Co-operative society's interest income from mandatory bank deposits under section 80P(2)(a)(i) qualifies for deduction if statutorily required

ITAT Bangalore remanded the matter to AO regarding disallowance of deduction under section 80P(2)(a)(i) for interest income from South Canara District Central Co-operative Bank Ltd. Following precedents in Bharat Co-operative Credit Society and Vasavamba Co-operative Society Ltd., the tribunal held that if investments were made under compulsions of Karnataka State Co-operative Societies Act, 1959 and Rules, the interest income would qualify for deduction as business income. AO directed to examine compliance with statutory requirements and allow deduction if investments were mandatory. Appeal allowed for statistical purposes.

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Issues Involved: Delay in filing appeal, Disallowance of claim u/s 80P(2)(a)(i) / 80P(2)(d) of the Income Tax Act.

Delay in Filing Appeal: The appeal was filed 135 days late, attributed to the tax practitioner's fault. The delay was condoned as the assessee had a reasonable cause for the delay, and the appeal was proceeded with on merits.

Disallowance of Claim u/s 80P(2)(a)(i) / 80P(2)(d): The issue raised was the confirmation of disallowance of the claim under section 80P(2)(a)(i) / 80P(2)(d) of the Act concerning interest income earned on investments with South Canara District Central Co-operative Bank Ltd.

Facts of the Case: The assessee, a co-operative society, filed a return declaring 'Nil' income after claiming deduction u/s 80P of the Act. The AO denied the deduction u/s 80P, including disallowing interest income earned on fixed deposits with cooperative banks due to a perceived violation of the principle of mutuality.

First Appellate Authority (CIT (A)): Partly allowed the appeal by granting deduction u/s 80P(2)(a)(i) but rejected the claim for interest income from South Canara District Central Co-operative Bank Ltd. based on Supreme Court interpretation and section 80P(4) exclusion of co-operative banks.

Tribunal Decision: The Tribunal considered precedents and ordered the issue to be examined by the AO to determine if the interest income from the cooperative bank was in compliance with relevant Acts and Rules. If so, the income should be assessed as business income eligible for deduction u/s 80P(2)(a)(i) of the Act.

Conclusion: The appeal by the assessee was allowed for statistical purposes, and the matter was restored to the AO for further examination in light of relevant provisions.

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