The Pune bench of Income Tax Appellate Tribunal (ITAT) has recently held that interest income earned on fixed deposits with the cooperative /scheduled bank is eligible for deduction under Section 80P (2)(a)(i) of Income Tax Act 1961.
The Assessee Jankalyan Nagari Sahakari Patsanstha Ltd. is a co-operative credit society. The Return of Income for the assessment year 2017-18 was filed after claiming deduction under Section 80P(2)(a)(i) of the Income Tax Act.
While passing the assessment order, AO denied the claim for exemption under Section 80P(2)(a)(i) Income Tax Act in respect of interest income on deposits made out of the surplus funds in cooperative bank and scheduled bank on the ground that the said income did not qualify for deduction under Section 80P(2)(a)(i) Income Tax Act.
Aggrieved by the order, the assessee filed an appeal before the National Faceless Appeal Centre, who dismissed the appeal . Thereafter the assesee filed a second appeal before tribunal .
Before the bench, the assessee submitted that interest income of Cooperative society is attributable to the activities of the society and therefore, eligible for exemption under Section 80P(2)(a)(i) of the Income Tax Act.
Piyush Kumar Singh Yadav, Counsel for the revenue submitted that the income arising on the surplus invested in short term deposits and securities could be attributed to the activities of the society and therefore, not eligible for exemption under Section 80P(2)(a)(i) of the Income Tax Act.
A single member bench of Inturi Rama Rao, (Accountant Member) allowed the appeal filed by the assessee and held that interest income earned on fixed deposits with cooperative/scheduled banks partakes the character of the business income, which is eligible for deduction under Section 80P(2)(a)(i) of the Income Tax Act.
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