Denial of S.80P(2)(d) Deduction on Interest Income: ITAT Grants Deduction for Cooperative Banks and Savings Accounts [Read Order]

The Delhi Bench of Income Tax Appellate Tribunal (ITAT) grants deduction under section 80P(2)(d) of Income Tax Act, 1961 on interest income from cooperative banks and savings accounts, overturning the denial by the Assessing Officer (AO) for the Assessment Years 2016-17, 2017-18, and 2018-19. 

Capital Co-operative Thrift and Credit Society, appellant-assessee, appealed against the order dated 12.06.2024 and 18.06.2024 passed by Commissioner of Income Tax (Appeals) [CIT(A)] for the AY 2016-17, 2017-18 and 2018-19,challenging the denial of deduction under section 80P(2)(d) of the Act on certain interest incomes.

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The assessee's counsel explained that the AO had denied the section 80P deduction for interest income of Rs. 47,93,807/- from banks and cooperative banks, treating it as “income from other sources” and not allowing related expenses under section 57. The counsel argued that interest from cooperative banks should be eligible for deduction under section 80P(2)(d), citing decisions from the Gujarat and Karnataka High Courts.

The counsel also stated that if the income was treated as income from other sources, proportionate expenses should be allowed. Additionally, interest from savings accounts should qualify for the deduction as it was earned from regular business deposits.

For AY 2018-19, the counsel raised issues about the late deposit of Provident Fund/Employee State Insurance [PF/ESI], claiming it was a double disallowance, and argued that the assessed income should not exceed the profit shown in the profit and loss account.

Read More: Eligibility for S.80P(2)(d) Deduction on Interest Income from Cooperative Banks: ITAT Upholds CIT(A) Order

The two member bench comprising Challa Nagendra Prasad (Judicial Member) and Brajesh Kumar Singh (Accountant Member) reviewed the case and found that the AO denied the section 80P deduction for interest on fixed deposits with scheduled banks, interest from cooperative banks, and interest from savings accounts used for business operations.

For fixed deposits, the appellate tribunal followed previous rulings and stated that the deduction was not allowed but directed the AO to reconsider expenses under section 57 of the Act. Regarding interest from cooperative banks, the ITAT ruled that the assessee was entitled to the deduction under section 80P(2)(d), following a Gujarat High Court decision.

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For savings accounts, the bench allowed the section 80P deduction, as the interest was earned from regular business operations.

The ITAT also directed the AO to review the PF and ESI disallowance for AY 2018-19 and to correct the incorrect income assessment raised by the assessee.

In short,the appeal filed by the assessee was partly allowed.

To Read the full text of the Order CLICK HERE

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