Tribunal Rules Interest from Banks Not Eligible for Deduction u/s 80P; Directs Further Verification by AO.

The Tribunal upheld the disallowance of the deduction under section 80P for interest income from cooperative and scheduled banks, ruling that such income does not qualify for deductions under the specified sections. The Tribunal directed the AO to verify whether interest or dividends originated from investments with Cooperative Societies and to reconsider the treatment of interest income from banks as 'Income from Other Sources,' potentially allowing relief under section 57. The appeal was partly allowed for statistical purposes, with the issue remanded to the AO for further verification and consideration.

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Issues:
Disallowance of deduction u/s 80P for interest income from cooperative bank and scheduled bank.

Analysis:
The appeal was against the CIT(A)/NFAC order for the A.Y. 2020-2021 regarding disallowance of deduction u/s 80P for interest income. The appellant, a Co-operative credit Society, had filed its return declaring NIL income. The AO disallowed the deduction claimed u/s 80P(2)(a)(i) for interest income from various sources, adding it to the total income as Income from Other Sources. The AO also cited a previous judgment to disallow the claim under u/s 80P(2)(d). The CIT(A) upheld the AO's decision based on a High Court ruling. The assessee appealed to the Tribunal.

The Assessee argued that the interest income should be allowed as a deduction u/s 80P(2)(a)(i) or u/s 57 if treated as 'Income from other sources'. The DR supported the lower authorities' decision. The Tribunal noted that the interest income from investments could not be considered operational income under section 80P(2)(a)(i). Referring to a previous judgment, the Tribunal agreed with the CIT(A) that the deduction for interest on investment cannot be granted u/s 80P(2)(a)(i).

Regarding deduction u/s 80P(2)(d), the Tribunal directed the AO to verify if interest/dividend is from investments with Cooperative Societies, citing a Supreme Court ruling. The Tribunal also mentioned that if interest income from banks is considered 'Income from other sources', relief should be granted u/s 57. The issue was remanded to the AO for reconsideration with these observations. The appeal was partly allowed for statistical purposes.

In conclusion, the Tribunal upheld the disallowance of deduction u/s 80P for interest income from cooperative and scheduled banks, stating that such interest income does not qualify for deductions under the relevant sections. The Tribunal provided directions for further verification and consideration by the AO regarding the treatment of interest income from different sources.

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