Deduction allowed on cooperative bank interest under Section 80P(2)(d), earlier year ruling followed for assessee

ITAT Pune allowed the assessee-cooperative society's claim for deduction under section 80P(2)(d) on interest income earned from fixed deposits and investments made with other cooperative banks. Relying on its own decision in the assessee's case for an earlier assessment year, the Tribunal held that such interest qualifies for deduction as income derived from investments with a cooperative society/bank. The order of the CIT(A)/NFAC was set aside, and the AO was directed to grant the deduction. All grounds raised by the assessee were allowed.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether interest income earned on fixed deposits/investments made with co-operative banks is eligible for deduction under section 80P(2)(d) of the Income-tax Act, 1961.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Eligibility of deduction under section 80P(2)(d) on interest from deposits with co-operative banks

Legal framework

2.1 The judgment specifically considers section 80P(2)(d), which allows deduction in respect of "any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society."

Interpretation and reasoning

2.2 The Assessing Officer treated the interest income of Rs. 1,27,28,099/- earned from fixed deposits/investments with co-operative banks as "income from other sources", holding that (i) such investment activity was not part of providing credit facilities to members for the purposes of section 80P(2)(a)(i), and (ii) deduction under section 80P(2)(d) was not available on interest received from co-operative banks.

2.3 The appellate authority upheld the above view.

2.4 The Tribunal noted that the very same issue, concerning interest earned from deposits/investments with co-operative banks and the allowability of deduction under section 80P(2)(d), had already been decided in favour of the assessee in its own cases for assessment years 2020-21 and 2013-14.

2.5 In the earlier decision for assessment year 2020-21, the Tribunal had (i) examined section 80P(2)(d), (ii) recorded that co-ordinate benches have consistently held that interest income from fixed deposits/investments with co-operative banks is eligible for deduction under section 80P(2)(d), and (iii) relied on prior decisions wherein it was held that interest from deposits with co-operative banks is deductible under section 80P(2)(d) as co-operative banks are essentially co-operative societies which have obtained a banking licence.

2.6 The Tribunal, in the present year, followed these earlier co-ordinate bench decisions in the assessee's own cases, there being no contrary material or authority placed before it by the Department to take a different view.

Conclusions

2.7 Interest income earned from fixed deposits/investments with co-operative banks is income derived from investments with a "co-operative society" for the purposes of section 80P(2)(d).

2.8 The assessee is entitled to deduction under section 80P(2)(d) in respect of the interest income of Rs. 1,27,28,099/- from such deposits/investments with co-operative banks.

2.9 The order of the appellate authority sustaining the disallowance is set aside, and the Assessing Officer is directed to allow the deduction under section 80P(2)(d) on the impugned interest income.

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