility for Deduction under Section 80P(2)(d)

The Revenue appealed against the order of the CIT(A) National Faceless Appeal Centre (NFAC), Delhi, which deleted the disallowance of a deduction of Rs. 2,49,72,207/- made by the AO under Section 80P(2)(d) of the Income Tax Act, 1961.

The appellant, a registered cooperative society engaged in trading milk and milk products, claimed deductions on interest income from Baroda Rajasthan Gramin Bank Ltd. and Central Cooperative Bank. The AO disallowed the deduction, arguing that Baroda Gramin Bank Ltd. is not a cooperative society as defined under Section 80P(2)(d) and referenced several CBDT Circulars and amendments to Section 80P that exclude cooperative banks from such deductions.

The CIT(A) deleted the addition, citing a decision by the Rajasthan High Court which deemed Regional Rural Banks (RRBs) as cooperative societies for the purposes of the Income Tax Act, 1961, under Section 22 of the Regional Rural Banks Act, 1976. The High Court held that Section 80P's amendments did not alter the status of RRBs as cooperative societies.

The Revenue supported the AO's decision, referencing the CBDT Circulars and the latest Apex Court judgment in "Kerala State Co-Operative Agricultural & Rural Development Bank Ltd. v. Assessing Officer" which clarified that certain cooperative banks do not qualify for deductions under Section 80P(2)(d).

The Tribunal reviewed the facts and upheld the CIT(A)'s decision regarding the interest from Central Cooperative Bank but reversed it concerning the interest from Baroda Rajasthan Gramin Bank Ltd., following the Apex Court's judgment. The Tribunal concluded that the interest received from Baroda Rajasthan Gramin Bank Ltd., a Regional Rural Bank, is not eligible for deduction under Section 80P(2)(d) as it is not a cooperative society.

Conclusion: The appeal by the Revenue was partly allowed. The deduction on interest from Baroda Rajasthan Gramin Bank Ltd. was disallowed, while the deduction on interest from Central Cooperative Bank was upheld.

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