ITAT Visakhapatnam Permits Deduction U/S 80P on Income from Interest From Co-Operative Bank

In its recent ruling, the Income Tax Appellate Tribunal (ITAT), the Visakhapatnam Bench has said that according to Section 80P of the Income Tax Act, a deduction is available for the interest income generated from deposits or investments made with cooperative banks.

The panel consisting of Duvvuru Rl Reddy (Judicial Member) and S Balakrishnan (Accountant Member) has stated that Section 80P(2)(a)(i) allows cooperative societies for the deduction for the interest income obtained from investment in banks.

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The respondent, a primary agricultural cooperative credit society involved in providing credit facilities and agricultural inputs to its members, filed a return of income showing ‘nil’ income and claimed a deduction of Rs. 2,91,39,357 as specified in Section 80P(2).

After processing the return, a hike in income was noted due to the denial of the deduction claimed under Section 80P for a dividend amount of Rs. 3,70,365.

The respondent’s case was chosen for scrutiny through CASS to verify its investments, advances, loans, and deductions asserted under Chapter VIA. Under Section 143(2), a notification was issued.

The Assessing Officer (AO) concluded that the investments in banks were carried out from surplus funds unrelated to the respondent’s activity of offering credit benefits to its members.

Consequently, a show cause letter has been issued by the AO and a draft assessment order proposing to deny the deduction for the interest earnings obtained from entities apart from cooperative societies.

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The respondent put forth the argument that the interest income received from different banks should also meet the criteria for deduction under Section 80P.

The deduction claimed by the respondent was disallowed and the assessment was finalized by the AO.

The respondent appealed to the Commissioner of Income Tax (Appeals) [CIT (A)], who granted the appeal.

The argument was made by the department that CIT (A)’s order was incorrect and detrimental to the revenue’s interests. The AO was justified in adding Rs. 2,59,54,906 and Rs. 3,70,365 as disallowed deductions claimed by the respondent under Section 80P(2)(a)(i).

The tribunal upheld the ruling of the CIT (A) and denied the department’s appeal.