2023 (6) TMI 871 - AT - Income Tax

Deduction u/s 80P(2)(a)(i) - net interest earned from two Cooperative Banks - HELD THAT - As considering of the case of Totagars Cooperative Sales Society Ltd. 2010 (2) TMI 3 - SUPREME COURT which was relied by the ld. DR and find that the Hon ble Apex Court has dilapidated on the issue of deduction u/s 80P(2)(a)(i) but not on section 80P(2)(d). We also observed that in the case of Totagars Cooperative Sales Society Ltd, 2017 (1) TMI 1100 - KARNATAKA HIGH COURT itself the Hon ble High Court of Karnataka has allowed the claim of deduction u/s 80P(2)(d). The investment of assessee in cooperative bank is eligible investment u/s 80P(2)(d) of the Act. The interest of the said investment related to Cooperative Society; the assessee is eligible for deduction u/s 80P(2)(a)(i) - Decided in favour of assessee.

Summary

Issues involved:
The judgment involves the issue of deduction claimed under section 80P(2)(a)(i) of the Income Tax Act 1961 for the assessment year 2017-18.

Grounds of Appeal:
The appellant challenged the addition of Rs.21,05,192 as wrongly made by the Income Tax Officer by disallowing the deduction claimed under section 80P(2)(a)(i) in respect of net interest earned from two Cooperative Banks. The appellant contended that the interest earned was operational income from operational funds and hence entitled to deduction under section 80P(2)(a)(i).

Facts and Background:
The appellant, a cooperative society, invested surplus funds in Cooperative Banks and earned interest, which was claimed as a deduction under section 80P. However, the Income Tax Officer disallowed the deduction citing a violation of Section 80P(2)(d) of the Act. The interest amount was added back to the total income as income from other sources based on the Supreme Court's decision in Totgar Cooperative Sales Society Ltd. v. ITO. The appellant's appeal before the CIT(A) was unsuccessful, leading to further adjudication before the ITAT.

Appellant's Argument:
The appellant argued that the interest earned from the Cooperative Bank should be eligible for exemption under section 80P, as the investment was made with surplus funds. The appellant relied on previous judgments to support their claim for deduction under section 80P(2)(d).

Revenue's Argument:
The Revenue contended that the interest earned from the Cooperative Bank is not eligible under section 80P(4) and supported the CIT(A)'s decision. They highlighted the appellant's investments in Cooperative Banks and the interest income earned, emphasizing the applicability of section 80P(4).

Judgment and Analysis:
After considering the submissions and relevant case laws, the ITAT held that the appellant's investment in the Cooperative Bank qualified for deduction under section 80P(2)(d). The interest income related to the Cooperative Society, making the appellant eligible for deduction under section 80P(2)(a)(i). The addition amount of Rs. 21,05,192 was quashed, and the appeal of the assessee was allowed based on the interpretation of the provisions and precedents cited.

Conclusion:
The ITAT allowed the appeal of the assessee, holding that the investment in the Cooperative Bank was eligible for deduction under section 80P(2)(d) and the interest income related to the Cooperative Society qualified for deduction under section 80P(2)(a)(i). The impugned order was set aside, and the addition amount was quashed in favor of the appellant.