2026 (2) TMI 312 - AT - Income Tax

Deduction claim for cooperative society interest income under 80P - revision withdrawn and appeal allowed.

Revisionary action challenged the disallowance of a cooperative society's deduction for interest on investments as not being attributable to its lending ... Revision u/s 263 - Disallowance of deduction u/s. 80P(2)(a)(i) - Interest income earned by the assessee on investment - meaning of the word 'attributable' - assessee is aggrieved with the above revisionary order passed by the PCIT raising the fact and grounds that the assessee is entitled to deduction u/s. 80P(2)(a)(i) of the Act and also u/s. 80P(2)(d) PCIT issued a show cause notice on examination of the record holding that the assessing officer should held that that interest income earned by the assessee from cooperative society and cooperative banks and other banks is required to be taxed u/s. 56 of the Act and assessee is not eligible for any deduction u/s. 80P(2) HELD THAT:- In Tumkur Merchants Souharda Credit Cooperative Ltd. [2015 (2) TMI 995 - KARNATAKA HIGH COURT] held that the amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to the members, as there were no takers. Therefore they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P(1) of the Act. Even otherwise, the decision of Tumkur Merchants Co-op. Society [2015 (2) TMI 995 - KARNATAKA HIGH COURT] are in favour of the assessee and the decision of Totagars Cooperative Sale Society [2017 (1) TMI 1100 - KARNATAKA HIGH COURT] is against the assessee. Therefore ld.AO has followed the one of the two possible views and allowed the claim of the assessee. When the ld.AO has followed one of the views, it cannot be said that the order of the AO is erroneous and prejudicial to the interests of the Revenue. Deciding the issue based on the decision of the Honourable Jurisdictional high court could not have been said that assessment order passed is unsustainable in law. In view of the above facts, we hold that the order passed by the ld. PCIT holding that the assessment order passed by the ld.AO is erroneous and prejudicial to the interests of the Revenue is not sustainable - Assessee appeal allowed. Issues: Whether interest income earned by a credit co-operative society from investments with cooperative banks (and certain banks) is deductible under Section 80P(2)(a)(i)/80P(2)(d) of the Income-tax Act, 1961 as income attributable to the business, or is taxable as income from other sources under Section 56; and whether the PCIT's revisionary order under Section 263 holding the assessment erroneous and prejudicial to the Revenue is sustainable.Analysis: The assessing officer issued a show cause and examined the claim under Chapter VIA, allowing deduction under Section 80P for interest from cooperative banks while treating a small amount from a commercial bank as taxable under Section 56. The Principal Commissioner invoked Section 263 relying on a contrary decision of the jurisdictional High Court to hold the assessment erroneous and prejudicial. The Tribunal examined contrary decisions of the jurisdictional High Court (including Tumkur Merchants and Totagars) which hold that interest on short-term deposits of funds attributable to the business of providing credit to members is 'attributable to' business profits and deductible under Section 80P. The Tribunal also applied the principle that where two reasonable views exist and the AO has adopted one view supported by judicial authority, the AO's order cannot be held erroneous and prejudicial to the revenue under Section 263 (as reflected in Max India precedent). The AO had followed one of the views available in law and granted deduction accordingly.Conclusion: The Tribunal held that the PCIT's revisionary order under Section 263 is not sustainable; the assessing officer's allowance of deduction under Section 80P in respect of the interest income was permissible and the appeal is allowed in favour of the assessee.