Cooperative society wins Section 80P deduction on interest income from cooperative and nationalized banks

The ITAT Pune allowed the assessee cooperative society's claim for deduction under Section 80P(2)(d) on interest income from deposits with cooperative banks. The tribunal relied on The Rena Sahakari Sakhar Karkhana Ltd precedent, finding that the Principal CIT erred in exercising revisional jurisdiction under Section 263 to disallow the deduction. Regarding interest income from nationalized and other banks, the tribunal followed The Vaveru Co-operative Rural Bank Ltd judgment from Andhra Pradesh HC, which held that such interest income also qualifies for Section 80P deduction. The ITAT accepted the assessee's deduction claims under Section 80P(2)(a)(i) and 80P(2)(d), directing the AO to finalize consequential computation as per law. The tribunal's decision favored the cooperative society's position on both categories of interest income.

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ISSUES:

Whether interest income earned by a co-operative society from deposits with co-operative banks qualifies for deduction under section 80P(2)(d) of the Income Tax Act, 1961.Whether interest income earned from nationalised or other banks qualifies for deduction under section 80P.Whether the revisional powers under section 263 of the Income Tax Act can be exercised to dislodge the Assessing Officer's plausible view allowing deduction under section 80P(2)(d).Whether additional grounds relating to society maintenance expenses and correction of returned income require adjudication by the appellate authority.

RULINGS / HOLDINGS:

The claim for deduction under section 80P(2)(d) on interest income earned by a co-operative society from deposits with co-operative banks is allowable, as such banks continue to be "co-operative societies" within the meaning of section 2(19) of the Act, notwithstanding the insertion of subsection (4) to section 80P limiting applicability to primary agricultural credit societies or primary co-operative agricultural and rural development banks. The court held that "as long as it is proved that the interest income is being derived by a co-operative society from its investments made with any other co-operative society, the claim of deduction under the aforesaid statutory provision, viz. Sec. 80P(2)(d) would be duly available."Interest income earned from nationalised or other banks also qualifies for deduction under section 80P, following the precedent established in The Vaveru Co-operative Rural Bank Ltd. case.The revisional jurisdiction under section 263 cannot be exercised to dislodge the Assessing Officer's plausible view allowing deduction under section 80P(2)(d) where it is supported by material and consistent with coordinate bench decisions; thus, the order passed under section 263 was set aside and the Assessing Officer's order restored.The appellate authority is directed to adjudicate additional grounds raised by the assessee relating to society maintenance expenses and correction of returned income, as these issues were not addressed in the impugned order.

RATIONALE:

The court applied the statutory framework of section 80P of the Income Tax Act, particularly subsection (2)(d) and the amendment by subsection (4) introduced by the Finance Act, 2006 effective from 01.04.2007.Section 80P(2)(d) allows deduction of income by way of interest or dividends derived by a co-operative society from its investments with any other co-operative society. The definition of "co-operative society" under section 2(19) includes societies registered under the Co-operative Societies Act or any other state law, which encompasses co-operative banks.The court distinguished the limitation introduced by subsection (4) of section 80P, which restricts deduction for co-operative banks except primary agricultural credit societies or primary co-operative agricultural and rural development banks, clarifying that this restriction applies to the bank's own claim of deduction, not to the interest income earned by a co-operative society from deposits in such banks.Judicial precedents from coordinate benches and High Courts (Karnataka and Gujarat) were relied upon to support the interpretation favoring deduction, while conflicting decisions from non-jurisdictional High Courts were resolved by applying the principle that in case of conflict, the view favorable to the assessee is to be preferred.The court emphasized that the Assessing Officer's order represented a plausible view based on verifications and consistent with tribunal precedents; hence, the revisional authority exceeded jurisdiction in setting aside that order under section 263.The court also mandated that the appellate authority must consider all additional grounds raised by the assessee to ensure comprehensive adjudication, highlighting procedural fairness and completeness of the appellate process.

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