2024 (7) TMI 648 - AT - Income Tax

Deduction u/s 80P - interest income from co-operative bank - as per revenue said Interest was not eligible for deduction u/s 80P(2)(a)(i) and the same was taxed by AO u/s 56 as Income from other sources - assessee submits that it is operational income and therefore the AO should have allowed entire deduction 80P(2)(a)(i) HELD THAT - This issue has been settled in the case of PCIT v. Totagars Cooperative Sale Society 2017 (7) TMI 1049 - KARNATAKA HIGH COURT wherein it is held that the source of funds are irrelevant. Therefore the contention of the Assessee is not tenable we agree completely with the view of the ld. CIT(A) that the deduction for Interest on investment can t be granted u/s 80P(2)(a)(i) of the Income Tax Act. Claim of deduction u/s 80P(2)(d) - We direct the A.O. to verify whether interest / dividend is received by the assessee out of investments made with Cooperative Societies. If the assessee earns interest / dividend income out of investments with co-operative society, as observedin the case of Kerala State Cooperative 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. Treatment of interest income from banks as Income from other sources and relief u/s 57 - If the interest earned by assessee from the banks is considered under the head Income from other sources , relief to be granted to the assessee u/s 57 of the Act in accordance with law. Accordingly, the issue is restored to the file of ld. AO for de-novo consideration with the above observations. Appeal filed by the assessee is partly allowed for statistical purposes.

Summary

Issues:
Disallowance of deduction u/s 80P for interest income from cooperative bank and scheduled bank.

Analysis:
The appeal was against the CIT(A)/NFAC order for the A.Y. 2020-2021 regarding disallowance of deduction u/s 80P for interest income. The appellant, a Co-operative credit Society, had filed its return declaring NIL income. The AO disallowed the deduction claimed u/s 80P(2)(a)(i) for interest income from various sources, adding it to the total income as Income from Other Sources. The AO also cited a previous judgment to disallow the claim under u/s 80P(2)(d). The CIT(A) upheld the AO's decision based on a High Court ruling. The assessee appealed to the Tribunal.

The Assessee argued that the interest income should be allowed as a deduction u/s 80P(2)(a)(i) or u/s 57 if treated as 'Income from other sources'. The DR supported the lower authorities' decision. The Tribunal noted that the interest income from investments could not be considered operational income under section 80P(2)(a)(i). Referring to a previous judgment, the Tribunal agreed with the CIT(A) that the deduction for interest on investment cannot be granted u/s 80P(2)(a)(i).

Regarding deduction u/s 80P(2)(d), the Tribunal directed the AO to verify if interest/dividend is from investments with Cooperative Societies, citing a Supreme Court ruling. The Tribunal also mentioned that if interest income from banks is considered 'Income from other sources', relief should be granted u/s 57. The issue was remanded to the AO for reconsideration with these observations. The appeal was partly allowed for statistical purposes.

In conclusion, the Tribunal upheld the disallowance of deduction u/s 80P for interest income from cooperative and scheduled banks, stating that such interest income does not qualify for deductions under the relevant sections. The Tribunal provided directions for further verification and consideration by the AO regarding the treatment of interest income from different sources.