The Visakhapatnam Bench of Income Tax Appellate Tribunal ( ITAT )ruled that a cooperative society is eligible for an income tax deduction under Section 80P(2)(a)(i) for interest income derived from bank deposits.
Lankapalli PACS Ltd,the appellant -assessee, was a Primary Agricultural Cooperative Society that provided credit to its members. During the assessment year, it earned Rs. 1,28,27,351/- in interest income, including Rs. 22,77,972/- from bank investments. The assessee had claimed a deduction on the entire interest income under Section 80P.
However, the Assessing Officer ( AO ) observed that the interest from bank deposits, derived from surplus funds, should be classified as “income from other sources” under Section 56, and was therefore not eligible for deduction under Section 80P.
Despite the assessee’s submissions, the AO disallowed the claim and taxed Rs. 22,77,972/- as income from other sources, issuing the assessment order on 20/09/2022. The assessee then appealed this decision to the Commissioner of Income Tax(Appeals)[CIT(A)] where the appeal was dismissed. The assessee aggrieved by the decision of the CIT(A) appealed before the tribunal.
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The tribunal analyzed whether the interest income from deposits made by the assessee was eligible for deduction under Section 80P. The key contention from the assessee was that the deposits were made in compliance with cooperative regulations and not intended for profit from other sources. The assessee also differentiated its case from the precedent of M/s. Totgars Cooperative Sale Society Ltd., emphasizing that the facts were not analogous.
The appellate tribunal noted that the provisions of Section 80P permit deductions for cooperative societies engaged in providing credit facilities, stating that the interest income from deposits made in cooperative banks could indeed be part of the operational business activities. It referenced a previous ruling from a coordinate bench favoring the assessee in a similar context, where interest income earned from deposits was deemed part of the primary business activity of the cooperative society.
A single bench of Duvvuru RL Reddy(Judicial Member) found that the facts in the current appeal were distinguishable from prior rulings and supported the assessee’s claim for deduction under Section 80P for the interest earned on deposits.
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The tribunal therefore ruled in favor of the assessee, quashing the CIT(A)’s order and allowing the deduction under Section 80P of the Act.
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