Interest Income Earned From Deposits With Co-Operative Banks Shall Be Allowed As Deduction U/s 80P(2)(D): Ahmedabad ITAT

Section 80P of Income tax Act is applicable solely to primary agricultural credit societies or rural development and primary cooperative agricultural banks.

The Division Bench of TR Senthil Kumar (Judicial Member) and Ramit Kochar (Accountant Member) reiterated that “it is only the interest derived from the credit provided to its members which is deductible u/s 80P(2)(a)(i) and the interest derived by depositing surplus funds with the State Bank of India not being attributable to the business carried on by the appellant, cannot be deducted u/s 80P(2)(a)(i)”.

The Bench clarified that if assessee wants to avail of the benefit of deduction of such interest income, it is always open for it to deposit the surplus funds with a co-operative bank and avail of deduction u/s 80P(2)(d).

Facts of the case:

The assessee, a co-operative society filed its return declaring Nil Income, after claiming deduction u/s 80P to the tune of Rs. 37,16,371 which was selected by Revenue for framing limited scrutiny. The AO while framing assessment, made additions to the tune of Rs. 2,55,000/- by denying deduction u/s 80P with respect to interest received by the assessee from Sabarkantha District Central Co-operative Bank. On appeal, the CIT(A) observed that assessee is entitled for deduction of pro-rata expenses u/s 57.

Observations of the Tribunal:

The Bench noted that the Jurisdictional High Court in case of Surat Vankar Sahakari Sangh Ltd. v. ACIT and State Bank of India vs CIT has decided the issue of deduction of interest on deposits earned by Credit Co-operative society from deposits with Co-operative Banks in favour of the tax-payer.

The Bench also noted that the Coordinate Benches have held that interest income received by Credit Co-operative Society from deposits made with Co-operative Bank registered under the Co-operative Societies Act or under the State Act, shall be allowed as deduction u/s 80P(2)(d).

Therefore, the ITAT allowed Assessee's appeal and held that interest income earned from deposits with Co-operative Banks shall be allowed as deduction u/s 80P(2)(d).

Counsel for Appellant/ Assessee: Rushin Patel

Counsel for Respondent/ Revenue: Bhavnasingh Gupta

Case Title: The Khedbrahma Taluka Primary Teachers Co-operative Credit Society Limited verses Income Tax Officer

Case Number: ITA No. 115/Ahd/2023

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