2024 (1) TMI 480 - AT - Income Tax

Deduction u/s. 80P - income earned as interest/dividend from co-operative bank - Claim disallowed in view of the provision of section 80P(4) - Assessee is not a Co- operative Bank carrying banking business and, therefore, not hit by the newly inserted provision of section 80P(4) of the Act - HELD THAT - As relying on Pathare Prabhu Co-operative Housing Society Ltd. 2023 (7) TMI 1272 - ITAT MUMBAI Income if any earned by way of interest or dividend from the investments made with any other Co- operative Bank as well, is allowable as deduction under section 80P(2)(d) of the Act. Accordingly the AO is directed to allow deduction qua interest earned from Co-operative Banks only but subject to verification. Assessee appeal allowed as aforesaid.

Summary

Issues Involved: Deduction u/s 80P(2)(a)(i) and 80P(2)(d) of the Income Tax Act, 1961, applicability of section 80P(4), and penalty u/s 271(1)(c).

Summary:

Issue 1: Deduction u/s 80P(2)(a)(i)

The Assessee claimed a deduction of Rs. 3,63,255/- u/s 80P of the Income Tax Act, 1961. The AO disallowed this deduction, stating that the Assessee is a Co-operative Bank and thus falls under the purview of section 80P(4). The AO concluded that the Assessee fulfills the conditions of a Primary Co-operative Bank and is therefore not eligible for the deduction u/s 80P(2)(a)(i).

Issue 2: Deduction u/s 80P(2)(d)

The ld. Commissioner held that the Assessee is eligible for deduction u/s 80P(2)(a)(i) on business income earned from its members but not for the interest income/dividend generated from co-operative banks u/s 80P(2)(d). The Assessee appealed against this decision. The Tribunal noted that section 80P(2)(d) allows deduction of income by way of interest or dividend derived from investments with any other Co-operative Society. The Tribunal referred to various cases, including Pathare Prabhu Co-operative Housing Society Ltd. vs. ITO, which held that interest/dividend income from Co-operative Banks is deductible u/s 80P(2)(d).

Issue 3: Applicability of Section 80P(4)

The Tribunal observed that section 80P(4) excludes Co-operative Banks from claiming deductions u/s 80P but does not affect the deduction claimed by Co-operative Societies from their investments in Co-operative Banks. The Tribunal cited the Supreme Court's decision in Mavilayi Service Co-operative Bank Ltd. v. CIT, which clarified that section 80P(4) is relevant only for Co-operative Banks and not for Co-operative Societies.

Issue 4: Penalty u/s 271(1)(c)

The AO initiated penalty proceedings u/s 271(1)(c) for furnishing inaccurate particulars of income. However, the Tribunal's decision on the main issues would influence the outcome of the penalty proceedings.

Conclusion:

The Tribunal allowed the Assessee's appeal, directing the AO to grant the deduction u/s 80P(2)(d) for interest earned from Co-operative Banks, subject to verification. All appeals under consideration were allowed on the same terms. The order was pronounced in the open court on 31-10-2023.