Cooperative society gets Section 80P deduction for interest income on bank deposits with cooperative bank

ITAT Visakhapatnam allowed deduction under Section 80P for interest income earned by a cooperative society on deposits with District Cooperative Central Bank. The tribunal distinguished the case from SC precedent in Totgars Cooperative Sale Society Ltd, following jurisdictional HC and ITAT precedent in Kakateeya Mutually Aided Thrift case. The tribunal held that interest income from surplus funds invested as per Section 80P(2)(a) activities qualifies for deduction under Section 80P(2)(a)(i), upholding CIT(A)-NFAC's deletion of AO's addition.

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Issues Involved:
1. Disallowance of deduction claimed u/s 80P of the Income Tax Act, 1961.

Summary:

Disallowance of Deduction u/s 80P:

This appeal by the assessee challenges the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi (Ld. CIT(A)-NFAC) concerning the assessment year (AY) 2018-19. The assessee, a Primary Agricultural Cooperative Credit Society, filed its return of income admitting a total income of Rs. 81,870/- after claiming a deduction of Rs. 42,07,008/- u/s 80P(2) of the Income Tax Act, 1961. The case was scrutinized, and the Ld. Assessing Officer (AO) disallowed the deduction of Rs. 15,04,982/- received as interest and dividend income from investments made with the District Cooperative Central Bank (DCCB), arguing that the income was not eligible for deduction u/s 80P(2)(d) as it was derived from a Cooperative Bank and not a Cooperative Society.

On appeal, the Ld. CIT(A)-NFAC confirmed the disallowance but allowed the assessee the benefit of deduction for proportionate costs and expenses incurred to earn the interest income. Aggrieved, the assessee appealed to the Tribunal, arguing that the investments were made in compliance with statutory regulations and that the income should be eligible for deduction u/s 80P of the Act. The Ld. Departmental Representative countered that the income derived from DCCB did not qualify for deduction u/s 80P(2)(d) as it was not from a Cooperative Society.

After hearing both sides, the Tribunal noted that the facts of the case were distinguishable from the precedent set by the Hon'ble Supreme Court in Totgars Cooperative Sale Society Ltd vs. ITO. The Tribunal referred to the decision of the jurisdictional High Court of Andhra Pradesh and Telangana in Vavveru Cooperative Rural Bank Ltd vs. Chief Commissioner of Income Tax, which held that interest income from investments in banks by cooperative societies is eligible for deduction u/s 80P(2)(a)(i) of the Act. The Tribunal also cited a similar decision by the Coordinate Bench in Kakateeya Mutually Aided Thrift and Credit Co-op Society Limited.

Based on these precedents, the Tribunal concluded that the interest income earned by the assessee from DCCB should be allowed as a deduction u/s 80P(2)(a)(i) of the Act. Consequently, the Tribunal quashed the order of the Ld. CIT(A)-NFAC and allowed the appeal of the assessee.

Conclusion: The appeal of the assessee is allowed, and the disallowance of deduction u/s 80P is quashed.

Pronounced in the open Court on 27th March, 2024.

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