Deduction under section 80P for cooperative society interest income from cooperative bank deposits upheld despite statutory exclusion.

Whether a cooperative society may claim deduction under section 80P for interest earned on deposits with a cooperative bank was addressed: ITAT reasoned that the statutory exclusion of cooperative banks from deduction eligibility does not negate a registered cooperative society's entitlement under the statute to deduct interest income on investments or deposits placed with a cooperative bank, because a cooperative bank itself may qualify as a registered cooperative society under the Act's definition. The result supports allowance of the 80P deduction for such interest income, overturning the revenue objection to the contrary.

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Issues: Whether the Principal Commissioner of Income Tax was justified in invoking jurisdiction under section 263 to declare the assessment erroneous and prejudicial to the interests of the Revenue by disallowing the assessee's claim of deduction under section 80P in respect of interest income from deposits kept with cooperative banks.

Analysis: The question turns on whether the insertion of section 80P(4), which restricts deduction for certain cooperative banks, affects the assessee's entitlement under section 80P(2)(d) to claim deduction on interest income arising from investments or deposits parked with a cooperative bank. Section 2(19) defines a cooperative society as one registered under the Co-operative Societies Act or any law for the time being in force; thus an entity qualifying as a registered cooperative society can seek deduction under section 80P(2)(d) for interest on deposits with cooperative banks. The statutory exclusion in section 80P(4) does not, on its plain reading, negate the distinct eligibility conferred by section 80P(2)(d) to a cooperative society in respect of interest income on investments/deposits with a cooperative bank. The Tribunal applied this statutory construction to conclude that the invoking of revision under section 263 solely on the ground of alleged ineligibility under section 80P was not sustainable.

Conclusion: The assessment order held to be erroneous and prejudicial to the interests of the Revenue is not sustained; the order under section 263 is overturned and the assessee's appeal is allowed (decision in favour of the assessee).

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