2022 (5) TMI 1179 - AT - Income Tax

Denial of deduction u/s 80P(2)(a)(i) in respect of interest income earned from the deposits held by the assessee - HELD THAT - As relying on M/S. PRATHAMIKA KRUSHI PATTINA SAHAKARI NIYAMITA 2022 (1) TMI 153 - ITAT BANGALORE we set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of the AO with the direction to allow deduction u/s 80P(2)(a)(i) of the Act on the interest income earned from investments made with the banks in compliance with the requirements under the Karnataka Co-operative Societies Act and Rules. The assessee should be given adequate opportunity of being heard. Assessee appeal allowed for statistical purposes.

Summary

Issues:
Denial of deduction u/s 80P(2)(a)(i) of the Act in respect of interest income earned from deposits held by the assessee.

Analysis:
The Appellate Tribunal ITAT Bangalore heard an appeal challenging the order passed by Ld CIT(A)-6, Bengaluru related to the assessment year 2016-17. The sole issue raised was the denial of deduction u/s 80P(2)(a)(i) of the Act concerning interest income earned from deposits held by the assessee. The AO disallowed the deduction based on previous court decisions. The Ld A.R cited a recent decision by the Bangalore bench of the Tribunal in a similar case, emphasizing that interest income earned from investments made in compliance with the Karnataka Co-operative Societies Act should be considered as income from business and eligible for the deduction u/s 80P(2)(a)(i) of the Act. The Ld A.R argued that interest income from such investments should be allowed as a deduction.

The Ld D.R supported the tax authorities' decisions, leading to a hearing of rival contentions by the Tribunal. The Tribunal referred to the decision in the case of M/s Prathamika Krushi Pattina Sahakari Niyamata vs. PCIT, where it was held that interest income earned from investments made in compliance with the Karnataka Co-operative Societies Act should be assessed as income from business, making it eligible for deduction u/s 80P(2)(a)(i) of the Act. The Tribunal set aside the Ld CIT(A)'s order and directed the AO to allow the deduction u/s 80P(2)(a)(i) on interest income earned from investments made with banks in compliance with the Karnataka Co-operative Societies Act and Rules. The assessee was granted an adequate opportunity to be heard. Consequently, the appeal filed by the assessee was treated as allowed for statistical purposes.

This judgment highlights the importance of compliance with specific state laws governing co-operative societies in determining the eligibility for deductions under the Income Tax Act. The Tribunal's decision provides clarity on the treatment of interest income earned from investments made in accordance with the Karnataka Co-operative Societies Act, emphasizing the availability of deductions under relevant provisions of the Act.