2024 (3) TMI 1354 - AT - Income Tax

Deduction u/s 80P - interest income from deposit(s) made with Co-operative/Scheduled bank(s) as well as from nominal members in course of regular business activity - HELD THAT - As decided in The Rena Sahakari Sakhar Karkhana Ltd 2022 (1) TMI 419 - ITAT PUNE AO while framing the assessment had taken a possible view, and allowed the assessee s claim for deduction under Sec. 80P(2)(d) on the interest income earned on its investments/deposits with co-operative banks, therefore, the Pr. CIT was in error in exercising his revisional jurisdiction u/s 263 of the Act for dislodging the same. Decided against revenue.

Summary

Issues Involved:
1. Deletion of disallowance of deduction under section 80P of the Income Tax Act, 1961.
2. Eligibility of interest earned from investments with a cooperative society for deduction under section 80P(2)(d) of the Income Tax Act, 1961.
3. Consideration of the decision of the Karnataka High Court in the case of Pr. Commissioner of Income Tax vs. Totagars Cooperative Sale Society.

Detailed Analysis:

1. Deletion of Disallowance of Deduction under Section 80P of the Income Tax Act, 1961:
The Revenue argued that the CIT(A) erred in deleting the disallowance of the deduction claimed under section 80P of the Income Tax Act, 1961, amounting to Rs. 1,84,73,670/-. This deduction was claimed by the assessee as interest earned from a cooperative bank. The Revenue referenced the Supreme Court decision in Totgars Co-operative Sales Society Ltd. vs. ITO, where it was held that interest income earned by a cooperative society from surplus funds is taxable under 'Income from other sources' and does not qualify for deduction as business income under section 80P(2)(a)(i) of the Act. The Tribunal, however, upheld the CIT(A)'s decision, noting that the issue is no longer res integra and referenced its recent coordinate bench's order in The Rena Sahakari Sakhar Karkhana Ltd. vs. PCIT, which rejected similar arguments from the Revenue.

2. Eligibility of Interest Earned from Investments with a Cooperative Society for Deduction under Section 80P(2)(d) of the Income Tax Act, 1961:
The Revenue contended that the CIT(A) erred in holding that interest earned by the assessee on its surplus investments with a cooperative society is eligible for deduction under section 80P(2)(d) of the Income Tax Act, 1961. The Tribunal examined the statutory provision and concluded that interest income derived by a cooperative society from its investments with another cooperative society qualifies for deduction under section 80P(2)(d). The Tribunal emphasized that the term 'co-operative society' as defined under section 2(19) includes cooperative banks, and thus, interest income from such banks is eligible for deduction. The Tribunal also noted that the insertion of sub-section (4) to section 80P does not affect the eligibility for deduction under section 80P(2)(d).

3. Consideration of the Decision of the Karnataka High Court in the Case of Pr. Commissioner of Income Tax vs. Totagars Cooperative Sale Society:
The Revenue argued that the CIT(A) did not give due consideration to the Karnataka High Court's decision in Pr. Commissioner of Income Tax vs. Totagars Cooperative Sale Society, where it was held that a cooperative society is not eligible for deduction under section 80P(2)(d) on interest income earned from deposits in a cooperative bank. The Tribunal acknowledged the conflicting judicial pronouncements on this issue but chose to follow the decisions in favor of the assessee, including those of the Karnataka High Court in Pr. Commissioner of Income Tax and Anr. vs. Totagars Cooperative Sale Society and the Gujarat High Court in State Bank Of India vs. CIT. The Tribunal concluded that the interest income earned by a cooperative society from investments held with a cooperative bank is eligible for deduction under section 80P(2)(d).

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to delete the disallowance of the deduction claimed under section 80P. The Tribunal held that the interest income earned by the assessee from investments with a cooperative society qualifies for deduction under section 80P(2)(d) and that the CIT(A) had rightly considered the relevant judicial pronouncements. The Tribunal's order was pronounced in the open Court on 26.03.2024.