Sri Sai Souhardha Credit Cooperative Ltd. Vs ITO (ITAT Bangalore)
Bengaluru ITAT: Section 80P Deduction Allowed on Interest from Scheduled and Co-operative Banks
The Bengaluru ITAT held that a credit co-operative society is entitled to deduction under section 80P(2)(a)(i) on interest earned from deposits with both scheduled banks and co-operative banks, where such interest is attributable to its business of providing credit facilities to its members. The Tribunal first condoned a 666-day delay in filing the appeal after accepting the assessee’s explanation that its Chartered Accountant could not file the appeal due to his wife’s serious illness and that the omission came to light only after a subsequent Tribunal order. The ITAT found the delay to be bona fide and admitted the appeal for adjudication on merits.
On merits, the Tribunal held that the distinction between interest earned from co-operative banks and commercial banks may be relevant for deduction under section 80P(2)(d), but no such distinction exists under section 80P(2)(a)(i). Following the Karnataka High Court decisions relied upon by the assessee, the Tribunal held that interest earned from deposits, including statutory reserve funds parked with banks, forms part of the business income attributable to the activity of providing credit facilities to members. Accordingly, it rejected the Assessing Officer’s view that such interest was taxable as “Income from Other Sources” and also set aside the CIT(A)’s direction to tax interest from commercial banks under section 57 after allowing cost of funds. The Assessing Officer was directed to allow deduction under section 80P(2)(a)(i) on the entire eligible interest income, including interest earned from scheduled banks and co-operative banks. The appeal was allowed.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
1. This appeal by Sri Sai Souhardha Credit Cooperative Ltd. pertains to assessment year 2018-19 and arises from the order of the learned CIT(A)/NFAC dated 20.03.2024, which confirmed the assessment under section 143(3) of the Income-tax Act. The issue concerns the assessee’s claim for deduction under section 80P(2)(a)(i) on interest earned from deposits, including deposits made from reserve funds. The lower authorities treated the interest as income from other sources and denied deduction under section 80P(2)(d).
