2024 (10) TMI 640 - AT - Income Tax

Deduction u/s 80P(2)(a)(i)/80P(2)(d) - income earned from cooperative society - AO disallowed such deduction by taking view that such interest income is not earned from co-operative society rather earned from co-operative bank and to be taxed as income from other sources - HELD THAT - We find that assessee in its profit and loss account besides other interest income earned from Gujarat Electricity Board and interest income on the Assessing Officer while passing assessment order disallowed deduction of interest and dividend earned from Surat District Co-Operative Bank of Rs. 3.02 crores and figure so arrived dividend and interest from co- operative bank which includes interest from G.G.C.L., GEB and interest on savings accounts aggregate. NFAC/Ld.CIT(A) confirmed the action of AO. Before us assessee submits that he has confined its claim to the extent of interest income of Rs. 3,00,21,194/- which is interest income from Surat District Co-Operative Bank. We find that in a series of decisions of various Tribunals as well High Courts held that co-operative banks are primarily as co-operative society As in the case of Surat Vankar Sahakari Sangh Ltd. 2016 (7) TMI 1217 - GUJARAT HIGH COURT wherein also held that co-operative societies are eligible for deduction under section 80P(2)(d) in respect of gross interest received from co-operative bank without adjusting interest paid to the said bank. This combination in a series of decisions also held that interest earned by cooperative society from cooperative bank is eligible for deduction under section 80P(2)(d). Thus, we find that ground of appeal raised by assessee to the extent of interest earned from Surat District Co-operative Bank is allowable. To make more clear, the other part of deduction which include interest from other institution except co-operative societies are not eligible - Appeal of assessee is partly allowed.

Issues:
1. Disallowance of deduction under section 80P(2)(d) of the Income Tax Act.
2. Interpretation of income earned from cooperative society for tax purposes.
3. Application of judicial pronouncements on the claim of deduction under section 80P(2)(d).
4. Assessment based on documentary evidence and explanations provided by the assessee.
5. Legal perspective on the nature of cooperative banks and societies for tax exemptions.

Analysis:

1. The appeal was against the order of the National Faceless Appeal Centre confirming the assessment order passed by the Assessing Officer disallowing deductions claimed under Chapter VIA of the Act. The assessee contested the disallowance of deductions amounting to Rs. 6,12,18,004 under section 143(3) of the Act, citing misinterpretation of law and arbitrary observations. The grounds of appeal included challenges to the denial of deduction under section 80P(2)(d) for income earned from investments with other cooperative societies. The assessee argued that the denial was arbitrary, misconceived, and contrary to judicial pronouncements, leading to a request for the order to be quashed.

2. The Authorized Representative for the assessee contended that the issue revolved around the disallowance of deduction under section 80P(2)(d) by the Assessing Officer, who included interest income not claimed by the assessee in the computation of total income. The Assessing Officer relied on a Karnataka High Court decision and disallowed the deduction, which was contested by the assessee citing various tribunal decisions and a recent Supreme Court judgment. The argument was supported by the distinction between cooperative banks and societies, emphasizing the entitlement of cooperative credit societies for exemptions under section 80P(2).

3. The Senior-DR for the Revenue supported the lower authorities' decision to tax the interest income earned by the assessee as "income from other sources." However, the Tribunal analyzed the facts and legal precedents to determine the eligibility of the assessee for deduction under section 80P(2)(d). The Tribunal noted that interest income from cooperative banks was considered eligible for deduction under section 80P(2)(d) based on various decisions, including a judgment of the jurisdictional High Court. Consequently, the Tribunal allowed the appeal partially, granting relief to the assessee for the interest earned from the cooperative bank.

4. The Tribunal considered the documentary evidence and explanations provided by the assessee, emphasizing the specific interest income from the Surat District Co-Operative Bank as eligible for deduction under section 80P(2)(d). The Tribunal highlighted the consistent legal interpretation that cooperative societies are entitled to deductions for interest received from cooperative banks without adjusting interest paid to the bank. This analysis led to the partial allowance of the appeal, granting relief to the assessee for the interest income from the cooperative bank.

5. The Tribunal's decision clarified the distinction between interest income earned from cooperative societies and other institutions for the purpose of tax exemptions under section 80P(2)(d). By aligning with previous judicial pronouncements and recognizing cooperative banks as cooperative societies, the Tribunal allowed relief to the assessee for the interest income specifically earned from the Surat District Co-Operative Bank. The appeal was partly allowed based on the legal perspective on cooperative banks and societies for tax exemptions, as established in relevant case laws.

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