Deduction u/s 80P(2)(d) Confined to Co-operative Bank Deposits, RRB Interest Treated Separately with Expense Adjustment u/s 57(iii): ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Ahmedabad has ruled on the eligibility of deductions claimed by a co-operative credit society in respect of interest earned from deposits with co-operative banks and a regional rural bank.

The Tribunal examined whether such income qualifies for deduction under Section 80P(2)(d) of the Income Tax Act, 1961 (Act), and whether expenditure incurred can be deducted under Section 57 of the Income Tax Act, 1961.

The appellant, Ashapura Co-operative Credit Society Ltd., filed its return of income for Assessment Year 2017-18 declaring a total income of Rs. 140 after claiming deduction of Rs. 21,69,578 under Section 80P of the Act.

The Assessing Officer (AO) selected the case for limited scrutiny and disallowed the deduction of Rs. 16,88,927 claimed on interest income earned from deposits with co-operative and nationalised banks. The assessment order, passed under Section 143(3) of the Act, treated the income as “Income from Other Sources” under Section 56, and further denied deduction under Section 57 of the Act.

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the disallowance, leading to the present appeal before the Tribunal.

The appellant, represented by Shailesh Gandhi, argued that interest earned from deposits with co-operative banks qualifies for deduction under Section 80P(2)(d) of the Act, as such banks are also registered co-operative societies.

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It was also contended that the reliance of the AO and CIT(A) on Totgars Co-operative Sale Society Ltd. v. ITO (2010) was misplaced since that case dealt with nationalised banks and Section 80P(2)(a)(i) of the Act, not Section 80P(2)(d). The appellant further urged that even if the income was assessed under Section 56, proportionate expenditure of Rs. 12,38,996 should be allowed under Section 57(iii) of the Act.

The Revenue Authorities, represented by Amit Pratap Singh, supported the findings of the AO and CIT(A). It was argued that the appellant’s deposits with co-operative banks did not fall within the ambit of Section 80P(2)(d) of the Act, as co-operative banks are distinct from co-operative societies and governed by the Banking Regulation Act, 1949.

The Bench comprising Suchitra Kamble, Judicial Member and Makarand V. Mahadeokar, Accountant Member held that interest earned from deposits with co-operative banks is eligible for deduction under Section 80P(2)(d) of the Act in view of binding precedents of the Gujarat High Court.

However, interest of Rs. 8,27,887 earned from deposits with Dena Gujarat Gramin Bank, a regional rural bank, was held not eligible under Section 80P(2)(d). The Tribunal directed that proportionate expenditure relatable to such income be allowed under Section 57(iii) of the Act.

Consequently, deduction was permitted on interest income of Rs. 8,61,040 from co-operative banks under Section 80P(2)(d), while proportionate relief under Section 57 was allowed for the balance interest from the regional rural bank.

The appeal was partly allowed, with relief granted both under Section 80P(2)(d) of the Act for interest from co-operative banks and proportionate deduction under Section 57(iii) of the Act for interest from the regional rural bank.

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