Interest Income from Deposits with Co-operative Banks qualifies for Deduction u/s 80P(2)(d) of Income Tax Act: ITAT [Read Order]

The Ahmedabad Bench of Income Tax Appellate Tribunal ( ITAT ) ruled that interest income earned from deposits with co-operative banks qualifies for a deduction under Section 80P(2)(d) of the Income Tax Act,1961.

The decision aligns with previous rulings that allow such deductions, emphasizing that only interest from co-operative banks, not scheduled banks, is eligible under this section.

The Salestax Employees Co- Operative Credit Society Ltd.,the appellant-assessee, filed its return on 05.10.2017, declaring NIL income. The case was selected for limited scrutiny, and statutory notices were issued. The AO found that the assessee earned Rs. 86,730 from FDR and Rs. 32,755 from savings bank interest, claiming deductions under section 80P of the act.

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The Assessing Officer(AO), citing the Supreme Court's decision in Totgar Co-operative Sales Society Ltd., ruled that this income did not qualify for deduction and disallowed the claims, adding the amounts to the assessee's income.

The assessee, being aggrieved, appealed before the Commissioner of Income Tax(Appeals)[CIT(A)], which was dismissed. The CIT(A) held that the interest of Rs. 86,730 from an FDR in Axis Bank was not allowable under section 80P(2)(d), while the assessee claimed the interest was from Ahmedabad District Co-operative Bank.

The assessee also argued that Rs. 88,956 interest was paid on a Loan CC account with the co-operative bank. Despite this, the CIT(A) denied the deduction and dismissed the rectification application under section 154, stating that the original order was not retrievable.

Being aggrieved, the assessee filed a second appeal with the tribunal, claiming that the CIT(A) erred in holding that the interest was received from Axis Bank. The assessee clarified that the interest of Rs. 86,730 was actually from Ahmedabad District Co-operative Bank. The assessee argued that, as a credit co-operative society, it was eligible for a deduction under section 80P(2)(d).

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The tribunal allowed the assessee's deduction for interest earned from deposits with co-operative banks under section 80P(2)(d), directing the AO to verify if Ahmedabad District Co-operative Bank is registered under the Co-operative Societies Act.

However, the deduction for interest from the savings account with Axis Bank was denied, as Axis Bank is a scheduled bank and not a co-operative bank. This denial was based on the Supreme Court ruling in Totgar's Co-operative Sale Society and the tribunal's decision in the Sardar Patel Co-operative Credit Society Ltd. case, which clarified that deduction under Section 80P(2)(d) is only applicable to interest earned from co-operative banks.

A single member bench Ramit Kochar (Accountant Member) partly allowed the appeal.

To Read the full text of the Order CLICK HERE

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