Appellate enhancement limits and section 80P(2)(d) deduction for co-operative bank interest income

An appellate authority cannot disallow an already-allowed deduction on interest income when no ground was raised by the assessee and no notice of enhancement was issued; doing so exceeds appellate jurisdiction and breaches natural justice. On merits, interest earned from investments with co-operative banks is stated to qualify for deduction under section 80P(2)(d). The resulting disallowance of the deduction was therefore unsustainable and was directed to be deleted.

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Issues: Whether the appellate authority could disallow the assessee's claim of deduction on interest income, even though the claim had already been allowed in rectification and no ground or notice of enhancement had been issued; and whether such interest income was deductible under section 80P(2)(d).

Analysis: The rectification order under section 154 read with section 143(1) had already allowed the deduction claimed on the interest income. The assessee had not raised any ground on this aspect before the appellate authority, yet the appellate authority proceeded to decide the matter against the assessee without issuing any notice of enhancement. Such adjudication was beyond the scope of appellate jurisdiction and contrary to natural justice. On merits, interest earned from investments with co-operative banks was held to qualify for deduction under section 80P(2)(d).

Conclusion: The disallowance of deduction on the interest income was not sustainable and was directed to be deleted.

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