2024 (7) TMI 401 - AT - Income Tax

Deduction u/s. 80P(2)(a)(i) - deduction on interest received on investment with banks and co-operative banks - HELD THAT - Coordinate bench in the case of Basaveshwaranagara Co-opera society case 2024 (4) TMI 1141 - ITAT BANGALORE has restored the matter to the file of the AO for considering the purport of the decision of Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. 2021 (1) TMI 488 - SUPREME COURT Coordinate Bench has held that If the assessee earns interest / dividend income out of investments with co-operative society, as observed by Hon ble Supreme Court in the case of Kerala State Co-operative Agricultural and Rural Development Bank Ltd. 2023 (9) TMI 761 - SUPREME COURT , the same is entitled to deduction u/s 80P(2)(d) of the I.T . Act. Lastly the Coordinate Bench has also held that in case interest income to be charged as Income from Other sources then cost of funds to the assessee would have to considered as expenses in term of section 57 of the Act. Thus, we remit the matter back to the file of the AO for examining the issue afresh in the light of the above view of the Coordinate Bench. And also direct the AO that he should decided the allowance of cost of funds to the assessee u/s 57 of the Act in accordance with law. AO will provide meaningful opportunities to the assessee in fresh proceedings and assessee will also file necessary details with AO. Appeal filed by the assessee is allowed for statistical purposes.

Summary

Issues:
Challenge to order of National Faceless Appeal Centre under Section 250 of the Income Tax Act, 1961 regarding deduction eligibility under Section 80P(2)(a)(i) and 80P(2)(d) for interest income earned by a cooperative society.

Analysis:
The appeal filed by the assessee contested the order of the Assessing Officer (AO) denying deduction under Section 80P(2)(a)(i) of the Act for interest income earned from co-operative banks. The AO based the decision on the Totagars Co-Operative Sale Society case, asserting that such income is not operational income. The AO overlooked the assessee's compliance with government guidelines and bylaws regarding deposits. The CIT(A) upheld the AO's decision, emphasizing the absence of a banking license for the appellant. However, the ITAT Bangalore in a similar case remanded the issue for fresh consideration in light of the Mavilayi Service Co-operative Bank Ltd. case, stating that if interest income is from cooperative societies, deduction under Section 80P(2)(d) is permissible.

The ITAT Bangalore directed the AO to reevaluate the eligibility for deduction under Section 80P(2)(a)(i) and 80P(2)(d) for interest income earned by the appellant. The Coordinate Bench's decision highlighted the importance of considering the source of income from cooperative societies for deduction under Section 80P(2)(d). Additionally, if interest income is categorized as "Income from Other Sources," the cost of funds should be considered as an expense under Section 57 of the Act. The ITAT remitted the matter back to the AO for a fresh examination, ensuring the appellant receives a fair opportunity to present necessary details.

In conclusion, the ITAT allowed the appeal for statistical purposes, emphasizing the need for a thorough reconsideration by the AO in accordance with the legal principles outlined in the Mavilayi Service Co-operative Bank Ltd. case. The ITAT's decision aligns with ensuring proper application of deduction provisions under the Income Tax Act, providing the appellant with a fair opportunity to present their case and comply with legal requirements.

This detailed analysis of the judgment highlights the key legal issues, the reasoning behind the decisions, and the directives given for further proceedings, ensuring a comprehensive understanding of the case and its implications.