Eligibility for Deduction u/s 80P(2)(d) for Interest Income from Co-operative Banks: ITAT Remands Case to AO [Read Order]

The Bangalore Bench of Income Tax Appellate Tribunal ( ITAT ) remanded the case to the Assessing Officer ( AO ) for fresh consideration regarding the eligibility for a deduction under Section 80P(2)(d) of Income Tax Act,1961 for interest income earned from co-operative banks.

Gangadhareshwara Souharda Pattina,appellant-assessee,is a Co-operative Society providing credit facilities to its members. During scrutiny, the AO noted interest income earned from investments in District Central Co-operative Bank, CBS Co-operative Bank, and Suco Bank. The AO disallowed the deduction under section 80P(2)(d) of the Income Tax Act, 1961 for this interest income.

The assessee appealed to the Commissioner of Income Tax (Appeals)[CIT(A)], claiming entitlement to a deduction under section 80P(2)(d) or 80P(2)(a)(i). The CIT(A) referred to previous judgments and found that the assessee was not a member of the co-operative banks where it earned interest income, and thus, was not eligible for the deduction under either section.

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The assessee aggrieved by the order of CIT(A) appealed before the tribunal.

The two member bench comprising Prakash Chand Yadav ( Judicial Member ) and Laxmi Prasad Sahu ( Accountant Member ) heard the arguments and reviewed the case materials. The assessee claimed a deduction under section 80P(2)(d) for interest income from three co-operative banks. It noted that the assessee admitted to earning interest by placing surplus funds with these banks.

Read More: Deduction u/s 80P(2)(d) of Income Tax Act Allowable on Interest Earned from Investment in Cooperative Bank: Madras HC

It referred to the Totgars Society judgment (395 ITR 611), which settled the issue of interest income from co-operative banks. It also found that the assessee was not entitled to a deduction under section 80P(2)(a)(i), as the activity wasn’t part of its main business. The interest income was taxed under “income from other sources,” and the assessee was allowed a deduction for the cost of funds, as per the PACC Vs. ITO judgment (164 taxmann.com 327). The matter was sent back to the AO for fresh consideration based on this ruling.

In short,the appeal filed by the assessee was allowed for statistical purposes.

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