Deduction for interest from co-operative bank deposits upheld; debatable claim could not be denied in summary processing or rectification.

Interest earned by a co-operative society from deposits with a co-operative bank was held deductible under section 80P(2)(d), because a co-operative bank was treated as a co-operative society for this purpose and section 80P(4) did not deprive the investing society of that deduction. The Tribunal also held that the claim could not be rejected as a prima facie adjustment in processing the return under section 143(1), since the issue was debatable, and the disallowance could not be sustained through rectification under section 154. The assessee's claim was therefore allowed.

---

---

Issues: (i) 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. (ii) Whether such disallowance could be sustained as a prima facie adjustment in processing the return under section 143(1) and through rectification under section 154 of the Income-tax Act, 1961.

Issue (i): 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.

Analysis: The assessee was a co-operative society that earned interest on fixed deposits and savings accounts maintained with co-operative banks. The legal question was whether such income, being derived from investments with another co-operative society, fell within the scope of section 80P(2)(d). The Tribunal followed its earlier coordinate-bench view that a co-operative bank continues to be a co-operative society for this purpose, and that section 80P(4) does not take away the deduction available to the investing co-operative society under section 80P(2)(d).

Conclusion: The interest income from deposits with co-operative banks was held eligible for deduction under section 80P(2)(d), in favour of the assessee.

Issue (ii): Whether such disallowance could be sustained as a prima facie adjustment in processing the return under section 143(1) and through rectification under section 154 of the Income-tax Act, 1961.

Analysis: The Tribunal noted that the disallowance of the claim had been made while processing the return and was later maintained in rectification proceedings. It held that the claim involved a debatable and legally supportable deduction issue, and therefore was not a matter fit for denial as a prima facie adjustment in summary processing. On the same reasoning, the rectification route under section 154 could not be used to sustain the disallowance.

Conclusion: The adjustment under section 143(1) and the rectification order under section 154 were held unsustainable, in favour of the assessee.

Final Conclusion: The Tribunal set aside the appellate order and allowed the assessee's claim for deduction on interest earned from co-operative banks.

Ratio Decidendi: Interest earned by a co-operative society from investments with a co-operative bank is deductible under section 80P(2)(d), and such a claim cannot be denied by way of a prima facie adjustment or sustained through rectification when the issue is debatable and outside the narrow scope of summary processing.

---