JALLIPATTI PACCS,TIRUPPUR vs. ITO, WARD-2(4), TIRUPPUR

आदेश / O R D E R PER ABY T. VARKEY, JM: This is an appeal preferred by the assessee-Primary Agricultural Cooperative Credit Society [PACCS] against the order of the Learned Commissioner of Income Tax (Appeal)/NFAC, Delhi, (hereinafter referred to as ‘Ld. CIT(A)’), dated 19.03.2026 for the Assessment Year (hereinafter referred to as ‘AY’) 2018-19 passed u/s.250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).

ITA No.2639/Chny/2026 (AY 2018-19) Jallipatti Primary Agri Co Op Credit Society :: 2 :: 2. The main grievance of the assessee is against the Ld. CIT(A) confirming the action of the AO disallowing the claim of deduction u/s.80P(2)(a)(i) of the Act. Brief facts are that the assessee is a Primary Agricultural Cooperative Credit Society (PACCS) engaged in the business of providing credit facilities to its members and selling agricultural products. The assessee society had filed its return of income for AY 2018-19 on 31.10.2018 declaring total income as ‘Nil’ claiming deduction u/s.80P(2)(a)(i) against business income of Rs.23,03,181/-. The said return was selected for scrutiny; the AO issued statutory notices and asked the assessee to justify its claim for deduction u/s.80P(2)(a)(i) of the Act. The assessee filed its replies. Having gone through the replies, the AO was of the view that the assessee- society has claimed section 80P(2)(a)(i) deduction in respect of income from it giving bank/credit facilities to its members and interest fom investments made with District Central Cooperative Bank. According to the AO, the assessee didn’t give the details of the interest earned. Further, according to AO, the deduction is allowable only for income from assessee providing credit facility to its members. However, according to the AO interest income under question was not the interest received from its members [for providing credit facilities to them]. Therefore, he was of the view that depositing/investing funds in a cooperative bank/commercial bank is not part of the business of providing credit facilities to its members. Therefore, such interest income is not operational income of the assessee-society and hence, not eligible for deduction u/s.80P(2)(a)(i) of the Act. Thus, he disallowed the claim and made an addition of Rs.23,03,181/-.

ITA No.2639/Chny/2026 (AY 2018-19) Jallipatti Primary Agri Co Op Credit Society :: 3 :: as its business income. According to the assessee, it was engaged in providing credit facility to its members, who are doing agricultural crop activities. From a perusal of the income computation statements, it is noted that the assessee received interest income from its members and as well as from investments made with District Central Cooperative Bank. Further, it is noted that appellant/assessee has claimed net income as per the Profit and Loss account to the tune of Rs.23.03 lakhs which was claimed as deduction u/s.80P(2)(a)(i) of the Act since the assessee is eligible for deduction to the extent of its gains arising out of its business. It was pointed out by the Ld. AR that it is eligible for deduction of the interest/dividend earned from investment made in cooperative societies as per section 80P(2)(a)(i) of the Act, and District Central Cooperative Bank is basically a Cooperative Society. However, the AO disallowed the same on wrong assumption of fact that the assessee has earned interest income from commercial bank and not from its members/Cooperative- Society. As noted, the assessee has earned interest income from its members and District Central Cooperative Bank which is not a commercial bank, rather it is a Cooperative Society. Hence, AO erred in disallowing the claim of the assessee. Further we note that the issue before us is no longer integra. This Tribunal in the case of ITO vs. Tamilnadu Special Police Employees Cooperative in ITA No.363/Chny/2025 dated 15.07.2025 has considered the issue in detail and held as under: - 1……………………… 2……………………… 3. The brief facts of the case are that the assessee is a cooperative society formed with the objective providing of credit facilities to its members. The assessee filed its return of income on 21.12.2020 declaring a gross total income of Rs.4,60,14,015/- and total income of Rs.Nil after claiming a deduction of Rs.4,60,14,015/- u/s.80P(2)(a)(i) of the Act. The case was selected selected for complete scrutiny under CASS and issues statutory notice to the assessee accordingly. On perusal of submissions made by the assessee, the Assessing Officer(AO) found that the assessee has earned income by way of interest and dividend from Kancheepuram Central Cooperative Bank amounting to Rs.30,87,251/- and Rs.1,49,78,600/- respectively and issued a show cause notice as to why income of Rs.1,83,44,052/- shown as miscellaneous income should not be treated as income from other sources to bring it to tax. The assessee filed its

ITA No.2639/Chny/2026 (AY 2018-19) Jallipatti Primary Agri Co Op Credit Society :: 4 :: submissions on 23.03.2022 stating that the income in the form of interest and dividend earned from the Kancheepuram Central Bank Limited out of the deposits made in compliance with the provisions of cooperative society act itself. Therefore, the claim of deduction u/s.80P(2)(a)(i) by including the above said interest and dividend is in accordance with law. Further, the assessee submitted that relying on the following decisions of various courts and stated that the said interest and dividend is also eligible for deduction u/s.80P(2)(d) of the Act since the said income has been earned from the cooperative banks. i. Surendranagar District Co-op. Milk Producers Union Ltd Vs DCIT [2019] 111 taxmann.com 69 (Rajkot - Trib.) ii. Shree Mahadeshwar Sahakari PatpedhiMaryadit Vs. ITO ITA/No.374/Mum/2018). iii. Kaliandas Udyog Bhavan Premises Co-operative society Ltd Vs.ITO-21(2) (1) (ITA No. 6547/Mum/2017). iv. Land and Cooperative Housing Society Ltd. Vs. ITO (2017) 46 CCH 52 (Mum). v. ITO Vs. Shree Keshorai Patan Sahakari Sugar Mill ITA Nos. 418 & 419/JP/2017 (Jaipur).

vi. M/s C. Green Cooperative Housing and Society Ltd. Vs. ITO21(3)(2), Mumbai (ITA No. 1343/Mum/2017, dated 31.03.2017

vii. Marvwanjee Cama Park Cooperative Housing Society Ltd. Vs. ITO-Range-20(2)(2), Mumbai (ITA No. 6139/Mum/2014, dated 27.09.2017. 4. However, the Assessing Officer was not convinced with the reply filed by the assessee and disallowed the claim of interest and dividend to the tune of Rs.1,80,65,851/- earned from the deposits / investments made in the Kancheepuram Central Cooperative Bank Limited by holding as under: 7. In the present case, the interest and dividend income claimed for deduction under Section 80P(2)(a)(i) of the Act is not the interest or dividend received from the members for providing credit facilities to them. In this connection, we may analyze Section 80P of the Act. This section comes in Chapter VI-A, which, in turn, deals with "Deductions in respect of certain Incomes". The Headnote to Section 80P indicates that the said section deals with deductions in respect of income of cooperative Societies. Section 80P(1), inter alia, states that where the gross total income of a cooperative Society includes any income from one or more specified activities, then such income shall be deducted from the gross total income in computing the total taxable income of the assessee- Society. An income, which is attributable to any of the specified activities in Section 80P(2) of the Act, would be eligible for deduction. The word "income" has been defined under Section 2(24)(i) of the Act to include profits and gains. This sub-section is an inclusive provision. The

ITA No.2639/Chny/2026 (AY 2018-19) Jallipatti Primary Agri Co Op Credit Society :: 5 :: Parliament has included specifically "business profits into the definition of the word "income". Therefore, we are required to give a precise meaning to the words "profits and gains of business" mentioned in Section 80P(2) of the Act. In the present case, as stated above, assessee-Society invested funds, Reserve Fund, not immediately required for business purposes. Interest on such investments and dividend income there from, therefore, cannot fall within the meaning of the expression "profits and gains of business". Such interest income cannot be said also to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members. When the assessee-Society provides credit facilities to its members, it earns interest income. However, here we are only concerned with interest which accrues on funds not required immediately by the assessee(s) for its business purposes and which have been only invested as "investment." It may also be mentioned here that the words 'the whole of the amount of profits and gains of business in Section 80P(2) of the I.T. Act emphasizes that the income in respect of which deduction is sought by the Co-operative society must constitute the operational income and not the other income which accrues to the society. In this case, the assessee Society has claimed that it earns interest on Reserve funds and dividend from the investment in Kanchipuram Central Co-operative Bank Ltd. Reserve Fund means funds which are not required for business purposes at the given point of time. 8. Apart from that as per latest decision of the Honourable Supreme Court in the case of the Mavilayi Service Cooperative Bank Itd. & Ors. Vs CIT in CIVIL APPEAL NO.8315 OF 2019 dated 12th January, 2021.Clause (g) Eighthly, sub-clause (d) says in that interest or dividend income derived by a co-operative society from investments with other co-operative societies", are also entitled to deduct the whole of such income.

As per supreme court decision interest or dividend income derived by a co-operative society from investments with other co- operative societies' is eligible to claim deduction u/s 80P(2)(a)(i). In the case of assessee interest income and dividend income arising on the Reserve Fund deposited with Kanchipuram Central Co-operative Bank Ltd. As per the official website of the Kanchipuram Central Co-operative Bank Ltd., it is found that this entity is not a cooperative society, but it is a cooperative bank, which has been granted license under Section 22 of Banking Regulation Act of 1949 to do banking business in the year 1995. Kanchipuram Central Co-operative Bank Ltd. is Co-operative Bank (Private Bank). Kanchipuram Central Co-operative Bank Ltd is not a co-operative society. In view of this fact and in light of the decision of the Supreme Court in the case of M/s. The Mavilayi Service Coop. Bank Ltd. & Ors. vs. CIT. Civil Appeal Nos. 7343- 7350 of 2019 dated 12/01/2021, wherein the co-operative banks are excluded from the ambit of section 80P of the Act. Therefore as per Honourable Supreme Court in the case of the Mavilayi Service Cooperative Bank Itd. & Ors, assessee is not eligible to claim deduction u/s.80P(2)(a)(i) on interest income and dividend income arising on the Reserve Fund deposited with Kanchipuram Central Co-operative Bank Ltd. amounting to Rs.1,80,65,851/-. Hence, the deduction of Rs.1,80,65,851/- claimed by assessee u/s 80P(2)(d)

ITA No.2639/Chny/2026 (AY 2018-19) Jallipatti Primary Agri Co Op Credit Society :: 6 :: of the Act during the year on the Interest income on Reserve Fund and savings and dividend earned during the year from the Kanchipuram Central Co-operative Bank Ltd. treated as income for the year under consideration.

ITA No.2639/Chny/2026 (AY 2018-19) Jallipatti Primary Agri Co Op Credit Society :: 7 :: dividend from such Cooperative Bank is eligible for deduction under section 80P(2)(d) of the Act. assessment procedure. The assessee explained that the Statutory Reserve Fund and Statutory Bad Debit Reserve Fund were invested as FD with Chennai Central Cooperative Bank (CCC Bank). It also Invested in CCC Bank share capital for obtaining loan for business purpose, The assesse claimed the interest and dividend on such investment are deductible not only u/s. 80P(2)(a)(i) but u/s.8OP(2)(d) of the Act. The AO while framing assessment noted that the deposit from members and available funds which are not utilized for banking / co-operative facilities to members have been parked in various investments. The AO noted that these investments are for fixed period and these Investments cannot be utilized before maturity for the business of the society. Therefore, the AO computed the income on these investments at Rs.6,28,016/- and disallowed the claim of deduction made u/s 80P(2)(a)(i) of the Act. Aggrieved, assessee preferred appeal before CITIA).

Order pronounced in the open court on 27th February, 2023 at Chennai."

6.2.5. The above of Jurisdictional ITAT's decision is considered and it is seen that the facts of the above decision and that of the appellant are similar and the Hon'ble ITAT in its decision has come to the conclusion that appellant being a co-operative society and has deposited the funds with District Central Co-operative Bank, and received interest and dividend which are eligible for deduction u/s 80P(2)(a)(i).”

ITA No.2639/Chny/2026 (AY 2018-19) Jallipatti Primary Agri Co Op Credit Society :: 8 :: the assessee and hence, prayed for setting aside the order of the ld.CIT(A) by confirming the addition made by the Assessing Officer.

"2(19). "Co-operative society" means a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies.

ITA No.2639/Chny/2026 (AY 2018-19) Jallipatti Primary Agri Co Op Credit Society :: 9 :: "Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee is to be treated as primary agricultural society and is carrying on the business of banking or providing credit facilities to its members and is entitled for deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961 with respect to the interest received from Class B members who were involved in non-agricultural society?". While answering to the above, the Division Bench held that the respondent therein, which is a Co-operative society, is entitled to avail the benefit under 80P(2)(d) of the Act. The judgment was rendered on 10.08.2016, where the judgement rendered by the Hon'ble Supreme Court in 2010 was considered. 13. In such view of the matter, since the impugned orders are passed without considering all these aspects, this Court is of the view that the same are liable to be set aside. Accordingly, the Writ Petitions are allowed and all the impugned notices are set aside. No costs. Consequently, all the connected miscellaneous petitions are closed.” 8. Therefore, the ld.AR submitted that there is no reason to interfere in the orders of the ld.CIT(A) in allowing the deduction claimed u/s.80P of the Act and hence prayed for dismissing the appeal of the revenue.

ITA No.2639/Chny/2026 (AY 2018-19) Jallipatti Primary Agri Co Op Credit Society :: 10 :: Therefore, it is clear that the investment made by the petitioner is a Co-operative Bank registered under the Co-operative Societies Act. The Income Tax Act, 1961 has also defined 'Co-operative Society' under Section 2(19) as follows: "2(19). "Co-operative society" means a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies. 10. A reading of the above definition would make it clear that 'Co-operative Society' means a Co-operative Society registered under Co-operative Societies Act, 1912. Thus, a Co-operative Society referred therein is only a co-operative society as defined under the Act, be it a Co-operative Society carrying on banking business or Co-operative Society carrying on the other businesses or a Co-operative bank.

ITA No.2639/Chny/2026 (AY 2018-19) Jallipatti Primary Agri Co Op Credit Society :: 11 :: 5. Respectfully following the decision of the Tribunal (supra) we allowed the claim of the assessee for deduction u/s.80P(2)(a)(i) of the Act and direct the deletion of disallowance made to the tune of Rs.23,03,181/-.

Order pronounced on the 20th day of August 2026, in Chennai.

Sd/- Sd/- (एबी टी. वक�) (एस. आर. रघुनाथा) (ABY T. VARKEY) (S.R.RAGHUNATHA) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�/ACCOUNTANT MEMBER चे�नई/Chennai, �दनांक/Dated: 20th August, 2026. YS आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF

YASH Digitally signed by YASHVIR VIR SINGH Date: 2026.09.03 SINGH 12:13:40 -07'00'