Cooperative society's interest income from bank investments qualifies for Section 80P(2)(d) deduction under Income Tax Act

ITAT Pune ruled in favor of the assessee regarding deduction under Section 80P(2)(a)(i) for interest income from investments in cooperative/scheduled banks. Following precedents from Karnataka HC and Gujarat HC, the tribunal held that interest income earned by a cooperative society on investments with cooperative banks qualifies for deduction under Section 80P(2)(d) of the Income Tax Act, allowing the claimed deduction.

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Issues Involved:
1. Disallowance of deduction claimed u/s 80P(2)(a)(i) of the Income Tax Act, 1961.
2. Eligibility of interest income from investments in co-operative/scheduled banks for deduction u/s 80P(2)(d).

Summary:

Issue 1: Disallowance of Deduction Claimed u/s 80P(2)(a)(i)
The assessee's sole substantive grievance was the disallowance of its deduction claimed u/s 80P(2)(a)(i) amounting to Rs. 18,74,289/-. The Tribunal referred to its recent coordinate bench's order in ITA.No.1249/PUN./2018, which had rejected the Revenue's identical arguments. The Tribunal found that the Principal Commissioner of Income Tax (Pr. CIT) had erred in disallowing the deduction by interpreting that the co-operative banks were commercial banks and not co-operative societies, thus making the assessee ineligible for the deduction.

Issue 2: Eligibility of Interest Income from Investments in Co-operative/Scheduled Banks for Deduction u/s 80P(2)(d)
The Tribunal examined whether the interest income earned from investments/deposits made with co-operative banks is eligible for deduction u/s 80P(2)(d). It was observed that the Pr. CIT had set aside the assessment order on the grounds that co-operative banks are not co-operative societies and thus, the interest income from such banks would not qualify for the deduction. However, the Tribunal noted that as long as the interest income is derived from investments made by a co-operative society with any other co-operative society, the deduction under Sec. 80P(2)(d) would be available.

The Tribunal highlighted several judicial pronouncements supporting the view that interest income earned from investments with co-operative banks qualifies for deduction u/s 80P(2)(d). It cited cases like M/s Solitaire CHS Ltd. vs. Pr. CIT, Majalgaon Sahakari Sakhar Karkhana Ltd. vs. ACIT, and others. Additionally, it referred to the CBDT Circular No. 14, which clarified that the purpose behind the enactment of sub-section (4) of Sec. 80P was to exclude co-operative banks from claiming the deduction, not co-operative societies.

The Tribunal concluded that the Assessing Officer (A.O) had taken a plausible view in allowing the assessee's claim for deduction u/s 80P(2)(d) and that the Pr. CIT had exceeded his jurisdiction by dislodging this view. Therefore, the Tribunal set aside the Pr. CIT's order and restored the A.O's assessment order.

Conclusion:
The Tribunal allowed the assessee's appeal, accepting the deductions claimed u/s 80P(2)(a)(i) and 80P(2)(d). The Revenue's arguments supporting the disallowance were rejected. The order was pronounced in the open Court on 18.03.2024.

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