Interest Income from Cooperative Bank Investments Eligible for Deduction u/s 80P(2)(d): ITAT [Read Order]

The Pune Bench of the Income Tax Appellate Tribunal (ITAT) ruled that interest income earned from investments in cooperative banks qualifies for deduction under Section 80P(2)(d) of the Income Tax Act, 1961.

Satara Z.P. Class Four Employees Cooperative Credit Society Ltd., the assessee, is a cooperative credit society engaged in accepting deposits and providing credit facilities to its members. The society filed its income tax return on 02.01.2021 for the Assessment Year 2020-21 declaring nil income after claiming a deduction of Rs. 13,39,682 under Section 80P(2)(d) of the Income Tax Act.

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The case was selected for scrutiny, and after due process, the Assessing Officer (AO) disallowed the interest income from fixed deposits in cooperative banks, treating it as income from other sources under Section 56 of the Income Tax Act. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO’s order for non-prosecution without addressing the merits of the claim.

On appeal before the ITAT, the society argued that cooperative banks are cooperative societies in essence and that interest earned from such investments should qualify for deduction under Section 80P(2)(d) of the Income Tax Act.

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The single-member bench, comprising Dr. Manish Borad (Accountant Member) referred to earlier ITAT rulings, including Kolhapur District Central Co-op. Bank Kanista Sevakanchi Sahakar Pat Sanstha Ltd. v. ITO and Ugar Sugar Works Kamgar & Dr. Shirgaokar Shaikshanik Trust Nokar Co-op Credit Society v. ITO, both of which held that interest earned from deposits in cooperative banks qualifies for deduction under Section 80P(2)(d), as cooperative banks remain cooperative societies with banking licenses. The tribunal set aside the CIT(A)’s order and directed the AO to allow the deduction of Rs. 13,39,682 under Section 80P(2)(d).

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