Deduction under Section 80P allowed; interest reclassified to Other Sources to avoid double taxation and permitted deductions.

Tribunal allowed deductions under the Income-tax Act for a district/middle level cooperative society: it held section 80P(2)(b) applies where the society's activities are integrally linked with primary societies and prior consistent treatment supports the claim, and section 80P(2)(d) covers interest and dividend from cooperative banks/societies. The Tribunal reclassified interest already included in business profit to Income from Other Sources to avoid double taxation and declined any separate addition. The decision relied on binding coordinate-bench precedent and sustained the Assessing Officer's plausible view consistent with jurisdictional precedents.

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Issues: (i) Whether the assessee (district/middle level cooperative society) is eligible for deduction under section 80P(2)(b) of the Income-tax Act, 1961; (ii) Whether interest income of Rs. 34,79,487/- already included in profit should be additionally taxed under "Income from other sources" (i.e., whether it was taxed twice) and proper classification for computation; (iii) Whether interest and dividend income received from co-operative banks/societies are deductible under section 80P(2)(d) of the Income-tax Act, 1961.

Issue (i): Whether the assessee is entitled to deduction under section 80P(2)(b) of the Income-tax Act, 1961 despite being a district/middle level cooperative society.

Analysis: The Tribunal examined prior coordinate-bench precedent in the assessee's own case and other relevant authority, noted consistent claims of deduction in earlier assessment years and applied the principle of consistency. The coordinate-bench decision held that the assessee's activities (collecting milk from producers, quality checks, transportation, supplying to federation, etc.) interlink with primary societies and that section 80P(2)(b) should be read liberally in the facts. The Tribunal found no contrary change in facts or law and no material to distinguish the binding coordinate-bench ruling.

Conclusion: Deduction under section 80P(2)(b) of the Income-tax Act, 1961 is allowed in favour of the assessee.

Issue (ii): Whether interest income of Rs. 34,79,487/- included in net profit was subsequently taxed again under Income from Other Sources resulting in double taxation.

Analysis: The Tribunal reviewed the profit & loss computation and found interest income formed part of business receipts in the P&L. Proper computation requires removing interest from net profit and showing it under Income from Other Sources so that the net business income excludes that interest; the total taxable income remains correctly computed once reclassified (business income Rs.57,61,099 and other sources Rs.34,79,487 yielding total Rs.92,40,586). Tribunal held no additional separate addition should be made where interest already formed part of business income.

Conclusion: The interest income shall be reclassified and not double taxed; the ground is allowed in favour of the assessee.

Issue (iii): Whether interest and dividend earned from co-operative banks/societies are deductible under section 80P(2)(d) of the Income-tax Act, 1961.

Analysis: The Tribunal examined conflicting authorities and followed binding coordinate-bench Division Bench precedent (ITAT Rajkot dated 31/07/2024) and earlier Gujarat High Court decisions holding that interest/dividend from co-operative banks/societies are deductible under section 80P(2)(d). It analysed applicability of a later Gujarat High Court decision and concluded that earlier High Court precedents remain applicable and assessing officer's plausible view allowing deduction is sustainable in law; therefore deductions for interest/dividend from cooperative banks/societies are allowable.

Conclusion: Deduction under section 80P(2)(d) of the Income-tax Act, 1961 for interest and dividend from co-operative banks/societies is allowed in favour of the assessee.

Final Conclusion: The Tribunal allowed the appeal in part by permitting the assessee's claims: (i) deduction under section 80P(2)(b) allowed; (ii) reclassification of interest to avoid double taxation allowed; and (iii) deduction under section 80P(2)(d) for interest/dividend from cooperative banks/societies allowed. The decision follows binding coordinate-bench precedents and results in the appeal being allowed.

Ratio Decidendi: Section 80P(2)(b) and 80P(2)(d) of the Income-tax Act, 1961 are to be applied so as to allow deductible income where the cooperative society's activities and prior consistent treatment support the claim; income by way of interest or dividend derived from investments with other co-operative societies/banks qualifies for deduction under section 80P(2)(d); a plausible view taken by the Assessing Officer consistent with binding jurisdictional precedents is sustainable and not susceptible to revision under section 263 of the Income-tax Act, 1961.

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