Cooperative society gets deduction under section 80P(2)(a)(i) for interest income from bank fixed deposits

ITAT Visakhapatnam allowed deduction under section 80P(2)(a)(i) for interest income earned by cooperative society from fixed deposits in bank accounts. The Tribunal followed precedent from Kakateeya Mutually Aided Thrift and Credit Coop Society Ltd. and Vavveru Co-operative Rural Bank Ltd., holding that interest earned on surplus funds invested from activities covered under section 80P(2)(a) qualifies for deduction. CIT(A)-NFAC's decision to delete the addition made by AO was upheld, and assessee's appeals were allowed.

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Issues Involved:
1. Validity of notices issued u/s 148 and subsequent proceedings.
2. Eligibility of deduction u/s 80P(2)(a)(i) on interest income earned from fixed deposits.

Summary:

1. Validity of Notices Issued u/s 148 and Subsequent Proceedings:
The assessee challenged the validity of the notices issued u/s 148A(d) and 148 dated 31.03.2022, claiming they were contrary to the provisions of Sec. 144B and Sec. 151A of the Act. The Tribunal, however, did not address this issue as it was not pressed by the assessee (Ground No.2 dismissed as not pressed).

2. Eligibility of Deduction u/s 80P(2)(a)(i) on Interest Income:
The primary issue revolved around whether the interest income earned from fixed deposits with Krishna District Cooperative Central Bank Ltd. (KDCCBL) qualifies for deduction u/s 80P(2)(a)(i) of the Act. The AO disallowed the deduction, citing the Supreme Court's decision in Totgars Cooperative Sale Society Ltd. 322 ITR 283, which held that interest income from investments other than cooperative societies is not deductible u/s 80P(2)(a)(i).

The Tribunal, however, distinguished the facts of the present case from Totgars. It relied on the Andhra Pradesh High Court's decision in Vavveru Cooperative Rural Bank Ltd. [2017] 396 ITR 0371 (AP), which allowed deduction u/s 80P(2)(a)(i) for interest income earned from investments in banks, emphasizing that the original source of the funds was from activities listed in Sec. 80P(2)(a).

The Tribunal also referred to similar cases where the deduction was allowed, such as The Kakateeya Mutually Aided Thrift and Credit Co-operative Society Ltd. and Rangaraya Large Sized Cooperative Society. Consequently, the Tribunal quashed the order of the CIT(A) and allowed the assessee's appeal, granting the deduction u/s 80P(2)(a)(i).

Conclusion:
The Tribunal allowed the appeals of the assessee, affirming the eligibility for deduction u/s 80P(2)(a)(i) on interest income earned from fixed deposits with KDCCBL, following the jurisdictional High Court's precedent and distinguishing it from the Totgars case. The order was pronounced on 19th April, 2024.

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