Cooperative society denied section 80P(2) deduction for commercial bank interest but allowed for cooperative bank interest

ITAT Ahmedabad ruled on a cooperative society's deduction claims under section 80P(2). The tribunal denied deduction under sections 80P(2)(a)(i) and 80P(2)(c)(ii) for interest from nationalized commercial banks, holding such income taxable under section 56 as income from other sources since the banks were not members of the cooperative society. However, the tribunal allowed deduction under section 80P(2)(d) for interest from cooperative banks, directing the AO to verify these entities' registration status under cooperative societies acts. The revenue partially succeeded, with the CIT(A)'s order being set aside regarding commercial bank interest while maintaining consistency with prior decisions on cooperative bank interest.

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Issues Involved:
1. Deduction under section 80P(2)(a)(i) of the Income Tax Act for interest received from nationalized banks.
2. Deduction under section 80P(2)(d) of the Income Tax Act for interest received from cooperative banks.
3. Applicability of section 56 of the Income Tax Act concerning interest income from surplus funds.
4. Condonation of delay in filing the appeal by the Revenue.

Issue-Wise Detailed Analysis:

1. Deduction under Section 80P(2)(a)(i) for Interest from Nationalized Banks:

The Revenue challenged the deduction of Rs. 32,449/- claimed by the assessee under section 80P(2)(a)(i) for interest received from nationalized banks. The AO denied the deduction based on the decision of the Hon'ble Gujarat High Court in the case of State Bank of India v. CIT (2016) and the Hon'ble Supreme Court in Totgar Co-operative Sale Society (2010). The AO argued that interest income from nationalized banks is not eligible for deduction under section 80P(2)(a)(i) as these banks are not members of the cooperative society. The CIT(A) allowed the deduction relying on ITAT's decision in the assessee's own case for earlier years. However, the Tribunal ruled that the interest income from nationalized banks is taxable under section 56 as income from other sources and not eligible for deduction under section 80P(2)(a)(i). The Tribunal also rejected the alternative claim for deduction under section 80P(2)(c)(ii) due to the plain language of the statute and lack of statutory requirement evidence.

2. Deduction under Section 80P(2)(d) for Interest from Cooperative Banks:

The assessee claimed a deduction of Rs. 1,62,24,334/- under section 80P(2)(d) for interest received from cooperative banks. The AO denied this deduction, citing the Hon'ble Karnataka High Court's decision in PCIT v. Totgar Co-operative Sale Society (2017). The CIT(A) allowed the deduction based on ITAT's decision in the assessee's own case for the previous assessment year. The Tribunal upheld the CIT(A)'s decision, relying on the Hon'ble Gujarat High Court's rulings in State Bank of India v. CIT and Surat Vankar Sahakari Sangh Ltd. v. ACIT, which allowed deductions for interest earned from cooperative banks. However, the Tribunal directed the AO to verify that the entities from which interest was earned are indeed cooperative banks registered under the Cooperative Societies Act.

3. Applicability of Section 56 for Interest Income from Surplus Funds:

The AO argued that interest income from surplus funds deposited with nationalized and cooperative banks should be taxed under section 56 as income from other sources, not eligible for deductions under sections 80P(2)(a)(i) or 80P(2)(d). The Tribunal agreed with the AO regarding nationalized banks but upheld the deduction for cooperative banks, subject to verification of their status as cooperative societies.

4. Condonation of Delay in Filing the Appeal:

The Revenue filed the appeal 73 days late due to administrative reasons. The Tribunal condoned the delay, noting no serious objection from the assessee and proceeded to hear the appeal on merits.

Conclusion:

The Tribunal partially allowed the Revenue's appeal for the assessment year 2017-18, denying the deduction for interest from nationalized banks but allowing it for cooperative banks, subject to verification. The Tribunal's decision for the assessment year 2017-18 applied mutatis mutandis to the assessment year 2018-19, resulting in a similar partial allowance for that year.

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