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Facts
The assessee, a co-operative society, claimed deduction under section 80P on interest income earned from co-operative banks. The AO disallowed the deduction, and the CIT(A) confirmed the disallowance. The assessee appealed to the ITAT.
Held
The Tribunal noted that while section 80P(2)(d) allows deduction for interest/dividend from a co-operative society, it's not clear if the interest payer was a co-operative bank registered with RBI. The issue was remitted back to the AO for verification of the nature of the payer bank and the allowance of cost of funds.
Key Issues
Whether interest income earned by a co-operative society from co-operative banks is eligible for deduction under Section 80P, and whether cost of funds incurred for earning such interest should be allowed.
Sections Cited
80P, 80P(2)(a), 80P(2)(d), 142(1), 56, 57(iii)
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Income Tax Appellate Tribunal, ‘B’ BENCH: BANGALORE
Before: SHRI WASEEM AHMED & SHRI PRAKASH CHAND YADAV
PER SHRI WASEEM AHMED, ACCOUNTANT MEMBER:
These are the appeals filed by the assessee against the order passed by the NFAC, Delhi, both dated 02/08/2024, for the assessment years 2016-17 and 2017-18.
ITA 135/Bang/2025 for the asst. year 2016-17
The only interconnected issue raised by the assessee is that the learned CIT(A) erred in denying the benefit of deduction under section 80P of the Act of Rs. 30,74,655/- only.
During the assessment proceedings, the AO found that the assessee has shown certain interest income which is not eligible for deduction under section 80P(2)(a)/80P(2)(d) of the Act. Therefore, the AO disallowed the same and added it to the total income of the assessee. On appeal, the learned CIT(A) confirmed the order of the AO.
Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us.
The learned AR before us filed a paper book containing pages 1 to 26 and contended that the amount of impugned interest income cannot be denied the benefit of deduction under section 80P of the Act on a gross basis. According to the learned AR, the corresponding cost incurred by the assessee against the interest income should be allowed as a deduction while denying the benefit of deduction provided under section 80P(2)(a)/80P(2)(d) of the Act. The learned AR, in support of his contention, relied on the order of the ITAT in its own case for the assessment year 2018-19 bearing vide order dated 31-05-2024. Thus, the learned AR prayed before us to issue the same direction as given by the ITAT in its own case for the assessment year 2018-19.
On the other hand, the learned DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both parties and perused the materials available on record. At the outset, we note that an identical .
Page 3 of 5 issue has been dealt with by the ITAT in its own case cited supra. The relevant extract of the ITAT’s finding is reproduced as under:
“9. Considering the rival submissions, we note that the assessee is registered under Karnataka Co-operative Society Act 1959. During the course of assessment proceedings, the AO asked to submit details as per notice u/s 142(1) and the AO noted that the assessee has received interest from Co-operative Bank, therefore the deduction was denied u/s 80P(2)(d). The Ld.CIT(A) has not accepted the claim of the assessee by relying on the judgment of Hon’ble Karnataka High Court in case of Totgars’ Co-operative Sales Society Ltd. (supra) and Hon’ble Apex Court (supra). We note from the submissions of the ld. AR that the assessee has invested in District central Co-operative Banks as noted above and earned interest thereon. Section 80P(2)(d) describes that if the assessee has received interest from the co-operative society, then the assessee is eligible for claim of deduction on such interest received. In the judgment of Hon’ble Apex Court in the case of Kerala State Co- operative Agricultural and Rural Development Bank Ltd. (KSCARDB) vs. The Assessing Officer, Trivandrum & Ors. (2023) 154 taxmann.com 305 (Supreme Court) it has been discussed in detail the definition of co- operative banks and co-operative society. If the payer bank falls under the definition of co-operative bank/ bank in the light of the judgment of Hon’ble Apex Court then the assessee is not eligible to get deduction u/s 80P(2)(d) on such interest income received from co-operative banks. The assessee has received interest from co-operative banks which is governed by the Banking Regulation Act of 1949 and this argument of the ld. DR has not been denied by the ld. AR of the assessee. The Section 80P(2)(d) describes that if the assessee has received interest/dividend from the co-operative society, then the assessee is eligible for claim of deduction on such interest/dividend, however we note that the assessee has received interest from co-operative bank but it is not clear whether the interest payer (co-operative bank) is a bank and registered with Reserve Bank of India and holding licence from RBI for carrying out banking business as per RBI Act. In addition, the judgment of Hon’ble Apex Court in the case of Kerala State Co-operative Agricultural and Rural Development Bank Ltd. KSCARDB vs. The Assessing Officer, Trivandrum & Ors. (supra) in which it has been discussed in detail the definition of co-operative banks and co-operative society. If the payer bank falls under the definition of co-operative bank in the light of the judgment of Hon’ble Apex Court then the assessee is not eligible to get deduction u/s. 80P(2)(d) on such interest income received from co-operative banks, therefore this issue is also remitted back to the AO for verification of interest received from co-operative bank in above terms. If AO finds that the co-operative banks are carrying its banking business activities in the light of the above judgment, the deduction u/s. 80P(2)(d) on such interest income should not be granted.
10. We further note that the assessee has received interest from other co-operative banks on its investments. The revenue authorities have considered the entire interest as income from other sources u/s. 56 including the interest received from co-operative banks and no expenses u/s. 57(iii) has been allowed to the assessee for earning of such income. While calculating the income, the net income should be considered as taxable income after reducing the expenditure incurred towards earning of such income. Therefore relying on the judgment of Hon’ble Jurisdictional High Court in case of Totgars’ Co-operative Sales Society Ltd. vs ITO Sirsi, reported in (2015) 58 taxmann.com 35 (Karnataka), the assessee is eligible for claim of its cost of funds on the interest income received from banks. Reliance is also placed on the judgment of Co-ordinate Bench of the Tribunal in case of The West Coast Paper Mill Employees Souharda Credit Co-op. Ltd. Accordingly, the assessee is directed to provide the details of cost of funds before the assessing officer. Therefore for allowing cost of funds, we are remitting this issue to the assessing officer for determining the cost of funds for earning entire interest income.” 7.1 Respectfully following the same, we set aside the issue to the file of the AO to decide the issue afresh in light of the above discussion and as per the provisions of law. Hence, the ground of appeal of the assessee is hereby allowed for statistical purposes.
In the result, the appeal of the assessee is allowed for statistical purposes. for the assessment year 2017-18
The facts of the case at hand are identical to the facts of the case discussed above. Therefore, respectfully following the same, we set aside the issue to the file of the AO to decide the issue afresh in light of the above discussion and as per the provisions of law.
In the result, the appeal of the assessee is allowed for statistical purposes.
In the combined result, both the appeals of the assessee are allowed for statistical purposes.