2021 (4) TMI 372 - AT - Income Tax

Deduction u/s 80P(2)(d) - income from other sources in respect of interest earned on fixed deposit with Co-operative banks - whether or not the interest income earned by a co-operative housing society on its investments lying with a cooperative bank would be eligible for deduction under Sec. 80P(2)(d) ? - HELD THAT - As pointed out by the ld. A.R, and rightly so, the issue herein involved is squarely covered by the orders of the various benches of the Tribunal. We find, that the ITAT, Mumbai, in the case of Kaliandas Udyog Bhavan Premises Co-operative Society Ltd. Vs. ITO-21(2)(1), Mumbai, 2018 (4) TMI 1678 - ITAT MUMBAI had concluded that a co-operative society would duly be entitled for claim of deduction under Sec. 80P(2)(d) in respect of its interest income on the investments held with a co-operative bank. Thus order passed by the CIT(A) declining the assessee s claim for deduction under Sec. 80P(2)(d) as regards the interest income earned on its investments held with the co-operative bank is herein vacated - Decided in favour of assessee.

Issues Involved:
1. Deduction under Section 80P(2)(d) for interest earned on fixed deposits with co-operative banks.
2. Charging of interest under Sections 234A, 234B, and 234C.
3. Initiation of penalty under Section 271(1)(c).

Detailed Analysis:

1. Deduction under Section 80P(2)(d) for Interest Earned on Fixed Deposits with Co-operative Banks:
The primary issue was whether the interest income earned by a co-operative housing society from its investments in co-operative banks is eligible for deduction under Section 80P(2)(d) of the Income Tax Act, 1961. The Assessing Officer (A.O.) disallowed the deduction of ?19,36,997 claimed by the assessee, reasoning that Section 80P(2)(d) applies only to interest and dividend income earned from investments with another co-operative society, not a co-operative bank.

The CIT(A) upheld the A.O.'s decision, rejecting the assessee's contention that a co-operative bank falls within the definition of a "co-operative society" under Section 2(19) of the Act. The assessee appealed to the ITAT, citing various judicial pronouncements supporting their claim.

The ITAT examined the issue, referencing its own precedent in the case of Kaliandas Udyog Bhavan Premises Co-operative Society Ltd. vs. ITO, where it was held that a co-operative society is entitled to deduction under Section 80P(2)(d) for interest income from investments in co-operative banks. The Tribunal noted that the definition of "co-operative society" under Section 2(19) includes co-operative banks, and thus, the interest income from such investments qualifies for deduction under Section 80P(2)(d).

The Tribunal cited several cases, including Land and Cooperative Housing Society Ltd. vs. ITO, M/s C. Green Cooperative Housing and Society Ltd. vs. ITO, and Marvwanjee Cama Park Cooperative Housing Society Ltd. vs. ITO, supporting the assessee's claim. The Tribunal also referenced the Karnataka High Court's decision in Pr. Commissioner of Income Tax vs. Totagars Cooperative Sale Society and the Gujarat High Court's decision in State Bank Of India vs. CIT, which upheld the eligibility of such interest income for deduction under Section 80P(2)(d).

Based on these precedents, the ITAT concluded that the assessee is entitled to the deduction under Section 80P(2)(d) for the interest income earned from investments in co-operative banks. The Tribunal set aside the CIT(A)'s order and allowed the deduction of ?19,36,997.

2. Charging of Interest under Sections 234A, 234B, and 234C:
The assessee also contested the charging of interest under Sections 234A, 234B, and 234C. The ITAT noted that the charging of interest under these sections is consequential to the main issue. Given the Tribunal's decision to allow the deduction under Section 80P(2)(d), the interest charged under Sections 234A, 234B, and 234C would need to be recalculated accordingly.

3. Initiation of Penalty under Section 271(1)(c):
The assessee challenged the initiation of penalty proceedings under Section 271(1)(c). The ITAT observed that the initiation of penalty proceedings is premature at this stage. Therefore, the Tribunal dismissed this ground of appeal as premature.

Conclusion:
The ITAT allowed the appeal of the assessee, granting the deduction of ?19,36,997 under Section 80P(2)(d) for interest income earned from investments in co-operative banks. Consequently, the interest charged under Sections 234A, 234B, and 234C would be recalculated. The initiation of penalty proceedings under Section 271(1)(c) was dismissed as premature. The order was pronounced in the open court on 05.03.2021.

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