Cooperative society's interest income from nationalized banks qualifies for section 80P deduction claims allowed

ITAT Pune allowed the cooperative society's appeal regarding disallowance under section 80P(2)(a)(i)/80P(2)(d). The tribunal held that interest income earned from nationalized banks by a cooperative society engaged in banking business among members qualifies for section 80P deduction. Following precedents from Sharad Nagari Sahakari Patsanstha Maryadit and Vaveru Cooperative Rural Bank Ltd., the tribunal directed the Assessing Officer to allow the deduction claims for interest income from nationalized and other cooperative banks.

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Issues Involved:

1. Condonation of delay in filing the appeal.
2. Disallowance of deduction claimed under Section 80P(2)(a)(i) and 80P(2)(d) of the Income Tax Act.
3. Eligibility of interest income earned from investments in Co-operative banks and Scheduled banks for deduction under Section 80P.

Detailed Analysis:

1. Condonation of Delay:

The appeal was filed by the assessee with a delay of 286 days. The assessee submitted an application for condonation of delay along with a sworn affidavit explaining the reasons for the delay. After reviewing the affidavit and hearing both parties, the Tribunal was satisfied that the delay was neither intentional nor deliberate. The Tribunal found sufficient cause for the delay and thus condoned it, allowing the appeal to proceed.

2. Disallowance of Deduction under Section 80P:

The assessee, a Cooperative Society engaged in banking business, claimed a deduction of Rs. 45,81,847/- under Section 80P for interest income earned from investments in Co-operative banks and Scheduled banks. The Assessing Officer disallowed the deduction, reasoning that only interest derived from credit facilities provided to members is deductible under Section 80P(2)(a)(i), and interest from surplus funds deposited in banks is not attributable to the society's business. Furthermore, since the investments were not made in a Co-operative Society but in Co-operative banks/Scheduled banks, the deduction under Section 80P(2)(d) was also disallowed. The CIT(A) upheld this disallowance for interest income from Commercial banks but allowed the deduction for interest from Co-operative banks.

3. Eligibility of Interest Income for Deduction:

The Tribunal examined whether interest income from investments in Co-operative banks and Scheduled banks qualifies for deduction under Section 80P. The CIT(A) had allowed the deduction for interest income from Co-operative banks amounting to Rs. 7,62,162/- but disallowed Rs. 38,19,685/- from Commercial banks. The Tribunal referred to various judicial precedents, including decisions by the Co-ordinate Bench of the Pune Tribunal and High Courts, which supported the assessee's claim. These precedents established that interest income from both Co-operative and Scheduled banks qualifies for deduction under Section 80P(2)(a)(i) and 80P(2)(d).

The Tribunal noted that similar issues had been decided in favor of the assessee in previous cases, such as Sharad Nagari Sahakari Patsanstha Maryadit vs. ITO and Yogiraj Nagari Sahakari Patsanstha Maryadit vs. ITO. These cases held that interest income from deposits made out of surplus funds with Co-operative banks and Scheduled banks is eligible for deduction under both provisions of Section 80P.

Conclusion:

The Tribunal, following the established judicial precedents and in the absence of any contrary material, set aside the order of the CIT(A) and allowed the appeal of the assessee. Consequently, the assessee was entitled to the deduction of the entire interest income under Section 80P(2)(a)(i) and 80P(2)(d). The appeal was pronounced in favor of the assessee on 29th October 2024.

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