2023 (11) TMI 1277 - AT - Income Tax

Disallowance of claim u/s 80P(2)(d) - assessee earned interest on Fixed Deposits from the S. K. District Co-operative Bank Ltd. as well as Dena Bank - HELD THAT - As per the decision of Hon ble Gujarat High Court in case of Sabarkanta District Co-op. Milk Producers Union Ltd. 2014 (6) TMI 977 - GUJARAT HIGH COURT the credit society is allowed deduction u/s 80P(2)(d) of the Act, if the interest on FD is earned from District Cooperative Bank. Therefore, in the present assessee s case the same should have been considered by the CIT(A). Thus, it is directed to the AO to allow the assessee benefit of deduction u/s 80P(2)(d) in respect of interest earned on FD from S.K. District Co-op. Bank Ltd. and disallowance to the interest earned from Dena Bank is upheld. Appeal of the assessee is partly allowed.

Summary

Issues:
1. Disallowance of claim under Section 80P(2)(d) of the Income Tax Act, 1961.
2. Interpretation of provisions of Section 80P(2)(d) for deduction eligibility.
3. Treatment of interest income from District Co-operative Banks.

Analysis:
The appeal was filed against the order passed by CIT(A)-11, Ahmedabad for the Assessment Year 2014-15, where the Assessee challenged the disallowance made by the AO of the claim under Section 80P(2)(d) of the Act amounting to Rs. 4,12,210. The Assessee, a Co-operative Mandali providing banking credit facility, had filed its return showing total income of Nil after claiming a deduction under Section 80P. The Assessing Officer disallowed interest received on Fixed Deposits with Banks totaling Rs. 4,12,210, leading to the appeal.

The Assessee contended that it is eligible for deduction under Section 80P(2)(a)(i) as a Credit Society providing credit facilities to members, and the interest income is incidental to its business. The Assessee argued that as per the decision of the Hon'ble Gujarat High Court, interest earned from District Co-operative Banks should be allowed for deduction. The Revenue, however, argued that interest from District Co-operative Banks cannot be equated with business income and should be treated as income from other sources.

After hearing both parties, the Tribunal noted that the Assessee earned interest on Fixed Deposits from District Co-operative Banks. Referring to the Gujarat High Court decision, the Tribunal directed the Assessing Officer to allow the Assessee the benefit of deduction under Section 80P(2)(d) for interest earned from S. K. District Co-operative Bank Ltd., while upholding the disallowance for interest earned from Dena Bank. The appeal of the Assessee was partly allowed, emphasizing the distinction in treatment based on the source of interest income from different banks.

In conclusion, the Tribunal's decision clarified the eligibility of the Assessee for deduction under Section 80P(2)(d) for interest income from District Co-operative Banks, aligning with the precedent set by the Gujarat High Court. The judgment highlights the importance of correctly interpreting and applying tax provisions to determine the admissibility of deductions based on the nature and source of income.