ITAT Allows Section 80P Deduction On Interest Income Arising From Deposits/Investments Made With Co-Operative Bank

The Visakhapatnam Income Tax Appellate Tribunal (ITAT) has held that there is a deduction under Section 80P of the Income Tax Act on interest income arising from deposits or investments made with cooperative banks.

The bench of Duvvuru Rl Reddy (Judicial Member) and S Balakrishnan (Accountant Member) has observed that the cooperative society is eligible for deduction under Section 80P(2)(a)(i) on the interest income received from investments in banks.

The respondent-assessee is a primary agricultural cooperative credit society engaged in the business of providing credit facilities, the supply of agricultural inputs, and consumer goods to its members. The assessee filed its return of income, admitting “nil” income, after claiming a deduction of Rs. 2,91,39,357 under Section 80P(2).

The return was processed. The increase in income was on account of the disallowance of the deduction claimed under § 80P in respect of the dividend of Rs. 3,70,365. The assessee’s case was selected for scrutiny under CASS to verify the investments, advances, and loans made by the assessee and the deductions claimed under Chapter VIA. A notice under Section 143(2) was issued.

The AO opined that the investments with the banks were made from surplus funds, which is not attributable to the activity of the assessee in providing credit facilities to its members. Therefore, the AO issued a show cause letter and a draft assessment order proposing to disallow the deduction to the extent of interest income received from institutions other than cooperative societies.

The assessee submitted that the interest income received from other banks is also eligible for deduction under 80P.

The AO completed the assessment by disallowing the deduction claimed by the assessee.

The assessee preferred an appeal before the CIT (A). The CIT (A) allowed the appeal of the assessee.

The department contended that the order passed by the CIT (A) was erroneous and prejudicial to the interest of the revenue. The AO is justified in making the addition of Rs. 2,59,54,906 and Rs. 3,70,365 towards the disallowance of the deduction claimed by the assessee under 80P(2)(a)(i).

The tribunal upheld the order passed by the CIT (A) and dismissed the appeal of the department.

Counsel For Appellant: G.V.N.Hari

Counsel For Respondent: Madhukar Aves

Case Title: ITO Versus M/s Yendagandhi Large Sized Co-operative Society Ltd.

Case No.: I.T.A.No.243/Viz/2022

Click Here To Read The Order