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2024 (11) TMI 568 - AT - Income TaxDeduction u/s. 80P(2)(d) - interest earned on the appellant s interest income from investment with KDCC Bank - HELD THAT - As in this case the 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 by respectfully following in the case of Vavveru Cooperative Rural Bank Ltd. 2017 (4) TMI 663 - ANDHRA PRADESH HIGH COURT and case of Kakateeya Mutually Aided Thrift and Credit Co-op Society Limited. 2023 (9) TMI 211 - ITAT VISAKHAPATNAM held that interest income should be allowed as deduction u/s. 80P(2)(a)(i) of the Act - Assessee appeal allowed.
Issues Involved:
1. Disallowance of deduction claimed under Section 80P of the Income Tax Act, 1961. Issue-wise Detailed Analysis: Disallowance of Deduction under Section 80P: The primary issue in this appeal concerns the disallowance of the deduction claimed by the assessee under Section 80P of the Income Tax Act, 1961. The assessee, a Primary Agricultural Cooperative Society, sought a deduction for interest income earned from investments with cooperative banks, specifically Krishna District Co-op. Central Bank Ltd. The Assessing Officer (AO) contended that such interest income should be classified as "income from other sources" under Section 56 of the Act, rather than "profits and gains of business." Consequently, the AO denied the deduction under Section 80P, which is available only for profits and gains from the business of providing credit facilities to members. The assessee argued that the interest income was integral to its business operations and should be eligible for deduction under Section 80P. The assessee also differentiated its case from the precedent set in M/s. Totgars Cooperative Sale Society Ltd., asserting that the facts were distinguishable. The assessee emphasized that its investments were made in compliance with statutory regulations and were not intended to generate income from other sources. Upon appeal, the CIT(A)-NFAC upheld the AO's decision, maintaining the disallowance of the deduction. The assessee further appealed to the Tribunal, arguing that the CIT(A) erred in not considering the jurisdictional High Court's favorable judgment and in not differentiating the case law relied upon by the AO. The Tribunal examined whether the interest income from reserve fund deposits with the cooperative bank qualified for deduction under Section 80P. It acknowledged that the AO relied on the Supreme Court's decision in M/s. Totgars Cooperative Sale Society Ltd., which held that income from surplus funds invested in short-term deposits is not eligible for deduction under Section 80P. However, the Tribunal noted that the facts in the present case were distinguishable. It referenced a similar case, Kakateeya Mutually Aided Thrift and Credit Co-op Society, where the Tribunal ruled in favor of the assessee. The Tribunal highlighted that Section 80P(1) allows cooperative societies to deduct sums specified in sub-section (2) from their gross total income. Sub-section (2)(a) provides deductions for cooperative societies engaged in specific activities, such as banking or providing credit facilities to members. The Tribunal emphasized the distinction between activity-based deductions under clauses (a) and investment-based deductions under clauses (d) and (e) of Section 80P(2). The Tribunal also referred to the jurisdictional High Court's decision in Vavveru Cooperative Rural Bank Ltd., which held that interest income from investments in nationalized banks, derived from activities listed in Section 80P(2)(a), retains its character and is eligible for deduction. The Tribunal concluded that the assessee's interest income should be allowed as a deduction under Section 80P(2)(a)(i), following the High Court's reasoning. In conclusion, the Tribunal quashed the CIT(A)-NFAC's order and allowed the assessee's appeal, granting the deduction claimed under Section 80P. The appeal was pronounced in the open court on 24th October 2024.
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