2023 (12) TMI 61 - AT - Income Tax

Deduction u/s 80P(2)(a)(i) - interest earned on deposits pertaining to reserve fund with DCC Bank which is a cooperative bank and other nationalised banks - contention of the AO is that interest accrued on Reserve Fund Deposits is not eligible for deduction u/s 80P - HELD THAT - The coordinate bench of the Tribunal, on similar set of facts dismissed the appeal of the revenue in the case of Kakateeya Mutually Aided Thrift and Credit Co-op Society Ltd. 2023 (9) TMI 211 - ITAT VISAKHAPATNAM and the same ratio was followed by the coordinate bench of the Tribunal in the case of Rangaraya Large Sized Cooperative Society 2023 (11) TMI 1207 - ITAT VISAKHAPATNAM as held assessee has invested surplus funds out of the activities carried out as per the provisions of section 80P(2)(a) of the Act. We therefore held that interest income should be allowed as deduction U/s. 80P(2)(a)(i) of the Act and thereby the Ld. CIT(A) - NFAC has rightly held by deleting the addition made by the Ld. AO - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of deduction claimed under section 80P(2)(a)(i) of the Income Tax Act.
2. Eligibility of interest income from deposits with cooperative and nationalized banks for deduction under section 80P.
3. Applicability of the Supreme Court's decision in the case of Totgars Cooperative Sale Society Ltd.

Summary:

Disallowance of Deduction Claimed under Section 80P(2)(a)(i):
The appeal filed by the revenue challenged the order of the Commissioner of Income Tax (Appeals) [CIT(A)], which had allowed the assessee's claim for deduction under section 80P(2)(a)(i) of the Income Tax Act. The Assessing Officer (AO) had disallowed the deduction for interest income received from various banks, arguing that these funds were surplus and not attributable to the assessee's primary activity of providing credit facilities to its members. The AO relied on the Supreme Court's decision in Totgars Cooperative Sale Society Ltd., which held that interest income from surplus funds is not eligible for deduction under section 80P.

Eligibility of Interest Income for Deduction:
The CIT(A) had allowed the deduction based on the Supreme Court's decision in The Mavilayi Service Cooperative Bank Ltd. & Ors. v. CIT, Calicut & Ors., which the revenue argued was distinguishable from the present case. The Tribunal examined whether the interest income earned from deposits with District Central Cooperative Bank (DCCB) and other nationalized banks was eligible for deduction under section 80P. The Tribunal noted that the facts in the Totgars case were different, as the funds in question were retained sale proceeds, whereas in the present case, the funds were part of the assessee's regular business activities.

Applicability of the Supreme Court's Decision in Totgars Cooperative Sale Society Ltd.:
The Tribunal distinguished the present case from the Totgars case, emphasizing that the original source of the investments made by the assessee in nationalized banks was income derived from its primary activities, which are eligible for deduction under section 80P(2)(a). The Tribunal cited the Andhra Pradesh High Court's decision in Vavveru Cooperative Rural Bank Ltd., which supported the view that interest income from investments made in the regular course of business is eligible for deduction under section 80P.

Conclusion:
The Tribunal upheld the CIT(A)'s order, allowing the deduction under section 80P for the interest income earned from deposits with cooperative and nationalized banks. The Tribunal dismissed the revenue's appeal and the cross objections filed by the assessee as infructuous. The decision was pronounced in the open court on 22nd November, 2023.