2024 (4) TMI 1171 - AT - Income Tax

Deduction u/s. 80P(2)(d) - interest income earned on the deposits made with the Citizen Credit Co-Operative Bank is not an allowable deduction as this bank is a commercial bank and does not fall under the definition of co-operative society - HELD THAT - The assessee submitted paper books and placed reliance on various decisions of the ITAT, Mumbai on this issue and also placed specific reliance on the decision of Blue Rose Industrial Premises Cooperative Society 2024 (7) TMI 1082 - ITAT MUMBAI for the assessment year 2020- 21 in which one of the Members of this bench had decided the issue in the favour of the assessee. Thus in view of the considered view taken by the Hon ble Coordinate Benches of the Tribunal, the income, if any, earned by way of interest from the investments made with any other cooperative bank including the Citizen Co-operative Bank is allowed as a deduction u/s. 80P(2)(d) of the IT Act. Appeal filed by the assessee is allowed.

Summary

Issues:
Claim for deduction disallowed based on bank classification under section 80P(2)(d) of the Income Tax Act.

Detailed Analysis:
The appeal was filed against the order of the Ld. CIT (Appeals) under section 250 of the Income Tax Act for the assessment year 2016-17. The main issue raised was the disallowance of a deduction of Rs.1,19,91,314/- by the assessing officer. The disallowance was based on the grounds that interest income earned from deposits with a commercial bank, the Citizen Credit Co-Operative Bank, was not eligible for deduction as it did not fall under the definition of a co-operative society as per section 80P(2)(d) of the Income Tax Act.

During the hearing, the assessee submitted paper books and relied on various decisions of the ITAT, Mumbai, including a specific decision of Blue Rose Industrial Premises Cooperative Society v. CIT Appeal. The decision highlighted the divergent views of the Hon'ble Karnataka High Court on the issue of eligibility of deduction under section 80P(2)(d) of the Act in respect of interest earned from a Co-operative Bank. The Tribunal referred to the principle laid down by the Hon'ble Supreme Court in CIT v. Vegetable Products Ltd, stating that if two reasonable constructions of a taxing provision are possible, the one favoring the assessee must be adopted.

Based on the view taken by the Coordinate Benches of the Tribunal, it was concluded that income earned as interest from investments made with any cooperative bank, including the Citizen Co-operative Bank, is allowed as a deduction under section 80P(2)(d) of the Income Tax Act. Consequently, the appeal filed by the assessee was allowed, and the impugned order disallowing the deduction was set aside.

In conclusion, the Tribunal upheld the plea of the assessee and directed the Assessing Officer to grant the deduction under section 80P(2)(d) of the Act for the interest income earned from investments with Co-operative Banks, including the Citizen Co-operative Bank. The decision was based on the interpretation of the relevant provisions and the principle of adopting a construction favoring the assessee in case of divergent views.