2019 (3) TMI 469 - AT - Income Tax

Deduction u/s 80P(2)(a)(i) - interest earned from deposits with nationalized bank - treatment as income from other sources - HELD THAT - Identical issue on denial of claim of deduction u/s 80P of the Act on the interest earned from deposits from banks arose in the case of Swa Ashokrao Bankar Nagar Sah. Patsanstha Maryadit 2017 (5) TMI 1655 - ITAT PUNE wherein following the order of the Tribunal in the case of ITO Vs. Niphad Nagari Sahakari Patsanshta Ltd 2015 (1) TMI 1004 - ITAT PUNE and other decisions decided the issue in favour of the assessee.

Summary

Issues Involved:
Denial of deduction under Section 80P(2)(a)(i) for interest earned from deposits with nationalized banks.

Issue-wise Detailed Analysis:

1. Background of the Case:
The appeal was filed by the assessee, a Co-operative Society, against the order of the Commissioner of Income Tax (Appeals) – 7, Pune, dated 27.04.2018, concerning the assessment year 2015-16. The assessee's main activities include accepting deposits and granting loans to its members. For the assessment year 2015-16, the assessee electronically filed its return of income on 23.09.2015, declaring a total income of Rs. Nil. However, the assessment was framed under section 143(3) of the Income Tax Act, 1961, determining the total income at ? 20,16,130/-. The assessee was aggrieved by this order and appealed to the CIT(A), who granted partial relief. Dissatisfied with the CIT(A)'s decision, the assessee further appealed to the ITAT Pune.

2. Denial of Deduction under Section 80P(2)(a)(i):
The primary issue was the denial of the deduction under Section 80P(2)(a)(i) for the interest income earned from deposits with nationalized banks amounting to ? 19,83,126/-. The Assessing Officer (AO) noticed that the interest income from nationalized banks was claimed as a deduction under Section 80P(2)(a)(i). The AO opined that this interest income did not qualify for the deduction as it was not derived from the main business activities of the assessee. Consequently, the AO treated the interest income as "income from other sources" and denied the deduction. The CIT(A) upheld the AO's decision, leading to the current appeal.

3. Assessee's Argument:
The assessee's representative argued that the issue was covered in favor of the assessee by the decision of the Pune Tribunal in the case of ITO Vs. Swa Ashokrao Bankar Nagar Sah. Patsanstha Maryadit (ITA No.1395/PUN/2015 dated 25.01.2018). The facts of the case under consideration were identical to the aforementioned case, where the issue was decided in favor of the assessee.

4. Tribunal's Analysis:
The Tribunal reviewed the rival submissions and the material on record. It noted that the issue of denial of deduction under Section 80P(2)(a)(i) on interest earned from bank deposits had been addressed in several cases, including Swa Ashokrao Bankar Nagar Sah. Patsanstha Maryadit and Niphad Nagari Sahakari Patsanshta Ltd. The Tribunal cited multiple decisions where it was held that interest income from bank deposits was eligible for deduction under Section 80P(2)(a)(i).

5. Relevant Precedents:
The Tribunal referred to the decision in the case of Tumkur Merchants Souhards Credit Cooperative Ltd. Vs. ITO, where the Karnataka High Court held that interest earned from short-term deposits with banks was entitled to deduction under Section 80P(2)(a)(i). The Tribunal also considered the contrary decision by the Delhi High Court in Mantola Cooperative Thrift & Credit Society Ltd. Vs. CIT but followed the principle that when two views are possible, the view in favor of the assessee should be adopted.

6. Conclusion:
The Tribunal concluded that the interest income of ? 19,83,126/- earned by the assessee on deposits with nationalized banks was eligible for deduction under Section 80P(2)(a)(i) of the Act. The Tribunal directed that the deduction be allowed, thereby allowing the appeal of the assessee.

Judgment:
The appeal of the assessee was allowed, and the order was pronounced on 1st March 2019.