2024 (4) TMI 877 - AT - Income Tax

Deduction u/s 80P2(a)(i) - allowance of interest on deposits earned by the cooperative society from fixed deposits in various bank accounts - HELD THAT - On similar set of facts, this Tribunal in the case of The Kakateeya Mutually Aided Thrift and Credit Coop Society Ltd. 2023 (9) TMI 211 - ITAT VISAKHAPATNAM held in favour of the assessee, relying on the decision of Vavveru Co-operative Rural Bank Ltd 2017 (4) TMI 663 - ANDHRA PRADESH HIGH COURT as held assessee has invested surplus funds out of the activities carried out as per the provisions of section 80P(2)(a) of the Act. We therefore are of the view that interest income should be allowed as deduction U/s. 80P(2)(a)(i) of the Act and thereby the Ld. CIT(A)- NFAC has rightly held by deleting the addition made by the Ld. AO and hence we find no infirmity in the order of the Ld. CIT(A) -NFAC. Appeals of the assessee are allowed.

Summary

Issues Involved:
1. Validity of notices issued u/s 148 and subsequent proceedings.
2. Eligibility of deduction u/s 80P(2)(a)(i) on interest income earned from fixed deposits.

Summary:

1. Validity of Notices Issued u/s 148 and Subsequent Proceedings:
The assessee challenged the validity of the notices issued u/s 148A(d) and 148 dated 31.03.2022, claiming they were contrary to the provisions of Sec. 144B and Sec. 151A of the Act. The Tribunal, however, did not address this issue as it was not pressed by the assessee (Ground No.2 dismissed as not pressed).

2. Eligibility of Deduction u/s 80P(2)(a)(i) on Interest Income:
The primary issue revolved around whether the interest income earned from fixed deposits with Krishna District Cooperative Central Bank Ltd. (KDCCBL) qualifies for deduction u/s 80P(2)(a)(i) of the Act. The AO disallowed the deduction, citing the Supreme Court's decision in Totgars Cooperative Sale Society Ltd. 322 ITR 283, which held that interest income from investments other than cooperative societies is not deductible u/s 80P(2)(a)(i).

The Tribunal, however, distinguished the facts of the present case from Totgars. It relied on the Andhra Pradesh High Court's decision in Vavveru Cooperative Rural Bank Ltd. [2017] 396 ITR 0371 (AP), which allowed deduction u/s 80P(2)(a)(i) for interest income earned from investments in banks, emphasizing that the original source of the funds was from activities listed in Sec. 80P(2)(a).

The Tribunal also referred to similar cases where the deduction was allowed, such as The Kakateeya Mutually Aided Thrift and Credit Co-operative Society Ltd. and Rangaraya Large Sized Cooperative Society. Consequently, the Tribunal quashed the order of the CIT(A) and allowed the assessee's appeal, granting the deduction u/s 80P(2)(a)(i).

Conclusion:
The Tribunal allowed the appeals of the assessee, affirming the eligibility for deduction u/s 80P(2)(a)(i) on interest income earned from fixed deposits with KDCCBL, following the jurisdictional High Court's precedent and distinguishing it from the Totgars case. The order was pronounced on 19th April, 2024.