RAIGAD DISTRICT POLICE COOPERATIVE CREDIT SOCIETY LIMITED,ALIBAG vs. INCOME TAX OFFICER, WARD 3, PANVEL

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ITA 2871/PUN/2026Status: DisposedITAT Pune10 September 2026AY 2020-218 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the assessee is eligible for deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961, on the interest income of Rs. 8,86,638/- earned from the Raigad District Central Co-operative Bank Ltd. The reasoning was based on several judicial precedents, including the Supreme Court in CIT vs. Karnataka State Co-operative Apex bank, the Andhra Pradesh and Telangana High Court in Vavveru Co-operative Rural Bank Ltd., and the Kerala High Court in Pr.CIT Vs. Sahyadri Co-operative Credit Society Ltd. These decisions established that interest earned by a cooperative credit society, engaged in providing credit facilities to its members, from funds deposited with a cooperative bank or any bank, is considered business income and is eligible for deduction under section 80P(2)(a)(i). The Tribunal found the facts of the present case to be identical to those in the cited precedents. Therefore, the AO was directed to delete the addition. The issue of alternative deduction under section 80P(2)(d) was not separately decided as the primary claim under 80P(2)(a)(i) was allowed.

What were the facts?

The assessee, Raigad District Police Cooperative Credit Society Limited, filed an appeal against the order of the Learned Commissioner of Income Tax (Appeals), NFAC, Delhi. The NFAC had confirmed the assessment order passed by the Assessing Officer (AO) under section 143(3) r.w.s 144B of the Income Tax Act, 1961, for Assessment Year 2020-21. The AO had disallowed a deduction of Rs. 8,86,638/- claimed by the assessee under section 80P(2)(a)(i) of the Act, which represented interest income received from the Raigad District Central Co-operative Bank Ltd. The assessee is a cooperative credit society registered with the Deputy Registrar Cooperative Societies, District-Raigad.

What were the issues?

1. Whether, on the facts and in law, the assessee is eligible for deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961, in respect of interest income of Rs. 8,86,638/- received from Raigad District Central Co-operative Bank Ltd. (Assessee's contention: Yes, the assessee is eligible for deduction under section 80P(2)(a) of the Act, relying on various High Court and ITAT decisions. Revenue's contention: The revenue relied on the orders of the AO and the Ld. CIT(A).) 2. Whether, on the facts and in law, the assessee is alternatively eligible for deduction under section 80P(2)(d) of the Income Tax Act, 1961, in respect of the said interest income. (This ground was raised by the assessee but not explicitly argued or decided upon in detail in the provided text, though the Tribunal's finding addresses the eligibility under 80P(2)(a) which would cover such income if it falls within the scope of business activities).

Which sections of the Income-tax Act were involved?

Section 80P(2)(a)(i),Section 143(3),Section 144B,Section 250,Section 80P(2)(d)

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 2020-21 on 15.05.2026, emanating from the Assessment Order u/s 143(3) r.w.s 144B of the Act, dated 27.09.2022.

2.

The assessee has raised the following grounds of appeal : “On facts and in law, 1. The Ld. CIT(A) - NFAC erred in confirming the income assessed by the Ld. A.O. at Rs.8,86,638/-. 2. The Ld. CIT(A)-NFAC erred in confirming the disallowance of deduction u/s 80P(2)(a)(i) in respect of the Interest of Rs.8,86,638/- received from the Raigad District Central Co- operative Bank Ltd.

ITA No.2871/PUN/2026 3. The Ld. CIT(A)-NFAC erred in not allowing the deduction alternatively u/s 80P(2)(d) in respect of the Interest of Rs.8,86,638/- received from the Raigad District Central Co- operative Bank Ltd. The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal.” Submission of Ld. AR :

3.

The Ld. AR filed paper book. The Ld. AR submitted that assessee is a Co-operative Credit Societies duly registered with Deputy Registrar Co-operative Societies, District-Raigad vide order dated 17.03.1998, copy of the said order is page 2 of the paper book. The Ld. AR submitted that Assessing Officer (AO) has disallowed assessee’s claim for deduction u/s 80P(2)(a) of the Act, stating that interest earned from the Co-operative bank is not eligible. The Ld. AR submitted that AO has disallowed interest amount of Rs.8,86,638/-. The said interest income was earned from Raigad District Central Co-operative Bank. The Ld. AR submitted that assessee is eligible for deduction u/s 80P(2)(a) of the Act. The Ld. AR relied on the decision of ITAT, Pune and the Hon’ble High Court.

Submission of Ld. DR :

4.

The Ld. DR relied on the order of the AO and the Ld. CIT(A).

Findings and Analysis :

5.

We have heard both the parties and perused the records. In this case, assessee is a Co-operative Credit Societies duly registered with Deputy Registrar Co-operative Societies District- Raigad vide order dated 17.03.1998. The AO has disallowed assessee’s claim for deduction u/s 80P(2)(a) of the Act on

ITA No.2871/PUN/2026

interest income of Rs.8,86,638/-. The relevant paragraphs of the AO’s order is reproduced here as under : “In view of the above discussions, it can be fairly concluded that the Assessee Co- operative Society does not qualify for claim of Deduction u/s 80P(2)(a) of the Act, in respect of the Income of Rs. 8,86,638/-, which was earned Interest income from Raigard District Central Co. Operative Bank for saving bank a/c and term deposit.”

6.

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), now, the assessee filed an appeal before this Tribunal.

7.

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

8.

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 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.

ITA No.2871/PUN/2026

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.

9.

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 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 4

ITA No.2871/PUN/2026

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.

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

10.

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 :

ITA No.2871/PUN/2026

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 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

11.

Similarly, the Ld. AR submitted case laws wherein the 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 :

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“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.”

12.

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.

13.

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.

14.

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

15.

In the result, appeal of the assessee is allowed.

Order pronounced in the open Court on 10th September, 2026

Sd/- Sd/- (VINAY BHAMORE) (Dr. DIPAK P. RIPOTE) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे/Pune; दिन ांक/Dated : 10-09-2026 Digitally signed by Ravi Ravi Kumar Ravi Kumar Kumar Date: 2026.09.10 17:45:12 +05'30' 7

ITA No.2871/PUN/2026

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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