M/S GURUSIDDESHWAR COOP CREDIT SOCIETY,SIRSI vs. INCOME TAX OFFICER, SIRSI

आदेश / ORDER

PER VINAY BHAMORE, JM: This appeal filed by the assessee is directed against the order dated 03.11.2025 passed by Ld. CIT(A)/NFAC for the assessment year 2018-19.

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“1. The Learned Appellate Commissioner erred in upholding the denial of deduction u/s 80P(2)(a)(i) of the Act by the AO, stating that the interest of Rs.13,95,343/- earned on Fixed Deposit with KDCC Bank is not eligible for deduction even though the said interest is eligible for deduction u/s 80P(2)(d), the same being deposited in compliance with Section 58 of the Karnataka CoOperative Societies Act, 1959 and as such the impugned addition is liable to set aside. 2. That the impugned order is liable to set aside in so far as the Appellate Commissioner erred in upholding the levy of Interest of 2,01,798/- u/s 234B even when the Appellant is not liable there for under the law. 3. That the impugned order is liable to set aside in so far as the Appellate Commissioner erred in upholding the levy of Interest of 28,093/- u/s 234C even when the Appellant is not liable there for under the law. 4. The impugned order of the Appellate Commissioner of Income Tax is liable to set aside in so far as the same is incorrect, irregular, improper, unlawful and oppose to the law and facts of the case. 5. The Learned Appellate Commissioner erred in upholding the incorrect addition made by the AO to the extent of Rs.3,79,785/-, holding that the interest of Rs.3,79,785/- earned on Fixed Deposit made out of Reserve Funds in compliance with Section 57 of the Karnataka Co-Operative Societies Act, 1959 as ineligible for deduction u/s 80P(2)(a) 0R 80P(2)(d) and as such the impugned addition is liable to set aside. 6. That the Learned Appellate Commissioner failed to appreciate the fact that the Appellants income is anyway eligible for deduction u/s 80P(2)(a)(i), the Appellant being a primary agricultural credit co-operative society as envisaged

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therein and as such the impugned addition is liable to set aside. 7. That the impugned order is liable to set aside in so far as the Appellate Commissioner erred in upholding the levy of Interest of 10,908/- u/s 234A even when the Appellant is not liable there for under the law.”

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Kanara District Central Cooperative Bank which is exempt u/s 80P(2)(a)(i) of the IT Act being income attributable to banking business. Alternatively, it was submitted that the interest income is earned from cooperative bank, which is also cooperative society, therefore, the interest income earned from cooperative bank is also deductible u/s 80P(2)(d) of the IT Act. Not being satisfied with the reply of the assessee, the Assessing Officer vide order dated 07.04.2021 completed the assessment proceedings u/s 143(3) r.w.s. 143(3A) & 143(3B) of the IT Act by determining the income of Rs.17,75,128/- as against Rs.Nil income returned by the assessee. The above assessed income includes addition of Rs.17,75,128/- being disallowance on account of deduction u/s 80P(2)(a)(i)/ 80P(2)(d) of the IT Act. 4. Being aggrieved with the above assessment order, the assessee preferred an appeal before Ld. CIT(A)/NFAC. After considering the reply and submissions of the assessee, Ld. CIT(A)/NFAC dismissed the appeal filed by the assessee by

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relying on judgement passed by Hon’ble Supreme Court in the case of Totgar’s Cooperative Sale Society Ltd. vs. ITO 322 ITR 283 (SC). 5. It is the above order against which the assessee is in appeal before this Tribunal 6. 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 it is the sole request of the counsel of the assessee that the assessee is a credit cooperative society and investments made in Kanara District Central Cooperative Bank was made in strict compliance to section 57 of the Karnataka Cooperative Societies Act, 1959, therefore, the interest income generated from these investments is attributable to banking business and accordingly, deduction u/s 80P(2)(a)(i) of the IT Act is allowable. Alternatively, it was also the claim of the counsel of the assessee that the interest income is generated from its investments with a cooperative bank which is

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also a cooperative society, therefore, the interest income generated from its investments with other cooperative banks is also deductible u/s 80P(2)(d) of the IT Act. We find force in the above arguments of Ld. Counsel of the assessee in view of the decision passed by a coordinate bench of this Tribunal 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 interest income earned from deposits with banks following the judgement of Hon’ble High Court of Karnataka in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. 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 income from deposit of surplus/idle fund by the cooperative societies

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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

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Credit Cooperative Ltd. (supra). Accordingly, the issue is now decided in favour of the assessee by granting deduction under 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.”

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order dated 06.10.2023, the assessee is 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. Accordingly, in view of our above discussion, we deem it appropriate to set-aside the order passed by Ld. CIT(A)/NFAC and direct the Assessing Officer to delete the addition of Rs.17,75,128/- and allow the deduction of Rs.7,05,667/- claimed by the assessee u/s 80P(2)(a)(i) of the IT Act with regard to interest income earned from its investments from other banks. Thus, the grounds of appeal raised by the assessee are allowed. 8. In the result, the appeal filed by the assessee is allowed. Order pronounced on this 11th day of August, 2026.

Sd/- Sd/- (MANISH BORAD) (VINAY BHAMORE) ACCOUNTANT MEMBER JUDICIAL MEMBER पुणे / Pune; �दनांक / Dated : 11th August, 2026. Digitally signed by Sujeet/DOC Sujeet Kumar Sujeet Kumar Sharma Sharma Date: 2026.08.11 18:04:42 +05'30'

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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 आयकर अपील�य अ�धकरण, पुणे / ITAT, Panaji.