Co-operative society entitled to Section 80P(2)(d) deduction for interest income from investments in other co-operatives or banks

The ITAT Pune held that a co-operative society is entitled to deduction under Section 80P(2)(d) for interest income derived from investments made in other co-operative or banks. Following the precedent in The Rena Sahakari Sakhar Karkhana Ltd., the tribunal ruled that as long as the interest income originates from investments made by one co-operative society in another co-operative society, the statutory deduction is available. The decision favored the assessee.

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Issues Involved:
1. Disallowance of deductions u/s 80P(2)(d) for interest income from investments in co-operative/other banks.
2. Validity of the Principal Commissioner of Income Tax (Pr. CIT) exercising revisional jurisdiction u/s 263.

Summary:

Issue 1: Disallowance of Deductions u/s 80P(2)(d)

The assessee contested the disallowance of deductions u/s 80P(2)(d) for interest income from investments in co-operative/other banks for assessment years 2018-2019 and 2020-2021. The tribunal referenced its coordinate bench's decision in The Rena Sahakari Sakhar Karkhana Ltd. vs. PCIT, which held that interest income derived by a co-operative society from its investments with any other co-operative society is deductible u/s 80P(2)(d). The tribunal noted that co-operative banks, despite the insertion of sub-section (4) to Sec. 80P, continue to be co-operative societies under Sec. 2(19) of the Act. Therefore, the interest income earned from such banks is eligible for deduction. The tribunal also cited various judicial pronouncements supporting this view, including decisions from the High Courts of Karnataka and Gujarat.

Issue 2: Validity of Pr. CIT's Revisional Jurisdiction u/s 263

The Pr. CIT had set aside the Assessing Officer's (A.O.) order allowing the deduction, deeming it erroneous and prejudicial to the revenue's interest. The tribunal found that the A.O. had taken a plausible view after necessary verifications, and the Pr. CIT had exceeded his jurisdiction by reviewing this order under the guise of revisional powers u/s 263. The tribunal emphasized that where conflicting judicial pronouncements exist, the view favoring the assessee should be preferred. Consequently, the tribunal set aside the Pr. CIT's order and restored the A.O.'s original assessment order.

Conclusion:

The tribunal allowed the assessee's appeals, rejecting the Revenue's arguments and confirming the eligibility of deductions u/s 80P(2)(d) for interest income from investments in co-operative banks. The tribunal also invalidated the Pr. CIT's exercise of revisional jurisdiction u/s 263, restoring the A.O.'s original assessment orders.

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