Interest earned by a cooperative society from cooperative banks is eligible for deduction under Section 80P(2)(d) of the Income Tax Act.

1. This appeal is filed by the revenue against order of Learned Commissioner of Income Tax (Appeals), National Faceless Appeal centre, Delhi [hereinafter in short “Ld.CIT(A)”] vide DIN & Order No. ITBA/NFAC/S/250/2024-25/1066247133(1) dated 29.06.2024 for the A.Y.2020-21 arising out of order passed under section 143(3) of the Income Tax Act, 1961 (in short ‘Act’) dated 12.09.2022 and Cross objection is filed by the assessee in support of the order of the Ld. CIT(A).

2. At the outset, we proceed to adjudicate the appeal of the revenue in ITA No. 354/VIZ/2024 for the A.Y. 2020-21. No. 354/VIZ/2024 (A.Y. 2020-21)

3. Brief facts of the case are that, assessee filed its return of income for the A.Y. 2020-21 on 24.02.2020 admitting a total Income of Rs. NIL after claiming deduction under section 80P of the Act of Rs. 2,00,04,431/-. The case was selected for scrutiny under CASS for scrutinising (i) High liabilities as compared to low income/receipts and (ii) Deduction from Total Income under chapter VI-A. Accordingly, statutory notices under section 143(2) and 142(1) of the Act were issued and served on the assessee, calling for information. During the course of assessment proceedings, Ld. Assessing Officer [hereinafter in short “Ld. AO"] noticed that assessee had earned interest and dividend from Eluru District Central Co-operative Bank (in short “DCCB”) and also interest from Andhra Pradesh Co-operative Bank and claimed deduction under section 80P of the Act. Further, Ld. AO issued notice under section 142(1) of the Act dated 07.03.2022 requesting the assessee to show-cause why the deduction claimed under section 80P of the Act should not be disallowed as the provisions of section 80P clearly stated that it does not apply to a cooperative bank. In response, assessee submitted that the DCCB and AP Cooperative bank are cooperative societies and hence deduction under section 80P of the Act must be allowed for interest and dividends earned from them and furnished the details as called for. After considering the submissions of the assessee, Ld.AO denied the claim made by the assessee. Ld.AO on considering the provisions of section 80P(2)(d) of the Act concluded that, this section only envisages interest from cooperative society and not a cooperative bank and completed the assessment determining total income at Rs.2,00,04,431/- by disallowing deduction under section 80P of the Act.

4. Aggrieved by the order of the Ld. AO, assessee filed an appeal before the Ld. CIT(A), NFAC, Delhi and filed its submissions. After considering the submissions of the assessee, Ld. CIT(A) allowed the appeal of the assessee.

5. Aggrieved by the order of the Ld. CIT(A), revenue is in appeal before us by raising the following grounds of appeal: -

“1. The Order of the Ld.CIT(A), National Faceless Appeal Centre (NFAC), Delhi is erroneous in law and to the facts of the case.

2. The Ld. CIT(A) erred in adjudicating that the assessee society is entitled to claim deduction u/s.80P(2)(d) in respect of interest income earned from co-operative banks as the words 'cooperative society' mentioned in Sec.80P(2)(d) of the Income-tax Act includes the cooperative societies also which are carrying on banking business as cooperative banks. The Ld.CIT(A) erred in not observing that interest or dividend earned by an assessee cooperative society should be out of the investments with any other co-operative society. The words 'Co-operative Banks' are missing in clause (d) of sub section (2) of section 80P. Even though a cooperative bank may have the corporate body or skeleton of a co