2023 (12) TMI 1482 - AT - Income Tax

Deduction under s. 80P(2)(d) allowed on gross interest and dividends from co-op bank, ignoring income reclassification

ITAT allowed the appeal of the assessee co-operative society, holding it entitled to deduction under s. 80P(2)(d) on interest and dividend income received ... Non-granting of deduction u/s 80P(2)(d) - Interest and dividend derived from a co-op bank to the appellant co-op society particularly when the AO reclassified the interest and dividend under the “Income from other sources' - HELD THAT:- Hon'ble Jurisdictional High Court in Surat Vankar Sahakari Sangh Ltd [2016 (7) TMI 1217 - GUJARAT HIGH COURT] has held that the assessee cooperative societies are eligible for deduction u/s 80P(2)(d) of the Act in respect of gross interest receipt from cooperative bank without adjusting interest paid to said bank. Thus, direct the AO to allow deduction u/s 80P(2)(d) - Appeal of assessee is allowed. 1. ISSUES PRESENTED AND CONSIDERED (1) Whether interest income earned by a cooperative credit and consumer society from deposits with cooperative banks is eligible for deduction under Section 80P(2)(d) of the Income Tax Act, 1961. (2) Whether such deduction under Section 80P(2)(d) is allowable on the gross amount of interest received from cooperative banks without adjustment of interest paid to those banks. (3) Whether, on identical facts in different assessment years, the principle of consistency requires similar relief to be granted in a subsequent year. 2. ISSUE-WISE DETAILED ANALYSIS Issue (1): Deduction under Section 80P(2)(d) on interest from cooperative banks Interpretation and reasoning: The Tribunal recorded that the assessee is a cooperative credit and consumer society earning interest from deposits placed with cooperative banks, namely Surat District Cooperative Bank and Sutex Cooperative Bank. The assessee restricted its claim to deduction under Section 80P(2)(d) on such interest from cooperative banks. The Tribunal noted that the Jurisdictional High Court in 'Surat Vankar Sahakari Sangh Ltd.' had held that cooperative societies are eligible for deduction under Section 80P(2)(d) in respect of interest received from cooperative banks. It further noted that this view has been consistently followed by the Surat Bench of the Tribunal in multiple cases and also in the assessee's own case for an earlier assessment year, where similar relief was granted. Relying on this binding precedent and consistent Tribunal practice, the Tribunal accepted the assessee's limited prayer for allowance of deduction under Section 80P(2)(d) on interest income from cooperative banks. Conclusions: The Court held that interest income earned by the assessee cooperative society from deposits with cooperative banks is eligible for deduction under Section 80P(2)(d) of the Act. Issue (2): Allowability on gross interest receipts without set-off of interest paid Legal framework (as discussed): The Tribunal referred to the decision of the Jurisdictional High Court in 'Surat Vankar Sahakari Sangh Ltd.' which held that deduction under Section 80P(2)(d) is allowable in respect of gross interest receipts from cooperative banks without adjusting interest paid to such banks. Interpretation and reasoning: Relying on the above High Court decision, the Tribunal observed that the assessee is entitled to deduction on the entire interest received from cooperative banks and there is no requirement under Section 80P(2)(d), as interpreted by the Jurisdictional High Court, to reduce any interest expense payable to the same banks while computing the eligible deduction. Conclusions: The Court directed that deduction under Section 80P(2)(d) be allowed on the gross interest receipts from cooperative banks, without any adjustment for interest paid to those banks. Issue (3): Application of principle of consistency for subsequent assessment year Interpretation and reasoning: For the later assessment year, the Tribunal noted that the grounds raised were similar and the facts were identical to those in the lead year where deduction under Section 80P(2)(d) on interest from cooperative banks had been allowed. Observing that no distinguishing facts or contrary legal position were brought on record, the Tribunal applied the principle of consistency and followed its own decision in the lead year. Conclusions: On identical facts and issues in the subsequent assessment year, the Court allowed the assessee's appeal and granted similar deduction under Section 80P(2)(d) with the same directions as in the lead year.