2024 (6) TMI 1569 - AT - Income Tax

Section 80P(2)(d) deduction on co-operative bank interest cannot be denied through section 143(1)(a) processing adjustments.

Processing adjustments under section 143(1)(a) cannot be used to disallow a section 80P(2)(d) deduction unless the claim falls within the limited ... Scope of adjustment under section 143(1) - Deduction under section 80P(2)(d) - Interest from co-operative banks HELD THAT: - The Tribunal held that an adjustment under section 143(1) in respect of a Chapter VI-A deduction is permissible only in the circumstances specified by that provision. The assessee's claim did not fall within the category of disallowance contemplated for belated returns, and the claim also could not be treated as an incorrect claim apparent from any information in the return, since it was not a deduction controlled by any statutory monetary limit, percentage, ratio or fraction, nor was it shown to be inconsistent with the return particulars. The disallowance made in the intimation was therefore outside the permissible scope of section 143(1). [Paras 12, 13, 14, 15] The adjustment made in the intimation under section 143(1) disallowing the deduction was held to be unsustainable. Deduction u/s 80P(2)(d) - Co-operative bank as co-operative society - applicability of section 80P(4) - Interest earned by the assessee from investments with co-operative banks - HELD THAT: - On merits, the Tribunal held that for determining whether a co-operative bank is covered by the expression co-operative society, the relevant co-operative societies law has to be seen. Under the Maharashtra Co-operative Societies Act, 1960, a co-operative bank is a co-operative society carrying on banking business. Merely because such society carries on banking, it does not cease to be a co-operative society. Since section 80P(2)(d) grants deduction in respect of interest derived by a co-operative society from investments with any other co-operative society, interest received by the assessee from co-operative banks was deductible in full. The Tribunal further noted that the assessee itself was not a co-operative bank and therefore section 80P(4) had no application. [Paras 20, 21, 22, 23, 24] The assessee was held entitled to deduction under section 80P(2)(d) on the interest received from the co-operative banks for all the assessment years in appeal. Final Conclusion: The Tribunal allowed all four appeals of assessee, holding both that the deduction could not have been disallowed through processing u/s 143(1) and that, on merits, the interest earned from investments with co-operative banks was eligible for deduction u/s 80P(2)(d). Issues: (i) Whether disallowance of deduction under section 80P(2)(d) could be made as an adjustment while processing the return under section 143(1)(a) of the Income-tax Act, 1961; (ii) Whether interest income received from co-operative banks qualified for deduction under section 80P(2)(d) as income derived from investments with another co-operative society.Issue (i): Whether disallowance of deduction under section 80P(2)(d) could be made as an adjustment while processing the return under section 143(1)(a) of the Income-tax Act, 1961.Analysis: The adjustment power under section 143(1)(a) is confined to the specified categories, including an incorrect claim apparent from the return. Disallowance of Chapter VI-A deductions on the ground of late filing is separately contemplated in section 143(1)(a)(v), and the claim here was not one exceeding a statutory limit or otherwise falling within the defined category of an incorrect claim. The disallowance therefore did not fit within the permissible scope of processing adjustments.Conclusion: The disallowance under section 143(1)(a) was not permissible and the intimation was unsustainable.Issue (ii): Whether interest income received from co-operative banks qualified for deduction under section 80P(2)(d) as income derived from investments with another co-operative society.Analysis: A co-operative bank is treated as a co-operative society for the purposes of the relevant state co-operative law, and section 80P(2)(d) allows deduction of interest income derived by a co-operative society from investments with any other co-operative society. The assessee was not a co-operative bank, so the restriction in section 80P(4) did not apply to it. On that basis, interest earned from co-operative banks remained eligible for deduction under section 80P(2)(d).Conclusion: The assessee was entitled to deduction under section 80P(2)(d) on interest received from co-operative banks.Final Conclusion: The additions made in processing were set aside and the assessee's deduction claim was directed to be allowed for all the years in appeal.Ratio Decidendi: A deduction claim under section 80P(2)(d) cannot be disallowed as an adjustment under section 143(1)(a) unless it falls within the specific processing adjustments permitted by that provision, and interest from a co-operative bank is eligible for deduction when the recipient is a co-operative society not hit by section 80P(4).