2023 (9) TMI 1436 - AT - Income Tax

Denial of deduction claimed u/s 80P (2)(d) - interest earned from Cooperative Banks - HELD THAT - Section 80P(2)(d) of the Act allows whole deduction of income by way of interest or dividend derived by Cooperative Society from its investments with any other co-operative society. This provision does not make any distinction with regard to the source of investment because this section envisages deduction in respect of any income derived by co-operative society from in his investment with a cooperative society. So, the Revenue is not required to look another of investment whether it was formed as required within time or otherwise. As decided in The Kot Ram Dass Coop. Thrift Credit Society Ltd. Jalandhar 2023 (6) TMI 871 - ITAT AMRITSAR investment of assessee in cooperative bank is eligible investment u/s 80P(2)(d) of the Act. The interest of the said investment related to Cooperative Society; the assessee is eligible for deduction u/s 80P(2)(a)(i) of the Act. The addition amount is quashed. Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of deduction claimed under Section 80P(2)(a)(i) of the Income Tax Act.
2. Justification of passing an ex-parte order by CIT(A)/NFAC.
3. Eligibility of interest earned from cooperative banks for deduction under Section 80P(2)(d).
4. Extent of disallowance of income claimed exempt in the return filed.

Summary:

1. Disallowance of Deduction Claimed under Section 80P(2)(a)(i):
The assessee contended that the CIT(A)/NFAC erred in confirming the addition of Rs. 94,13,739/- by disallowing the deduction claimed under Section 80P(2)(a)(i) for interest earned from cooperative banks. The ITAT Amritsar referred to a similar case, The Kot Ram Dass Coop. Thrift & Credit Society Ltd. Jalandhar vs. ITO-Ward 2(4), Jalandhar, where it was observed that cooperative societies investing surplus funds in cooperative banks and earning interest therefrom are eligible for deduction under Section 80P(2)(d).

2. Justification of Passing an Ex-Parte Order by CIT(A)/NFAC:
The assessee argued that CIT(A)/NFAC prematurely passed an ex-parte order while the earlier appeal for AY 2007-08 on the same issue was still pending. The ITAT did not specifically address this procedural grievance but focused on the substantive issue of the eligibility of the deduction.

3. Eligibility of Interest Earned from Cooperative Banks for Deduction under Section 80P(2)(d):
The ITAT Amritsar noted that the interest earned from cooperative banks should be eligible for deduction under Section 80P(2)(d). It cited several judgments, including Tumukur Merchants Souhard Credit Coop Ltd. vs. ITO and CIT vs. Doaba Co-op. Sugar Mills Ltd., supporting the view that cooperative banks fall under the larger umbrella of cooperative societies. Therefore, the interest earned from such banks qualifies for deduction under Section 80P(2)(d).

4. Extent of Disallowance of Income Claimed Exempt in the Return Filed:
The assessee contended that the disallowance should be restricted to Rs. 58,49,466/- as claimed in the return, rather than the additional disallowance of Rs. 36,13,739/-. The ITAT held that the assessee's investment in cooperative banks is eligible for deduction under Section 80P(2)(d), and thus, the entire addition of Rs. 94,13,739/- was quashed.

Conclusion:
The ITAT Amritsar allowed the appeal of the assessee, holding that the interest earned from cooperative banks qualifies for deduction under Section 80P(2)(d) of the Income Tax Act. The addition of Rs. 94,13,739/- was quashed, and the appeal was allowed in favor of the assessee.