2025 (3) TMI 1224 - AT - Income Tax

Deduction u/s. 80P(2)(d) - interest income earned out of the Fixed deposits/Investments made with Cooperative Banks treating the same as Income from Other Source - HELD THAT - Section 80P(2)(d) provides that the sum received in respect of any income by way of interest or dividend derived by Cooperative Society from its investment with any other Cooperative Society the whole of such income is eligible for deduction u/s. 80P of the Act. We find that this issue is no more res integra as the Coordinate Benches of this Tribunal has been consistently holding that the interest income earned out of the FDs/Investments kept with Cooperative Banks is allowable u/s. 80P(2)(d) of the Act. We find that this Tribunal in case of Kolhapur District Central Co-op. Bank Kanista Sevakanchi Sahakar Pat Sanstha Ltd. 2024 (6) TMI 791 - ITAT PUNE dealing with similar issue after placing reliance on another decision of this Tribunal in the case of The Ugar Sugar Works Kamgar Dr. Shirgaokar Shaikshanik Trust Nokar Co-op Credit Society 2021 (11) TMI 1117 - ITAT PANAJI has held that the interest earned from deposits with Cooperative Banks are also eligible for deduction u/s. 80P(2)(d) of the Act as Cooperative Banks are basically Cooperative Societies only but have turned into Bank on getting necessary banking license. Where the assessee made investment with the Cooperative Banks we hold that the assessee is eligible for deduction u/s. 80P(2)(d) of the Act for the interest income earned from Cooperative Banks. Findings of the CIT(A) is set-aside and the AO is directed to allow the claim made by the assessee. Effective grounds of appeal raised by the assessee are allowed.

ISSUES PRESENTED and CONSIDERED

The primary legal issue considered in this judgment is whether the interest income earned by the assessee, a Cooperative Credit Society, from investments in cooperative banks qualifies for deduction under Section 80P(2)(d) of the Income Tax Act. Additionally, the procedural issue concerning the admissibility of additional evidence under Rule 46A of the Income Tax Rules was also examined.

ISSUE-WISE DETAILED ANALYSIS

1. Deduction under Section 80P(2)(d)

Relevant legal framework and precedents: Section 80P(2)(d) of the Income Tax Act provides that any income by way of interest or dividend derived by a cooperative society from its investment with any other cooperative society is eligible for deduction. The Tribunal referenced past decisions, including the Kolhapur District Central Co-op. Bank Kanista Sevakanchi Sahakar Pat Sanstha Ltd. and The Ugar Sugar Works Kamgar & Dr. Shirgaokar Shaikshanik Trust Nokar Co-op Credit Society cases, which held that interest income from cooperative banks is eligible for deduction under this section.

Court's interpretation and reasoning: The Tribunal interpreted Section 80P(2)(d) to include interest income earned from cooperative banks, reasoning that cooperative banks, though functioning as banks upon acquiring necessary licenses, are fundamentally cooperative societies. This interpretation aligns with the consistent view of the Tribunal in similar cases.

Key evidence and findings: The Tribunal found that the assessee had earned interest income of Rs. 1,63,98,998 from investments with cooperative banks. The Tribunal noted that the lower authorities had not adequately addressed the merits of the assessee's claim for deduction under Section 80P(2)(d).

Application of law to facts: The Tribunal applied the legal framework of Section 80P(2)(d) to the facts, concluding that the interest income from cooperative banks qualifies for deduction. The Tribunal's decision was based on the consistent interpretation of the law in previous cases.

Treatment of competing arguments: The Tribunal considered the Revenue's position, which supported the lower authorities' decision to disallow the deduction. However, the Tribunal found the assessee's arguments and the precedents more persuasive, leading to a decision in favor of the assessee.

Conclusions: The Tribunal concluded that the assessee is eligible for the deduction under Section 80P(2)(d) for the interest income earned from cooperative banks, thereby setting aside the findings of the CIT(A) and directing the Assessing Officer to allow the claim.

2. Admissibility of Additional Evidence under Rule 46A

Relevant legal framework and precedents: Rule 46A of the Income Tax Rules outlines the circumstances under which additional evidence can be admitted during appellate proceedings. These include situations where the Assessing Officer refused to admit evidence, the assessee was prevented by sufficient cause from producing evidence, or the Assessing Officer did not provide sufficient opportunity to the assessee.

Court's interpretation and reasoning: The Tribunal noted that the CIT(A) dismissed the appeal in limine, citing the absence of plausible explanations for the admission of additional evidence. However, the Tribunal did not find any substantial discussion on the merits of the additional evidence or the reasons for its rejection.

Key evidence and findings: The Tribunal observed that the CIT(A) failed to appreciate that the assessee had not submitted any additional evidence, and therefore, there was no basis for dismissing the appeal on these grounds.

Application of law to facts: The Tribunal applied Rule 46A, finding that the CIT(A)'s decision to dismiss the appeal without addressing the merits of the case was not justified, particularly given the lack of additional evidence submitted by the assessee.

Treatment of competing arguments: The Tribunal considered the arguments of both parties, noting that the CIT(A) had erred in its procedural handling of the case by not addressing the substantive issues.

Conclusions: The Tribunal concluded that the CIT(A) should have addressed the merits of the case rather than dismissing the appeal based on procedural grounds related to additional evidence. The Tribunal decided in favor of the assessee, allowing the appeal.

SIGNIFICANT HOLDINGS

Core principles established: The Tribunal reaffirmed the principle that interest income earned from cooperative banks is eligible for deduction under Section 80P(2)(d) of the Income Tax Act, as cooperative banks are considered cooperative societies for the purposes of this section.

Final determinations on each issue: The Tribunal set aside the findings of the CIT(A) and directed the Assessing Officer to allow the deduction claimed by the assessee under Section 80P(2)(d) for the interest income earned from cooperative banks. The Tribunal also highlighted the importance of addressing the merits of a case in appellate proceedings, rather than dismissing appeals on procedural grounds without substantive consideration.

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