Cooperative society's bank FD interest disallowed under Section 80P(2)(a)(i) but cooperative bank deposits allowed under Section 80P(2)(d)

ITAT Ahmedabad upheld disallowance under Section 80P(2)(a)(i) for interest received from Bank of Baroda on FDRs, ruling that cooperative society's investment of surplus funds was not part of providing credit facilities to members. Court distinguished between banking business and credit facility provision, following Gujarat HC precedent. However, ITAT allowed deduction under Section 80P(2)(d) for interest from cooperative bank deposits, recognizing cooperative banks as cooperative societies eligible for such deduction based on amended Gujarat HC ruling.

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Issues:
- Disallowance under Section 80P(2)(a)(i) of the Income Tax Act, 1961
- Disallowance under Section 80P(2)(d) of the Income Tax Act, 1961

Analysis:
1. The appeals were filed against the orders of the National Faceless Appeal Centre for different Assessment Years. The issue in all three appeals was identical, and they were heard together.

2. The first issue pertained to disallowance under Section 80P(2)(a)(i) of the Act. The assessee, a cooperative credit society, claimed deduction for interest received from Bank of Baroda, which was disallowed by the AO. The Tribunal upheld the disallowance, stating that the interest earned on FDRs with the bank did not qualify for deduction under Section 80P(2)(a)(i) as it was not income derived from providing credit facilities to members.

3. The second issue was regarding disallowance under Section 80P(2)(d) of the Act. The assessee earned interest income from a cooperative bank, which was disallowed by the AO. The Tribunal allowed the deduction based on the nature of the cooperative bank and the amended order of the High Court, which clarified that interest derived from investment with other cooperative banks was eligible for deduction under Section 80P(2)(d).

4. The Tribunal observed that cooperative banks are essentially cooperative societies subject to additional regulations under the Banking Regulation Act. The investment made by the assessee, a cooperative society, with a cooperative bank qualified for deduction under Section 80P(2)(d) as per the amended order of the High Court.

5. The Tribunal dismissed the alternate claim for pro-rata expenses on earning interest income as the assessee failed to establish incurring any expenditure for that purpose.

6. The Tribunal allowed the appeal in part, dismissing Ground No.1 and allowing Ground No.2 in all three appeals. The orders disallowing deductions under Section 80P(2)(a)(i) were confirmed, while disallowances under Section 80P(2)(d) were deleted.

7. The Tribunal upheld the decisions of the AO and the Ld. CIT(A) where applicable, based on the nature of income and the eligibility criteria under the Income Tax Act.

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