TaxTMI 
TaxTMI 
2026 (1) TMI 1647
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....ating from separate Assessment Order u/s. 143(3) of the I.T. Act, dated 15.12.2019 and 24.02.2021 respectively. For the sake of convenience, these two appeals were heard together and are being disposed of by this common order. We treat appeal for A.Y. 2017-18 as lead appeal. The Assessee for A.Y. 2017-18 has raised the following grounds of appeal : "1. On the facts and in the prevailing circumstances of the case and in law, the learned CIT Appeal, erred in disallowing the deduction of Rs. 60,32,500/- on account of unexplained cash and Rs. 6,48,075/on account of interest income earned out of Investments with Cooperative/Nationalized Bank and which is eligible for deduction u/s 80P(2)(d) or 80P(2)(a) (i) of the IT Act. ....
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....assessment order accepted that the impugned amount pertains to the members of the Assessee Society. However, Assessing Officer made an addition of Rs. 60,32,500/- under section 68 of the Act. 4. Assessing Officer held that the interest income of Rs. 6,48,075/- earned by Assessee from State Bank of India and Bank of India is not eligible for deduction u/s. 80P(2)(a)(i) of the Act. Therefore, Assessing Officer disallowed interest income of Rs. 6,48,075/- and added back to the total income of the Assessee. It is important to mention here that total deduction claimed by Assessee under section 80P(2)(a) was of Rs. 26,28,869/-. Thus, out of Rs. 26,28,869/-, Assessing Officer has disallowed only Rs. 6,48,075/- and ....
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.... Bank of India. The Assessing Officer had not allowed deduction claimed under section 80P(2)(a)(i) of the Act, on the said interest income. This issue is squarely covered in favour of the Assessee. 8.1 The Hon'ble High Court of Andhra Pradesh and Telangana in the case of Vavveru Co-operative Rural Bank Ltd. [2017] 396 ITR 371 analysed the provisions of Section 80P, succinctly distinguished the decision of Hon'ble Supreme Court in the case of Totagars Cooperative Sale Society, and held as under : Quote, "8. Therefore, the real controversy arising in these writ petitions is as to whether the income derived by the petitioners by way of interest on the fixed deposits made by them with the banks, is to be treated as profits and gains....
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....t pay to its members the proceeds of the sale of their produce, but invested the same in banks. As a consequence, the investments were shown as liabilities, as they represented the money belonging to the members. The income derived from the investments made by retaining the monies belonging to the members cannot certainly be termed as profits and gains of business. This is why Totgar's struck a different note. 35. But, as rightly contended by the learned senior counsel for the petitioners, the investment made by the petitioners in fixed deposits in nationalised banks, were of their own monies. If the petitioners had invested those amounts in fixed deposits in other co-operative societies or in the construction of godowns and wa....
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....ld as under : Quote "7. On a consideration of the rival submissions, we are of the view that for the reasons stated hereinafter, the question of law that arises for consideration before us must be answered against the Revenue and in favour of the assessee. The permissible deduction that is envisaged under Section 80P(2) of the I.T. Act for a Co-operative Society that is assessed to tax under the head of 'Profits and Gains of Business or Profession' is of the whole of the amount of profits and gains of business attributable to any one or more of its activities. Thus, all amounts as can be attributable to the conduct of the specified businesses by a Co-operative Society will be eligible for the deduction envisaged under the s....
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....ies to its members. The nature and character of the principal income [profits earned by the assessee from its lending activity] does not change merely because the assessee acted in a prudent manner by depositing that income in a bank, instead of keeping it in hand. The provisions of the I.T. Act cannot be seen as intended to discourage prudent financial conduct on the part of an assessee." Unquote 9.1 Thus, Hon'ble Kerala High Court has held that the character of income does not change. The Hon'ble Kerala High Court held that interest earned from deposits in permitted banks will be eligible for deduction u/s. 80P of the Act. The Hon'ble Kerala High Court's decision is dated 04.09.2024 means, after the decision of Hon'ble Supreme Court in....