Deduction u/s 80 P of Income Tax Act does not apply to Interest earned on FDRs from Bank of Baroda: ITAT [Read Order]

The Ahmedabad bench of the Income Tax Appellate Tribunal ( ITAT ) observed that deduction under Section 80 P of the Income Tax Act, 1961 does not apply to interest earned on Fixed Deposit Receipts ( FDRs ) from Bank of Baroda

The Assessment Year 2017-18, the assessee  filed a return of income declaring total income of Rs. Nil, claiming a deduction of Rs. 26,82,953/- under Chapter VI-A of the Income Tax Act, 1961. The taxpayer's return was chosen for scrutiny under the Computer Assisted Scrutiny Selection ( CASS ) system, and notices under Section 143(2) of the Income Tax Act, 1961 were issued on 09.08.2018 and 12.09.2018, which were duly served. In response, the taxpayer provided details indicating engagement in providing credit facilities to its members as a Cooperative Society.

Throughout the year, the assessee earned interest of Rs. 69,801/- on investments made with Bank of Baroda, in addition to providing loans to its members. Consequently, the Assessing Officer categorized this income under the head of "income from other sources."

Moreover, the Assessing Officer noted that Bank of Baroda was not a Cooperative Society, leading to the conclusion that investments made with this bank and the interest earned thereon are not eligible for deduction under Section 80P of the Income Tax Act, 1961. Therefore, the Assessing Officer added Rs. 69,801/- to the assesssee’s income and treated it as income from other sources.

The counsel for the aseessee Parin Shah argued that proportionate interest should be allowed, citing the decision of the Jurisdictional High Court in the case of CIT vs. Sabarkantha District Cooperative Milk Producers Union Limited. Additionally, the counsel referred to the decision in the case of Surat Vankar Sahakari Sangh Limited vs. ACIT which considered the ruling of the Karnataka High Court in the case of Totgars Cooperative Sales Society, as well as the decision of the Apex Court in the case of Totgars Cooperative Sale Society Limited vs. ITO

The counsel for the revenue Yogesh Mishra based their argument on the Assessment Order and the order of the Commissioner of Income Tax (Appeals), further referring to the decisions of the Apex Court and the Karnataka High Court in the case of Totgars Co-operative Sales Society. He emphasized that deductions claimed by the Co-operative Society must pertain to operational income and not any other income accruing to the society.

The Bench noted that the issue in the current Assessment Year mirrors that of Assessment Years 2018-19 & 2020-21, which was previously adjudicated by the Tribunal. For the current Assessment Year, the interest obtained from Kheda District Co-operative Bank amounts to Rs. 3,97,672/- and is therefore eligible for deduction under Section 80P(2)(d) of the Income Tax Act, 1961, in accordance with the decision of the Gujarat High Court in the case of Sabarkantha District Co-operative Milk Producers Union Limited ( supra ).

Consequently, the argument relied upon by the counsel for the revenue will not be applicable in this scenario, as the said decision of the Apex Court was considered by the Jurisdictional High Court.

The single member bench of the tribunal comprising Suchithra Kamble ( Judicial member ) Regarding the interest earned from Bank of Baroda, expenses incurred for earning interest income on Fixed Deposit Receipts ( FDRs ) from Bank of Baroda should be allowed, but deduction under Section 80P of the Act will not be applicable to the interest earned on the FDR from Bank of Baroda. Therefore, the appeal of the assessee was partly allowed.

In the result, appeal of the assessee was partly allowed.

To Read the full text of the Order CLICK HERE

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