KARNATAKA POWER TRANSMISSION CORPN LTD EMPLOYEES CO-OP CREDIT SOCIETY,KARWAR vs. ASSISTANT COMMISSIONER OF INCOME TAX, NFAC, DELHI

आदेश / ORDER

PER VINAY BHAMORE, JM: This appeal filed by the assessee is directed against the order dated 18.09.2025 passed by Ld. CIT(A)/NFAC for the assessment year 2014-15.

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“1. That the order of First Appellate Authority upholding the assessment order is bad in facts. 2. The Learned First Appellate Authority has erred in law, by considering the interest on investment with Co-Op Bank as not eligible for 80P deduction where the investments are made out of own funds. In the case of Tumkur Merchant Society, it was held that interest on investments with Co-Op Bank/ Other Banks are eligible for 80P deduction provided the investments are made out of own funds and not borrowed funds. 3. The Learned First Appellate Authority ought to have extended the benefit of section 80P to the interest income on investments in bank since the investment were made out of own funds and the same was also decided in the case of Hegdekatta and Others by Hon ITAT Panaji and similar decision was made in the joint application/appellant by Hon ITAT Panaji on 28.11.2025. 4. The Appellant craves leave to add, alter, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal, so as to enable the Hon'ble Tribunal to decide on the appeal in accordance with the law.”

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“Ground No. 5: The learned Assessing Officer erred in facts and in law in treating the entire deduction of Rs.29,75,554 claimed by the appellant under section 80P of the Income-tax Act, 1961 as interest income earned from deposits with a Co-operative Bank and consequently disallowing the entire deduction. The learned Assessing Officer failed to appreciate that the actual interest earned from deposits with the Co-operative Bank was only Rs.3,92,375, whereas the balance amount of the deduction represented profits attributable to the business of providing credit facilities to its members and was independently eligible for deduction under section 80P(2)(a)(i) of the Act.”

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case was reopened u/s 147 of the IT Act on the ground that the assessee credit cooperative society is not entitled to claim deduction u/s 80P of the IT Act when advances were made to non-members and deposits were accepted from general public. Accordingly, notice u/s 148 of the IT Act was issued to the assessee on 31.03.2021. In response to above notice, the assessee filed its return of income on 27.12.2021 declaring Rs.Nil income after claiming deduction u/s 80P(2)(a)(i) of the IT Act. Subsequently, notice u/s 143(2) and 142(1) of the IT Act respectively were issued to the assessee in response to which the assessee submitted that the assessee credit cooperative society is meant to provide credit facilities to its members who are employees of HESCOM and no other person is permitted to become member of the society. The assessee credit cooperative society has claimed deduction u/s 80P(2)(a)(i) of the IT Act with regard to the amount of profits attributable to the activity of providing credit facilities only to its members. Not being satisfied with the reply of the assessee, the Assessing Officer vide

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order dated 31.03.2022 completed the assessment proceedings u/s 147 r.w.s. 144B of the IT Act by determining the income of the assessee at Rs.29,75,554/- as against income of Rs.Nil returned by the assessee. The above assessed income includes addition of Rs.29,75,554/- being disallowance u/s 80P(2)(a)(i) of the IT Act. 6. Being aggrieved with the above assessment order, the assessee preferred an appeal before Ld. CIT(A)/NFAC. Since the assessee remained absent, Ld. CIT(A)/NFAC after considering the statement of facts and grounds of appeal, dismissed the appeal filed by the assessee. 7. It is the above order against which the assessee is in appeal before this Tribunal. 8. We have heard Ld. Counsels from both the sides and perused the material available on record including the paper book furnished by the assessee. In this regard, we find that the case of the assessee was reopened on the basis that the assessee credit cooperative society is accepting deposits and providing credit facilities to persons who are not members of the society,

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however, we find that it is the claim of the assessee that the assessee credit cooperative society is meant only for the benefit of employees of HESCOM and no other person can be made member of the society and the society is engaged in providing credit facilities only to its members and also accepting deposits from members alone and the income shown by the assessee is derived from providing credit facilities to its members. The Assessing Officer placed reliance on the judgement passed by Hon’ble Supreme Court in the case of Totgar’s Cooperative Sale Society Ltd. Vs. ITO, (2010) 322 ITR 283 (SC) and disallowed the deduction of Rs.29,75,554/- claimed by the assessee u/s 80P(2)(a)(i) of the IT Act which was also confirmed by Ld. CIT(A). 9. In this regard, we find that it is the claim of the assessee that the issue of deduction u/s 80P(2)(a)(i) with regard to banking business income and the issue of deduction u/s 80P(2)(d) of the IT Act with regard to interest income earned from its investments with other cooperative banks is no more res integra in the light of

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various decisions passed by coordinate benches of this Tribunal, since the facts of the judgement passed by Hon’ble Supreme Court in the case of Totgar’s Cooperative Sale Society Ltd. (supra) are distinguishable since in the case of Totgar’s Cooperative Sale Society Ltd. (supra), the business was in relation to sale of agricultural produce of members and the business in the instant case is in relation to profit from activity of providing credit facilities to its members. We find force in the above arguments of Ld. counsel of the assessee & find support from latest coordinate bench decision passed in the case of Mysore University Employees Co-op Credit Society Ltd. vs. Income-tax Officer [2026] 185 taxmann.com 709 (Bangalore - Trib.)[15-04-2026] wherein the Tribunal allowed the deduction u/s 80P(2)(a)(i) of the IT Act with regard to income attributable to banking business by observing as under :-

“11.7 Thus, under the constitutional scheme and the doctrine of judicial discipline, the decision of the Hon'ble jurisdictional High Court is binding on the Tribunal, while decisions of other Hon'ble High Courts carry persuasive value and may be followed in the absence of a contrary jurisdictional precedent. Hence in our considered view, while deciding the issue of deductibility of interest

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income from deposit of surplus/idle fund by the cooperative societies engaged in providing credit facilities, we are bound to follow the principles laid down in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra), unless material brought on record that the said principle/finding has been overruled by the Hon'ble Supreme Court or the larger bench of the Hon'ble Karnataka High Court or disturbed by the Hon'ble Karnataka High Court in subsequent case. 11.8 Coming to facts of the case on the hand, the assessee is engaged solely in the business of providing credit facilities to its members. The interest income of Rs. 6,25,661/- has been earned on deposits made out of funds arising from business operations, which were not immediately required for lending. Such deposits are part of normal business activity and cannot be treated as independent investment activity. 11.9 Before parting, it is equally important to note that in several earlier decisions, this Tribunal had taken a view that interest income earned by a co-operative society from deposits placed with banks would not qualify for deduction under section 80P(2)(a)(i) of the Act and the same was liable to be taxed under the head "Income from other sources". Accordingly, the claim of deduction under section 80P(2)(a)(i) in respect of such interest income was rejected in those cases. However, the legal position now stands clarified by the judgment of the Hon'ble jurisdictional High Court of Karnataka in Tumkur Merchants Souharda Credit Cooperative Ltd. (supra), and other case laws as discussed in preceding paragraphs wherein it has been held that where a cooperative society, engaged in the business of providing credit facilities to its members, temporarily parks its surplus funds with banks, the interest earned therefrom is attributable to the business of the society and is therefore eligible for deduction under section 80P(2)(a)(i) of the Act. 12. Since the decision of the Hon'ble Jurisdictional High Court is binding on this Tribunal, judicial discipline requires that the same be followed. Therefore, to the extent of our earlier decisions where we have taken a contrary view, we respectfully depart from the earlier stand and follow the ratio laid down by the Hon'ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra). Accordingly, the issue is now decided in favour of the assessee by granting deduction under

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section 80P(2)(a)(i) of the Act in respect of the interest income in question. Hence, the ground of appeal of the assessee is allowed. 13. In the result, the appeal of assessee is hereby allowed.”

“All the above appeals have been preferred by different assessees in relation to the A.Yrs.2014-15, 2017-18 & 2018-19 agitating the passing of the order by the ld. Principal Commissioner of Income- tax (PCIT) u/s.263 of the Income-tax Act, 1961 holding that the grant of deduction u/s.80P by the Assessing Officer (AO) in respect of interest income earned from other credit cooperative societies or Nationalised banks led to the passing of erroneous assessment orders prejudicial to the interest of the Revenue. Because of the commonness of the issue, we are proceeding to dispose of all the appeals by the consolidated order for the sake of convenience. xxxxx 4. Succinctly, the facts common in all these cases are that the assesses filed returns claiming deduction u/s.80P in respect of

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interest income which was allowed by the respective AOs. The ld. PCIT(s) invoked the jurisdiction u/s 263 of the Act and disputed the allowability of the claim of deduction u/s.80P(2)(a)(i) in some cases and under 80P(2)(d) in others, thereby holding the assessment orders to be erroneous and prejudicial to the interest of the Revenue. Aggrieved thereby, the assessees have approached the Tribunal. 5. We have heard the rival submissions and gone through the relevant material on record. It is seen that all the cases are based on the ld. PCIT(s)’ understanding that the allowing of the deduction by the AO(s) u/s 80P is contrary to law. Insofar as the allowability of deduction u/s.8P(2)(a)(i) is concerned, we find that the Pune Tribunal in Sureshdada Jain Nagari Sahakari Patsanstha Maryadit Vs. The Pr.CIT (ITA No.713/PUN/2016) has decided the question of availability of deduction u/s 80P on interest income by noticing that the Pune Bench in an earlier case of Shri Laxmi Narayan Nagari Sahakari Pat Sanstha Maryadit Vs. ITO (ITA No.604/PN/2014) has allowed similar deduction. In the said case, the Tribunal discussed the contrary views expressed by the Hon’ble Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO (2015) 230 Taxman 309 (Kar.) allowing deduction u/s. 80P on interest income and that of the Hon’ble Delhi High Court in Mantola Cooperative Thrift Credit Society Ltd. Vs. CIT (2014) 110 DTR 89 (Delhi) not allowing deduction u/s.80P on interest income earned from banks. Both the Hon’ble High Courts took into consideration the ratio laid down in the case of Totgar’s Cooperative Sale Society Ltd. (supra). No direct judgment from the Hon’ble jurisdictional High Court on the point having been pointed out, the Tribunal in Shri Laxmi Narayan Nagari Sahakari Pat Sanstha Maryadit (supra) preferred to go with the view in favour of the assessee by the Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra). The position continues to remain the same before this Tribunal also. We thus hold that no exception can be taken to the granting of deduction on interest income by the AO u/s 80P(2)(a)(i) of the Act. 6. Coming to the other cases involving deduction u/s.80P(2)(d) of the Act, it is crystal clear from the language of the provision that though co-operative banks, other than primary agricultural credit society or a primary co-operative agricultural and rural development bank, are not eligible for deduction pursuant to

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insertion of section 80P(4) w.e.f. 1.4.2007, but this provision does not dent the otherwise eligibility u/s 80P(2)(d) of the Act of a co- operative society on interest income on investments/deposits parked with a co-operative bank, which is a registered co-operative society as per section 2(19) of the Act, defining co-operative society to mean a cooperative society registered under the Co-operative Societies Act, 1912 or under any law for the time being in force. The assessees are also Co-operative society registered under the Act and hence qualify for the grant of the deduction. Similar view has been taken by the Pune Tribunal in several cases including The Sesa Goa Employees Coop. Credit Society Ltd. Vs. ACIT (ITA No.203/PUN/2019) vide order dated 16-11-2022). 7. In view of the foregoing, we hold that the impugned orders questioning the deduction u/s.80P(2)(a)(i)/80P(2)(d) in respect of interest income, cannot be sustained. 8. In the result, all the appeals are allowed.”

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business and also entitled to claim deduction u/s 80P(2)(d) of the IT Act with regard to interest income earned from its investments with other cooperative banks which are also cooperative societies. 12. Considering the totality of the facts of the case and in the light of our above discussion in preceding paras, we deem it appropriate to set-aside the order passed by Ld. CIT(A)/NFAC & restore the matter back to the file of the Assessing Officer for limited purpose of quantifying & allowing the claim of the assessee u/s 80P(2)(a)(i) & u/s 80P(2)(d) of the IT Act respectively, after verifying financial statements of the assessee, since the assessee through additional ground has claimed before us that income of the assessee which is attributable to banking business i.e. income from providing credit facilities is Rs.25,83,179/- & interest income from cooperative bank is Rs.3,92,375/-. The assessee is also hereby directed to respond to the notices issued by the Assessing Officer in this regard and to produce relevant documents regarding its claim of deduction of

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Rs.25,83,179/- u/s 80P(2)(a)(i) & deduction of Rs.3,92,375/- u/s 80P(2)(d) of the IT Act. Thus, the grounds of appeal including additional ground of appeal are allowed for statistical purposes. 13. In the result, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced on this 12th day of August, 2026.

Sd/- Sd/- (MANISH BORAD) (VINAY BHAMORE) ACCOUNTANT MEMBER JUDICIAL MEMBER Panaji / Dated : 12th August, 2026. Sujeet/DOC Sujeet Kumar Digitally signed by Sujeet Kumar Sharma Sharma Date: 2026.08.12 12:41:59 +05'30' आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The Pr. CIT concerned. 4. DR, ITAT, Panaji. गाड� फ़ाइल / Guard File. 5. आदेशानुसार / BY ORDER, // True Copy // Assistant Registrar ITAT, Panaji.