Section 80P(2)(d) Deduction Allowed on Interest Earned from Co-operative Banks — ITAT Surat Rules in Favour of Co-operative Credit Society

Background and Overview

The Income Tax Appellate Tribunal (ITAT), Surat Bench, delivered a ruling in favour of a co-operative credit society in the matter of Gujarat Housing Umarwada Urban Co-Op. Credit Society Ltd. Vs ITO (ITAT Surat) pertaining to Assessment Year 2020-21. The core issue before the Tribunal was whether interest and dividend income received from co-operative banks qualifies for deduction under Section 80P(2)(d) of the Income Tax Act, 1961. The disputed deduction amounted to ₹1,60,28,372, which had been disallowed at both the assessment and appellate stages prior to the matter reaching the ITAT.

Procedural History

The assessee, a co-operative credit society registered under the Gujarat Co-operative Act, had filed its return of income for AY 2020-21 claiming deduction of interest and dividend received from co-operative banks under Section 80P(2)(d) of the Income Tax Act, 1961. The Assessing Officer, while passing the assessment order dated 21 September 2022 under Section 143(3) read with Section 144B, disallowed the said deduction.

The assessee challenged this disallowance before the National Faceless Appeal Centre (NFAC) / Commissioner of Income Tax (Appeals). However, the NFAC/CIT(A) upheld the assessment order vide its order dated 19 September 2024, prompting the assessee to carry the matter in appeal before the ITAT, Surat Bench.

Grounds of Appeal Raised by the Assessee

Before the ITAT, the assessee raised the following grounds of appeal:

  1. The CIT(A) erred in confirming the disallowance of ₹1,60,28,372.
  2. The CIT(A) erred in not allowing deduction under Section 80P as claimed in the return of income.
  3. The CIT(A) erred in not granting deduction in respect of interest and dividend received from co-operative banks.
  4. The CIT(A) erred in not appreciating the various decisions rendered in favour of the assessee.
  5. The assessee reserved the right to add, alter, or vary any or all grounds of appeal.

Arguments Advanced by the Assessee

The Authorised Representative (AR) for the assessee submitted that the assessee is a co-operative credit society duly registered under the Gujarat Co-operative Act. In computing its total income, the assessee had claimed deduction aggregating to approximately ₹1.60 crore on account of interest and dividend received from co-operative banks, under Section 80P(2)(d) of the Income Tax Act, 1961.