2017 (12) TMI 879 - AT - Income Tax

Deduction u/s 80P disallowed - interest income earned by the assessee on the deposits placed with the SBI - Held that - As held by the Hon ble Bombay High Court in the case of CIT vs. Godavaridevi Saraf reported in (1977 (9) TMI 24 - BOMBAY High Court), we are bound by the decision of the jurisdictional High Court on similar set of facts. Further, in the case of SBH Employees Co-operative Credit Society 2016 (7) TMI 516 - GUJARAT HIGH COURT , the Hon ble jurisdictional High Court has held the issue in favour of the assessee. Respectfully following the same, we allow the assessee s appeal and direct the AO to allow the deduction u/s 80P of the Act of the interest income earned by the assessee on the deposits placed with the SBI, a nationalised bank. The learned DR had tried to distinguish the facts of the case before us with the above decision stating that in the case of the assessee, the interest is earned on FDR s, while, in the case before the Hon ble High Court, the deposits were not fixed deposits. However, from the assessment order, it is seen that the reserves and surpluses have been kept as deposits and there is no reference to FDRs by the AO. Therefore, this distinction is not established. - Decided in favour of assessee.

Summary

Issues:
Disallowance of deduction u/s 80P of the Income Tax Act for interest earned on bank deposits.

Analysis:
1. Background: The assessee, a Cooperative Credit Society, filed an appeal against the disallowance of a deduction claimed under section 80P of the Income Tax Act for the assessment year 2012-13.

2. AO's Observation: During assessment proceedings, the Assessing Officer (AO) noted that the assessee collected share capital and thrift contributions to provide credit facilities to members. The AO observed interest on deposits amounting to ?77,44,295 in the income and expenses statement. The AO questioned why interest earned on bank deposits should not be treated as income from other sources and disallowed the deduction under section 80P.

3. Assessee's Argument: The assessee contended that as a Cooperative Society, it deposited reserves and surpluses with nationalized banks as mandated by law. The assessee argued that interest earned on such deposits should be eligible for deduction under section 80P, citing decisions of the Tribunal and jurisdictional High Court.

4. Judicial Precedents: The assessee relied on the decision of the jurisdictional High Court in a similar case where it was held that interest income on fixed deposits made in banks is eligible for deduction under section 80P. The assessee also highlighted a previous Tribunal decision in its favor, upheld by the High Court.

5. Revenue's Counter-Argument: The Departmental Representative (DR) cited a case where the High Court ruled against the assessee based on a Supreme Court decision. The DR argued that a similar issue was decided against the assessee in a case involving SBI in Gujarat.

6. ITAT's Decision: The ITAT noted conflicting decisions by different High Courts but followed the jurisdictional High Court's ruling favoring the assessee. Referring to the principle of judicial precedent, the ITAT allowed the appeal and directed the AO to permit the deduction under section 80P for the interest income earned on deposits with a nationalized bank.

7. Conclusion: The ITAT allowed the assessee's appeal, emphasizing that the interest income on deposits placed with the nationalized bank should be eligible for deduction under section 80P. The ITAT rejected the Revenue's attempt to distinguish the case based on the nature of deposits, as the assessment order did not specify fixed deposits.