Cooperative society gets partial Section 80P(2)(d) deduction for interest income from cooperative bank

The ITAT SURAT allowed partial deduction u/s 80P(2)(d) for cooperative society's interest income from cooperative bank. AO had disallowed Rs. 3.02 crores deduction, treating cooperative bank interest as income from other sources rather than cooperative society income. CIT(A) confirmed AO's action. ITAT held that cooperative banks are primarily cooperative societies, following precedent decisions including Gujarat HC ruling. Interest income of Rs. 3,00,21,194 from Surat District Cooperative Bank was allowed as eligible deduction, while interest from other non-cooperative institutions remained disallowed. Appeal partly allowed.

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Issues:
1. Disallowance of deduction under section 80P(2)(d) of the Income Tax Act.
2. Interpretation of income earned from cooperative society for tax purposes.
3. Application of judicial pronouncements on the claim of deduction under section 80P(2)(d).
4. Assessment based on documentary evidence and explanations provided by the assessee.
5. Legal perspective on the nature of cooperative banks and societies for tax exemptions.

Analysis:

1. The appeal was against the order of the National Faceless Appeal Centre confirming the assessment order passed by the Assessing Officer disallowing deductions claimed under Chapter VIA of the Act. The assessee contested the disallowance of deductions amounting to Rs. 6,12,18,004 under section 143(3) of the Act, citing misinterpretation of law and arbitrary observations. The grounds of appeal included challenges to the denial of deduction under section 80P(2)(d) for income earned from investments with other cooperative societies. The assessee argued that the denial was arbitrary, misconceived, and contrary to judicial pronouncements, leading to a request for the order to be quashed.

2. The Authorized Representative for the assessee contended that the issue revolved around the disallowance of deduction under section 80P(2)(d) by the Assessing Officer, who included interest income not claimed by the assessee in the computation of total income. The Assessing Officer relied on a Karnataka High Court decision and disallowed the deduction, which was contested by the assessee citing various tribunal decisions and a recent Supreme Court judgment. The argument was supported by the distinction between cooperative banks and societies, emphasizing the entitlement of cooperative credit societies for exemptions under section 80P(2).

3. The Senior-DR for the Revenue supported the lower authorities' decision to tax the interest income earned by the assessee as "income from other sources." However, the Tribunal analyzed the facts and legal precedents to determine the eligibility of the assessee for deduction under section 80P(2)(d). The Tribunal noted that interest income from cooperative banks was considered eligible for deduction under section 80P(2)(d) based on various decisions, including a judgment of the jurisdictional High Court. Consequently, the Tribunal allowed the appeal partially, granting relief to the assessee for the interest earned from the cooperative bank.

4. The Tribunal considered the documentary evidence and explanations provided by the assessee, emphasizing the specific interest income from the Surat District Co-Operative Bank as eligible for deduction under section 80P(2)(d). The Tribunal highlighted the consistent legal interpretation that cooperative societies are entitled to deductions for interest received from cooperative banks without adjusting interest paid to the bank. This analysis led to the partial allowance of the appeal, granting relief to the assessee for the interest income from the cooperative bank.

5. The Tribunal's decision clarified the distinction between interest income earned from cooperative societies and other institutions for the purpose of tax exemptions under section 80P(2)(d). By aligning with previous judicial pronouncements and recognizing cooperative banks as cooperative societies, the Tribunal allowed relief to the assessee for the interest income specifically earned from the Surat District Co-Operative Bank. The appeal was partly allowed based on the legal perspective on cooperative banks and societies for tax exemptions, as established in relevant case laws.

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