2023 (12) TMI 924 - AT - Income Tax

Deduction u/s 80P(2)(d) - interest received by the appellant from Baroda Gramin Bank Ltd. is not allowable deduction as this entity is not a cooperative society as provided u/s 80P(2)(d) - assessee is a registered cooperative society under the Rajasthan Cooperative Societies Act and engaged in the business of trading in milk and other milk products - HELD THAT - In the present case, the appellant is a co-operative society whose primary object is to provide financial accommodation to its members who are all other cooperative societies and not member of the public. Thus, the interest received by the appellant from Baroda Rajasthan Gramin Bank Ltd, a Regional Rural Bank and not a co-operative bank would not be allowable deduction u/s 80P(2)(d) of the Act as this entity is not a cooperative society as provided u/s 80P(2)(d) of the Act in the light of the latest judgment of the Apex Court in the case of Kerala State Co-Operative Agricultural Rural Development Bank Ltd. v 2023 (9) TMI 761 - SUPREME COURT However, addition of interest received by the appellant from Central Cooperative Bank is held to rightly deleted by the CIT(A). Thus, addition made in the assessment order in respect of the interest received by the appellant from Baroda Rajasthan Gramin Bank Ltd., a Regional Rural Bank which is not a cooperative bank would be liable to be sustained. We accept the grievance of the revenue as genuine in respect of the addition on account of interest received by the appellant from Baroda Rajasthan Gramin Bank Ltd and as such, it is sustained. Appeal of the Revenue is partly allowed.

Summary

Issues Involved:
1. Eligibility for deduction under Section 80P(2)(d) of the Income Tax Act, 1961.

Summary:

Issue: Eligibility for Deduction under Section 80P(2)(d)

The Revenue appealed against the order of the CIT(A) National Faceless Appeal Centre (NFAC), Delhi, which deleted the disallowance of a deduction of Rs. 2,49,72,207/- made by the AO under Section 80P(2)(d) of the Income Tax Act, 1961.

The appellant, a registered cooperative society engaged in trading milk and milk products, claimed deductions on interest income from Baroda Rajasthan Gramin Bank Ltd. and Central Cooperative Bank. The AO disallowed the deduction, arguing that Baroda Gramin Bank Ltd. is not a cooperative society as defined under Section 80P(2)(d) and referenced several CBDT Circulars and amendments to Section 80P that exclude cooperative banks from such deductions.

The CIT(A) deleted the addition, citing a decision by the Rajasthan High Court which deemed Regional Rural Banks (RRBs) as cooperative societies for the purposes of the Income Tax Act, 1961, under Section 22 of the Regional Rural Banks Act, 1976. The High Court held that Section 80P's amendments did not alter the status of RRBs as cooperative societies.

The Revenue supported the AO's decision, referencing the CBDT Circulars and the latest Apex Court judgment in "Kerala State Co-Operative Agricultural & Rural Development Bank Ltd. v. Assessing Officer" which clarified that certain cooperative banks do not qualify for deductions under Section 80P(2)(d).

The Tribunal reviewed the facts and upheld the CIT(A)'s decision regarding the interest from Central Cooperative Bank but reversed it concerning the interest from Baroda Rajasthan Gramin Bank Ltd., following the Apex Court's judgment. The Tribunal concluded that the interest received from Baroda Rajasthan Gramin Bank Ltd., a Regional Rural Bank, is not eligible for deduction under Section 80P(2)(d) as it is not a cooperative society.

Conclusion: The appeal by the Revenue was partly allowed. The deduction on interest from Baroda Rajasthan Gramin Bank Ltd. was disallowed, while the deduction on interest from Central Cooperative Bank was upheld.