2024 (9) TMI 1103 - AT - Income Tax

Disallowance of deduction u/s 80P(2)(d) - interest income earned by these cooperative society from other cooperative banks - whether the adjustment u/s 143(1)(a)(v) made by the central processing Centre is correct or not.? - HELD THAT - It is not the case that deduction under section 80P(2)(d) is a deduction provided by any monitoring limit or percentage ratio or fraction. Thus, claim of deduction under section 80P(2)(d) is also not classified as incorrect claim. Merely because part of the interest is disclosed by the assessee is interest income in profit and loss account and part of the income shown by the assessee under the head income from other sources does not change the character of the income and consequent deduction of such income, if available. Therefore, the claim of the assessee in the return of income is also not an incorrect claim. Thus, the adjustment of disallowance of deduction under that section is not permissible adjustment provided under section 143(1) of the act. Therefore the intimation passed under section 143(1) is not sustainable. Cooperative banks are also a co-operative society. Only difference is that those cooperative societies are doing the business of banking as per the banking companies act 1949. Therefore, merely because these cooperative societies cooperative bank they do not lose their status as a co-operative society. The assessee s investment of earning interest income from such cooperative banks which are also cooperative societies whole of such income is deductible under this section. It is not in dispute that assessee is not a cooperative bank and therefore provisions of section 80P(4) of the act does not apply to it. Thus the assessee is eligible for deduction u/s 80P(2)(d) on its income received from all the above cooperative banks - Assessee appeal allowed.

Summary

Issues:
1. Whether the assessee is entitled to deduction under section 80P(2)(d) of the Income Tax Act on interest income earned from cooperative banks.
2. Whether the adjustment made by the central processing Centre denying the deduction is correct.

Analysis:

Issue 1:
The appeal was filed by a housing cooperative society against the denial of deduction under section 80P(2)(d) for interest income earned from cooperative banks. The society had claimed a deduction of Rs. 417,010, but the central processing Centre adjusted the income and denied the deduction, assessing the income at Rs. 4,53,500. The key question was whether the assessee is entitled to the deduction under section 80P(2)(d) for interest income earned from cooperative banks, even if categorized as income from other sources.

Issue 2:
The Tribunal analyzed the provisions of section 143(1)(a) of the Income Tax Act, which allows adjustments to the total income of the assessee. It was noted that the disallowance of deduction under Chapter VI A can only be made for specific reasons, none of which applied in this case. The claim of the assessee was not considered an incorrect claim, as it did not exceed any specified statutory limit or percentage ratio. The Tribunal concluded that the adjustment denying the deduction was not permissible under section 143(1) of the act, rendering the intimation passed under section 143(1) unsustainable.

Issue 3:
In examining the merits of the case, the Tribunal referred to the definition of a cooperative society under section 2(19) of the Income Tax Act. It was highlighted that cooperative banks are also considered cooperative societies, as per the Maharashtra Co-operative Societies Act, 1960. The distinction was made that cooperative banks are cooperative societies engaged in banking activities as defined by the Banking Companies Act, 1949. Therefore, the status of being a cooperative society is not lost by operating as a cooperative bank.

Issue 4:
The Tribunal further delved into the provisions of section 80P(2)(d) of the Income Tax Act, which allows for the deduction of income by way of interest derived by a cooperative society from its investments with other cooperative societies. Since the assessee was not a cooperative bank, section 80P(4) did not apply, making the assessee eligible for deduction under section 80P(2)(d) for the interest income received from cooperative banks.

In conclusion, the Tribunal reversed the order of the Commissioner of Income Tax (Appeals) and allowed the appeal of the assessee, granting the deduction under section 80P(2)(d) for the interest income received from cooperative banks.