Deduction for interest from co-operative banks upheld, while a separate section 80P claim was remitted for verification.

Interest earned by a co-operative society from deposits with co-operative banks is deductible under section 80P(2)(d), because a co-operative bank is treated as a co-operative society for this purpose and section 80P(4) does not bar the claim unless the assessee itself is a co-operative bank. The disallowance of such interest was therefore unsustainable. A separate credit claim of Rs. 2,12,775 under section 80P required verification of supporting details and eligibility, so that matter was remitted for fresh examination after giving the assessee a reasonable opportunity of hearing.

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Issues: (i) Whether interest earned by a co-operative society from deposits placed with co-operative banks is eligible for deduction under section 80P(2)(d) of the Income-tax Act, 1961. (ii) Whether the credit of Rs. 2,12,775 claimed as eligible for deduction under section 80P required fresh examination on merits.

Issue (i): Whether interest earned by a co-operative society from deposits placed with co-operative banks is eligible for deduction under section 80P(2)(d) of the Income-tax Act, 1961.

Analysis: The disputed income consisted of interest and dividend arising from investments with co-operative banks. The applicable statutory scheme allows deduction of income by way of interest or dividends derived by a co-operative society from investments with any other co-operative society. A co-operative bank continues to fall within the definition of a co-operative society, while the exclusion in section 80P(4) operates only against a co-operative bank claiming deduction in its own right and does not defeat the claim of a co-operative society earning interest from such bank. In the presence of conflicting views, the construction favouring the assessee is to be adopted.

Conclusion: The interest income from deposits with co-operative banks is deductible under section 80P(2)(d), and the disallowance was not sustainable.

Issue (ii): Whether the credit of Rs. 2,12,775 claimed as eligible for deduction under section 80P required fresh examination on merits.

Analysis: The additional income was stated to arise in the ordinary course of business, including items such as early closure of recurring deposits and charges for printing and stationery. As the lower authorities rejected the claim for want of substantiation, the matter required verification of the supporting details and eligibility in accordance with law.

Conclusion: The issue was remitted to the Assessing Officer for fresh decision after granting a reasonable opportunity of hearing.

Final Conclusion: The assessee succeeded on the main deduction claim relating to interest from co-operative banks, while the separate claim concerning Rs. 2,12,775 was sent back for reconsideration, resulting in only partial relief.

Ratio Decidendi: Interest earned by a co-operative society from investments with a co-operative bank is eligible for deduction under section 80P(2)(d), and section 80P(4) does not bar such a claim unless the assessee itself is a co-operative bank.

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