The Income Tax Appellate Tribunal ( ITAT ) has ruled that the interest income from bank deposits is eligible for deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961.
The appellant, Nimshaskiya Madhyanik Shaley Karamchari Sahakari Sanstha Ltd, a cooperative society of teaching and non-teaching employees of Maharashtra Government Middle Schools, contested an order from the Commissioner of Income Tax (Appeals), which disallowed a deduction of ₹3,27,687 claimed for interest earned on deposits in a nationalised bank.
Initially, the assessee filed its return of income for the assessment year 2017-18, declaring a total income of ₹24,080 after claiming a significant deduction under Section 80P amounting to ₹14,28,366.
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The return was scrutinised due to the substantial deduction claimed, leading to notices under Section 143(2) for further details. The society maintained that it was compelled to open accounts with nationalised banks to safeguard the interests of its members following a significant loss incurred when a cooperative bank collapsed.
During the proceedings, the Assessing Officer (AO) acknowledged that while the cooperative society had a responsibility to protect its members’ funds, the income earned from these deposits was categorised as income from other sources, not qualifying for deductions under Chapter VIA (80P). Consequently, the AO restricted the deduction to exclude interest earned on such deposits.
The appellant further argued that the interest income was derived from their regular business activities and complied with legal requirements. They cited the decision of Chhattisgarh Urban Credit Sahakari Sanstha Maryadit Vs. ITO in which the ITAT ruled that similar interest income is eligible for deduction under Section 80P, emphasising that the purpose of the deposits was to secure the cooperative society’s operations and protect member investments.
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V Durga Rao, the Judicial member sided with the appellant, condoning a 22-day delay in filing the appeal and acknowledging the reasonable cause presented for this delay.
The Tribunal referred to previous rulings, including one from the Nagpur Bench, which affirmed that interest income earned by cooperative societies from bank deposits does qualify for deductions under Section 80P.
The ITAT set aside the order of the CIT(A) and ruled in favour of the appellant, allowing the claim for deduction under Section 80P.
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