Cooperative society entitled to Section 80P(2)(d) deduction on gross interest from cooperative bank deposits

The ITAT Ahmedabad ruled in favor of the assessee cooperative society regarding deduction under Section 80P(2)(d) for interest received from fixed deposits with a cooperative bank. The tribunal held that the assessee was eligible for the deduction on gross interest received from cooperative banks without adjusting interest paid to the same bank. Following precedent from Gujarat HC in Sabarkantha District Cooperative Milk Producers Union Ltd., the tribunal found that income from investment in cooperative societies and banks qualifies for the deduction, allowing the assessee's grounds and deleting the addition made by the Assessing Officer.

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Issues Involved:
1. Disallowance of deduction under Section 80P(2)(d) of the Income Tax Act, 1961.
2. Examination of whether the interest income qualifies for deduction under Section 80P(2)(d) or 80P(2)(a)(i).

Detailed Analysis:

1. Disallowance of Deduction under Section 80P(2)(d):

The primary issue in this appeal is whether the interest of Rs. 2.55 lakhs received on fixed deposits from Sabarkantha District Co.Op. Bank qualifies for deduction under Section 80P(2)(d) of the Income Tax Act, 1961. The appellant, a Cooperative Credit Society, had deployed its funds with the District Co.Op. Bank as per RBI requirements and earned interest income, which it claimed was eligible for deduction under Section 80P(2)(d) of the Act. The Assessing Officer (A.O.) denied this benefit and added the interest income of Rs. 2,55,000/- as income from other sources.

2. Examination of Interest Income Qualification:

Upon appeal, the National Faceless Appeal Centre (NFAC) directed the A.O. to examine if the assessee incurred any expenditure for earning the interest income, which is assessed under the head "other sources," and to allow the deduction under Section 57 of the Act. The NFAC partly allowed the appeal, leading the assessee to file an appeal before the ITAT.

The counsel for the assessee argued that similar issues had been considered by the Tribunal in various decisions, including ITA No. 153/Ahd/2022 and ITA No. 321/Ahd/2023, and by the Jurisdictional High Court in the case of CIT Vs. Sabarkantha District Cooperative Milk Producers Union Ltd. The Tribunal had previously held that the assessee is entitled to deduction under Section 80P(2)(d) of the Act.

The Tribunal reviewed the materials and previous judgments, including the Karnataka High Court judgment in the case of Totagar's Co-operative Sale Society Ltd. and the Jurisdictional High Court decision in CIT Vs. Sabarkantha District Cooperative Milk Producers Union Ltd. The Tribunal noted that the Jurisdictional High Court had ruled that income received from investments in Cooperative Societies and Cooperative Banks qualifies for deduction under Section 80P(2)(d).

The Tribunal also referenced several Co-ordinate Bench decisions which supported the assessee's claim for deduction under Section 80P(2)(d). These included cases where the Tribunal quashed orders passed by the PCIT under Section 263 of the Act and restored the assessment orders passed by the A.O. under Section 143(3) of the Act, allowing the deduction.

In conclusion, the Tribunal allowed the grounds raised by the assessee and deleted the addition made by the A.O., affirming that the interest income qualifies for deduction under Section 80P(2)(d) of the Act.

Corrigendum Order:

The Assessee filed an application for rectification, stating that the section was wrongly mentioned as 'Section 80P(2)(a)(i)' instead of 'Section 80P(2)(d)' in the order. The Tribunal acknowledged the error and issued a corrigendum, correcting the section to 'Section 80P(2)(d)' in Paragraph Nos. 2, 3, and 6 of the original order.

Final Judgment:

The appeal filed by the Assessee was allowed, and the interest income was deemed eligible for deduction under Section 80P(2)(d) of the Income Tax Act, 1961. The corrigendum issued corrected the section reference in the original order, ensuring the accurate application of the law.

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