Section 80P(2)(d) Deduction Upheld for Interest Income from Co-operative Banks – ITAT Ahmedabad

Case Overview

Ahmedabad Co-operative Department Stores Ltd. Vs DCIT (ITAT Ahmedabad)

The Income Tax Appellate Tribunal, Ahmedabad Bench, adjudicated two appeals filed by Ahmedabad Co-operative Department Stores Ltd. challenging orders passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, pertaining to Assessment Years 2018-19 and 2020-21. The central controversy revolved around the allowability of deduction under Section 80P(2)(d) of the Income-tax Act, 1961 with respect to interest earned on deposits placed with co-operative banks, as well as dividend income received from co-operative institutions.

Since the legal and factual issues arising in both appeals were substantially identical, the Tribunal proceeded to adjudicate them together, with the decision in ITA No. 99/Ahd/2024 for Assessment Year 2018-19 being made applicable mutatis mutandis to ITA No. 100/Ahd/2024 for Assessment Year 2020-21.

Background and Assessee Profile

The assessee is a co-operative departmental store operating retail departmental and medical store outlets across Ahmedabad and Gandhinagar. In addition to its retail operations, the assessee also runs an Indian Oil gas agency and functions as a collection centre for Torrent Power Ltd.

For Assessment Year 2018-19, the assessee filed its return of income declaring net taxable income of ₹38,11,600/-, after claiming deduction under Section 80P of the Income-tax Act, 1961 amounting to ₹2,91,93,822/-.

The case was selected for scrutiny under CASS. The Assessing Officer completed assessment proceedings under Section 143(3) read with Section 144B of the Act on 14.06.2021, determining total income at ₹2,81,44,314/- by making various additions — most significantly, disallowing the deduction claimed under Section 80P in relation to specific income components.

Grounds of Appeal Before ITAT

The assessee raised the following grounds before the Tribunal:

  1. The CIT(A) wrongly exercised enhancement powers under Section 251(1) of the Act on issues not forming the subject matter of assessment.
  2. Enhancement of income by ₹1,99,29,661/- (as per Para No. 24(2) of the CIT(A) order) relating to disallowance under Section 80P was improper since the AO had not dealt with this in the original assessment order.
  3. Confirmation of disallowance of interest income on Fixed Deposits — ₹50,98,219/- from Gujarat State Co-Op. Bank Ltd. and ₹40,81,942/- from Ahmedabad District Co-Op. Bank Ltd., totalling ₹91,80,161/- — was erroneous, particularly given that deduction had been allowed for the same banks in the assessee's own case for Assessment Year 2014-15.
  4. Disallowance of deduction on dividend income of ₹84,000/- under Section 80P was unjustified.
  5. Restricting the deduction under Section 80P(2)(c)(ii) to only ₹50,000/- by treating the assessee as an "other society" was incorrect, given that the assessee had claimed ₹2,91,93,822/- in the return.
  6. Addition of ₹66,97,745/- on account of an alleged discrepancy in the Reserve Account was sustained without due consideration of the reconciliation and explanations submitted.

Note: At the time of hearing, the assessee's authorised representative did not press Ground Nos. 1 and 2 (relating to CIT(A)'s jurisdiction to enhance income) and Ground No. 5 (relating to restriction of deduction under Section 80P(2)(c)(ii)). These grounds were accordingly dismissed as not pressed.

Key Issues Adjudicated

Issue 1: Deduction under Section 80P(2)(d) – Interest Income from Co-operative Banks

The primary legal question before the Tribunal was whether an assessee co-operative society is entitled to claim deduction under Section 80P(2)(d) of the Income-tax Act, 1961 on interest income earned from fixed deposits placed with co-operative banks such as Gujarat State Co-Op. Bank Ltd. and Ahmedabad District Co-Op. Bank Ltd.