SHARADA GRAMIN BIGARSHETI SAHAKARI PATSANSTHA MARYADIT,PUNE vs. INCOME TAX OFFICER, WARD 14(5), PUNE, PUNE

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ITA 2478/PUN/2026Status: DisposedITAT Pune16 September 2026AY 2021-228 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that interest earned by a co-operative credit society from funds deposited with a co-operative bank is eligible for deduction under Section 80P(2)(a)(i) of the Act. The AO was directed to delete the addition made to the assessee's income.

What were the facts?

The assessee, a co-operative society, claimed deduction under Section 80P on interest income earned from a co-operative bank. The Assessing Officer disallowed this deduction, treating the interest as income from other sources, citing Section 80P(4). The CIT(A) confirmed this disallowance.

What were the issues?

Whether interest income earned by a co-operative society from a co-operative bank is eligible for deduction under Section 80P(2)(a)(i) despite the insertion of Section 80P(4).

Which sections of the Income-tax Act were involved?

Section 80P(2)(a)(i),Section 80P(4),Section 56

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, PUNE BENCH “SMC”, PUNE

Before: SHRI Dr. DIPAK P. RIPOTE & SHRI VINAY BHAMORE

For Respondent: Shri Prashant Barate

PER Dr. DIPAK P. RIPOTE, A.M : This is an appeal filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals), NFAC, Delhi [Ld.CIT(A)], passed u/s. 250 of the Income Tax Act, 1961 (‘the Act’) for AY 2021-22 on 18.03.2026, emanating from the Assessment Order u/s 143(3) r.w.s 144B of the Act, dated 26.12.2022.

2.

The assessee has raised the following grounds of appeal : “1. The learned CIT(A), NFAC, Delhi (hereafter referred to as CIT(A)) erred in law and on facts in confirming the total income of the appellant at Rs. 30,74,677/- instead of Nil. 2. The learned CIT(A) erred in law and on facts in confirming the disallowance of deduction of Rs. 30,74,677/-, claimed u/s 80P(2)(a) (i) of the IT Act, 1961 on the bank interest earned by the appellant. The learned CIT(A) further erred in treating the said interest income taxable under "Income from Other Sources" instead of "Income from Business/ Profession".

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3.

The learned CIT(A) erred in laws and on facts in sustaining the disallowance of deduction of Rs. 30,74,677/- u/s 80P(2)(d) of the ITA, 1961. Learned CIT(A) ought to have appreciated that the interest income derived from various co-operative banks is eligible for deduction u/s 80P(2)(d). 4. The learned I-T Authorities erred in law and on facts in not appreciating that various courts have held that deduction u/s 80P(2)(d) of the ITA, 1961 is allowable to credit co-operative society (i.e. Pathsanstha) on interest income earned from fixed deposits with co-operative bank. 5. The learned I-T Authorities erred in law and on facts in not appreciating the Supreme Court in the case of The Mavilayi Service Co-Operative Bank Ltd. & ORS. Vs. Commissioner of Income Tax - (2021) 431 ITR 1 (SC) has held that interest earned by a Co-operative Society from a Co-operative bank is entitled for deduction u/s. 80P(2)(d) of ITA, 1961. 6. Appellant craves leave to add/alter/modify/amend/ delete all or any of the grounds of appeal.”

Findings and Analysis :

3.

None appeared on behalf of the assessee. We have heard Ld. DR and perused the records. In this case, the assessee is a Co-operative Society engaged in the business of providing credit facilities to its members. The assessee filed return of income for the AY 2021-22 on 15.02.2022 declaring total income at Rs. Nil after claiming deduction u/s 80P(2)(a)(i) of the Act at Rs.37,93,214/-. The case of the assessee was selected for scrutiny. The Assessing Officer (AO) disallowed assessee’s claim for deduction u/s 80P(2)(a)(i) of the Act on interest income of Rs.30,74,677/- received from a Co-operative Bank. The relevant para 4.6 of the assessment order is reproduced here as under : “4.6 Conclusion drawn

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It is settled that after the insertion of Sec. 80P(4), income received in respect of a co-operative Bank is not eligible for deduction. The assessee's submission that if the assessee is not eligible for claim of deduction U/s 80P(2)(a) (i) of the I.T.Act, the assessee is entitled for the claim U/s 80P (2) (d) is also not allowable in the context of the case for the reason that with the introduction of section 80P(4) of the IT Act, the section 80P(2)(a(i) do not apply to any co- operative bank other than the primary agriculture co-operative society or primary agriculture rural development bank. For the precise reasons that Sec. 80P(4) debars the operation of the entire section 80P in respect of co-operative banks, even if it is held that the deposits were made by the assessee due to statutory obligations, the interest received from Pune District Central Co- operative Bank Ltd is still hit by the rigors of sec.80P(4). Considering the above facts, the assessee's claim of deduction on interest income of Rs.30,74,677/-, received from a Co-operative Bank is held to be inadmissible either u/s 80P(2)(a)(i) or 80P(2)(d), but is treated as income from other sources u/s. 56. It is pertinent to mention that the assessee's has not made out a case for allowances of any proportionate expenses against the proposed addition of interest income. Therefore, this office has no option but to treat the entire sum of Rs. 30,74,677/- as assessee's income from other sources.” 3.1 Aggrieved by the assessment order, the assessee filed an appeal before the Ld. CIT(A), who confirmed it. Aggrieved by the order of the Ld. CIT(A), the assessee filed an appeal before this Tribunal.

4.

We will discuss various decisions to decide the issue before us.

5.

Hon’ble Supreme Court in the case of CIT vs. Karnataka State Co-operative Apex bank [2001] 251 ITR 194 (SC) observed as under : Quote, “The question in appeal reads : "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law

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in holding that the interest income arising from the investment made out of reserve fund is exempt under section 80P(2)(a)(i ) of the Income- tax Act, 1961 ?"

While deciding the above question of Law raised by Revenue, the Hon’ble Supreme Court observed as under : Quote, “……There is no doubt, and it is not disputed, that the assessee-co-operative bank is required to place a part of its funds with the State Bank or the Reserve Bank of India to enable it to carry on its banking business. This being so, any income derived from funds so placed arises from the business carried on by it and the assessee has not, by reason of section 80P(2)(a)(i), to pay income-tax thereon. The placement of such funds being imperative for the purposes of carrying on the banking business, the income derived therefrom would be income from the assessee's business……” Unquote.

The Hon’ble Supreme Court in the above case answered the question in favour of Assessee and against Revenue.

Thus, the proposition of law emanating from the above decision is that Interest earned from Funds deposited with State bank of India by Co-Operative Bank is business income and eligible for deduction u/s 80P(2)(a) of the Act.

6.

The Hon’ble High Court of Andhra Pradesh and Telangana in the case of Vavveru Co-operative Rural Bank Ltd. [2017] 396 ITR 371 analyzed the provisions of Section 80P, succinctly distinguished the decision of Hon’ble Supreme Court in the case of Totagar Cooperative Sale Society, and held as under : Quote,“ 8. Therefore, the real controversy arising in these writ petitions is as to whether the income derived by the petitioners by way of interest on the fixed deposits made by them with the banks, is to be treated as profits and gains of business attributable to any one of the activities indicated in sub-clauses (i) to (vii) of clause (a) of sub- section (2) of section 80P or not. 9. While the petitioners place strong reliance upon a decision of the Division Bench of this court in CIT v. Andhra Pradesh State Co- operative Bank Ltd. [2011] 12 taxmann.com 66/200 Taxman 200/336

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ITR 516, the Revenue places strong reliance upon the decision of the Supreme Court in Totgar's Co-operative Sale Society Ltd. v. ITO [2010] 188 Taxman 282/322 ITR 283. ……………………

34.

The case before the Supreme Court in Totgar's Co-operative Sale Society Ltd.'s case (supra) was in respect of a co-operative credit society, which was also marketing the agricultural produce of its members. As seen from the facts disclosed in the decision of the Karnataka High Court in Totgars, from out of which the decision of the Supreme Court arose, the assessee was carrying on the business of marketing agricultural produce of the members of the society. It is also found from paragraph-3 of the decision of the Karnataka High Court in Totgar's Co-operative Sale Society Ltd.'s case (supra) that the business activity other than marketing of the agricultural produce actually resulted in net loss to the society. Therefore, it appears that the assessee in Totgars was carrying on some of the activities listed in clause (a) along with other activities. This is perhaps the reason that the assessee did not pay to its members the proceeds of the sale of their produce, but invested the same in banks. As a consequence, the investments were shown as liabilities, as they represented the money belonging to the members. The income derived from the investments made by retaining the monies belonging to the members cannot certainly be termed as profits and gains of business. This is why Totgar's struck a different note.

35.

But, as rightly contended by the learned senior counsel for the petitioners, the investment made by the petitioners in fixed deposits in nationalised banks, were of their own monies. If the petitioners had invested those amounts in fixed deposits in other co-operative societies or in the construction of godowns and warehouses, the respondents would have granted the benefit of deduction under clause (d) or (e), as the case may be.

36.

The original source of the investments made by the petitioners in nationalised banks is admittedly the income that the petitioners derived from the activities listed in sub-clauses (i) to (vii) of clause (a). The character of such income may not be lost, especially when the statute uses the expression "attributable to" and not any one of the two expressions, namely, "derived from" or "directly attributable to".

37.

Therefore, we are of the considered view that the petitioners are entitled to succeed. Hence, the writ petitions are allowed, and the order of the Assessing Officer, in so far as it relates to treating the interest income as something not allowable as a deduction under section 80P(2)(a), is set aside.” Unquote.

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Thus, Hon’ble High Court of Andhra Pradesh and Telangana held that Interest Income earned by investing Income derived from Business and Profession by a Co-Operative Credit Society was eligible for deduction u/s 80P(2)(a) of the Act.

7.

In the case of Sahyadri Co-operative Credit Society Limited, the Sahyadri Co-operative Credit Society had deposited excess funds in the Banks or Institutions permitted by the Co- operative Societies Act. In that context, the Hon’ble Kerala High Court in the case of Pr.CIT Vs. Sahyadri Co-operative Credit Society Ltd., [2024] 301 Taxman 36 (Kerala) vide order dated 04.09.2024 has held as under : Quote “7. On a consideration of the rival submissions, we are of the view that for the reasons stated hereinafter, the question of law that arises for consideration before us must be answered against the Revenue and in favour of the assessee. The permissible deduction that is envisaged under Section 80P(2) of the I.T. Act for a Co-operative Society that is assessed to tax under the head of 'Profits and Gains of Business or Profession' is of the whole of the amount of profits and gains of business attributable to any one or more of its activities. Thus, all amounts as can be attributable to the conduct of the specified businesses by a Co-operative Society will be eligible for the deduction envisaged under the statutory provision. The question that arises therefore is whether, merely because the assessee chooses to deposit its surplus profit in a permitted bank or financial institution, and earns interest on such deposits, such interest would cease to form part of its profits and gains attributable to its business of providing credit facilities to its members? In our view that question must be answered in the negative, since we cannot accept the contention of the Revenue that the interest earned on those deposits loses its character as profits/gains attributable to the main business of the assessee. It is not as though the assessee in the instant case had used the surplus amount [the profit earned by it] for an investment or activity that was unrelated to its main business, and earned additional income by way of interest or gain through such activity. The assessee had only deposited the profit earned by it in the manner mandated under Section 63 of the Multi-State Co-operative Societies Act, or permitted by Section 64 of the said Act. In other words, it dealt with the surplus profit in a manner envisaged under the regulatory Statute that regulated, and thereby legitimized, its business of providing credit facilities to its members. Under those circumstances, if the

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assessee managed to earn some additional income by way of interest on the deposits made, it could only be seen as an enhancement of the profits and gains that it made from its principal activity of providing credit facilities to its members. The nature and character of the principal income [profits earned by the assessee from its lending activity] does not change merely because the assessee acted in a prudent manner by depositing that income in a bank, instead of keeping it in hand. The provisions of the I.T. Act cannot be seen as intended to discourage prudent financial conduct on the part of an assessee.” Unquote

8.

Similarly, similar view has been taken by the Hon’ble High Court of Telangana in the case of Ismailia Co-operative Credit Society Ltd. Vs. ACIT, (2026) 186 taxmann.com 1136 (Telangana) held as under : “28. This Bench is of the considered view that the findings given by the Assessing Officer, the Commissioner and the Appellate Tribunal do not hold good and that the appellant is prima facie entitled to the deduction under Section 80P(2)(a) of Income Tax Act. Accordingly, the substantial question of law is answered in favour of the appellant and against the respondent.”

9.

What emerges from the above referred decisions of Hon’ble Supreme Court and Hon’ble High Courts is that interest earned by Co-operative Credit Society registered under state cooperative society Act, which is engaged in the business of providing credit facilities to its members, from funds deposited with Cooperative Bank or Bank is eligible for deduction u/s 80P(2)(a)(i) of the Act.

10.

Similar view has been taken by ITAT Pune Bench in the case of ITO vs. Dhanshri Multi State Cooperative Society Ltd in ITA 463/PUN/2024, Arth Nagari Sahakari Patsanstha Limited vs ITO Arth Nagari Sahakari Patsanstha Limited.

11.

The facts of the present case are identical to the facts of the cases referred above. Hence, respectfully following the

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judicial precedent, we hold that assessee is eligible for deduction u/s 80P(2)(a) of the Act on the Interest Income earned as mentioned above. Accordingly, the AO is directed to delete the addition.

12.

In the result, appeal of the assessee is allowed.

Order pronounced in the open Court on 16th September, 2026

Sd/- Sd/- (VINAY BHAMORE) (Dr. DIPAK P. RIPOTE) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे/Pune; दिन ांक/Dated : 16-09-2026 Ravi Kumar Digitally signed by Ravi Kumar Date: 2026.09.17 16:35:49 Ravi Kumar +05'30' आदेशकीप्रतितितिअग्रेतिि/Copy of the Order is forwarded to: 1. अपील र्थी/ The Appellant 2. प्रत्यर्थी/ The Respondent 3. The concerned Pr.CIT, Pune 4. DR, ITAT, ‘SMC’ Bench, Pune 5. ग र्डफ ईल / Guard file. आदेशानुसार/ BY ORDER, // True Copy // Assistant Registrar आयकरअपीलीयअदिकरण, पुणे / ITAT, Pune

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