U P SAHKARI GRAM VIKAS BANK LTD,LUCKNOW vs. DY. CIT, LUCKNOW

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW ‘B’ BENCH, LUCKNOW BEFORE SH. SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SH. NIKHIL CHOUDHARY, ACCOUNTANT MEMBER ITA Nos.317, 318, 418,419,420/LKW/2023 A.Ys.2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., Dy. Commissioner of Income-tax- 10 Mall Avenue, Lucknow- 1, Lucknow-New Jurisdictional 226001, Uttar Pradesh Officer PAN: AAAAU0654R (Appellant) (Respondent) And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 Dy. Commissioner of Income-tax- U.P. Sahkari Gram Vikas Bank Ltd., 1, Lucknow-New Jurisdictional 10 Mall Avenue, Lucknow- Officer 226001, Uttar Pradesh PAN: AAAAU0654R (Appellant) (Respondent) Assessee by: Sh. Shweta Mittal, C.A. Revenue by: Sh. S.H. Usmani, CIT DR Date of hearing: 04.06.2026 Date of pronouncement: 30.07.2026 O R D E R PER BENCH.: These eight appeals have been filed by the Assessee and the Revenue against the various orders of the ld. CIT(A) under section 250 of the Income Tax Act, 1961 for the assessment years 2013-14, 2016-17, 2017-18, 2018- 19 and 2020-21. As the issues involved in these appeals are of a common nature, the appeals were heard together and orders are being passed in a consolidated manner for the sake of convenience. The grounds of appeal of the assessee are as under:-

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19

ITA No.317/LKW/2023 (2013-14) “1. The Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts in passing the order, which is unlawful, unjustified and against the principles of natural justice. 2. The Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts in passing the order without giving adequate opportunity of being heard. 3. The Ld. Commissioner of Income-tax (Appeals)has erred in law and on facts in not treating the re-opening as bad in law despite the absence of the condition precedent for issue of notice for reopening u/s 148 of the Income Tax Act, 1961. The re-opening is bad in law and therefore the impugned order passed/confirmed in consequence thereto being bad in law and liable to be quashed. 4. The Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts by applying the provisions of section 80P(4) of Income-tax Act for the first time and treated appellant to be a bank registered with RBI on the basis of suspicion, conjecture and surmise. 5. The Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts by upholding the addition of Rs. 30,89,64,817/-made by the Ld. Assessing Officer by treating the interest income from bank (Rs. 9,51,22,580/- being interest from UP Co-operative Bank &Rs. 21,38,42,237/-being interest from Commercial Bank) as income under the head Income from Other Sources and consequentially disallowed 80P deduction claimed in the ITR. Without prejudice to other grounds of appeal: 6. The Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts by upholding the computation of the Ld. Assessing Officer which is contrary to law as while treating Rs. 30,89,64,817/- as income under the head Income from Other Sources, consequential deduction of same amount from the income declared under the head Income from Business & Profession and provisions of section 71 of Income-tax Act were totally ignored, thereby disallowing the deduction u/s 80P of Income-tax Act more than actual claim in the ITR. 7. The Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts in passing appellate order which is contrary to the facts and law. 8. The appellant craves leave to add, amend, alter or withdraw any ground of appeal or raise any new ground of appeal during the pendency of appeal.”

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19

ITA No.318/LKW/2023 (2016-17) (w.r.t. the assessment u/s 143(3). 1. The Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts in passing the order, which is unlawful, unjustified and against the principles of natural justice. 2. The Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts in passing the order without giving adequate opportunity of being heard. 3. The Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts by applying the provisions of section 80P(4) of Income-tax Act for the first time and treated appellant to be a ban registered with RBI on the basis of suspicion, conjecture and surmise. 4. The Ld. Commissioner of Income-tax (Appeals) has erred in la and on facts by upholding the assessed income of Rs. 34,65,49,661/- by treating the interest income of Rs. 34,12,34,191/- from commercial bank as income under the head Income from Other Sources and consequentially disallowed 80 deduction claimed in the ITR. Without prejudice to other grounds of appeal: 5. The Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts by upholding the computation of the Ld. Assessing Officer which is contrary to law as while treating Rs. 34,12,34,191/- as income under the head Income from Other Sources, consequential deduction of same amount from the income declared under the head Income from Business & Profession and provisions of section 71 of Income-tax Act were totally ignored, thereby disallowing the deduction u/s 80P of Income-tax Act more than actual claim in the ITR. 6. The Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts in passing appellate order which is contrary to the facts and law. 7. The appellant craves leave to add, amend, alter or withdraw any ground of appeal or raise any new ground of appeal during the pendency of appeal.” ITA No.418/LKW/2023 (2016-17) (w.r.t. the assessment u/s 147 r.w.s.144) “1. The Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts in passing the order, which is unlawful, unjustified and against the principles of natural justice.

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19

ITA No. 419/LKW/2023 (A.Y. 2017-18) “1. The Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts in passing the order, which is unlawful, unjustified and against the principles of natural justice. 2. The Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts in passing the order without giving adequate opportunity of being heard. 3. The Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts by upholding the disallowance of 80P of Rs. 8,50,11,850/- as such claim was made by way of revision of income tax return before the Ld. Assessing Officer in lieu of judgment of Hon'ble Supreme Court in Goetze India Ltd. vs. CIT (2006) 284 ITR 323 (SC). 4. The Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts in passing appellate order which is contrary to the facts and law. 5. The appellant craves leave to add, amend, alter or withdraw any ground of appeal or raise any new ground of appeal during the pendency of appeal.”

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19

ITA No. 420/LKW/2023 (A.Y. 2020-21) “1. The Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts in passing the order, which is unlawful, unjustified and against the principles of natural justice. 2. The Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts in passing the order without giving adequate opportunity of being heard. 3. The Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts by upholding the disallowance of Rs. 21,47,11,910/-made by Ld. Assessing Officer u/s 36(1)(va) of Income-tax Act which includes both employee and employer contribution. 4. Without prejudice to other grounds of appeal, the Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts by upholding the computation of the Ld. Assessing Officer wherein income from Business & Profession was increased by Rs. 21,47,11,910/- in lieu of disallowance of employer's and employee's contribution of EPF/ ESI and not allowed as deduction u/s 80P of Income-tax Act. 5. The Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts in passing appellate order which is contrary to the facts and law. 6. The appellant craves leave to add, amend, alter or withdraw any ground of appeal or raise any new ground of appeal during the pendency of appeal.”

ITA No.7/LKW/2024 (A.Y. 2016-17) “1. The CIT (A) has grossly erred in deleting addition of Rs. 6,40,25,100/- made by disallowing deduction claimed U/s 80P(2) of the Income tax Act, 1961 by not appreciating the facts and case laws mentioned by the assessing officer in assessment order. 2. Any other ground which may be raised during the course of appellate proceeding.”

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 ITA No.9/LKW/2024 (A.Y. 2018-19) “1. The CIT (A) has grossly erred in deleting addition of Rs. 16,49,72,229/-made by disallowing deduction claimed U/s 80P(2) of the Income tax Act, 1961 by not appreciating the facts and case laws mentioned by the assessing officer in assessment order. 2. Any other ground which may be raised during the course of appellate proceeding.” ITA No. 8/LKW/2024 (A.Y. 2020-21) “1. The CIT (A) has grossly erred in deleting addition of Rs. 11,98,54,481/-made by disallowing deduction claimed U/s 80P(2) of the Income tax Act, 1961 by not appreciating the facts and case laws mentioned by the assessing officer in assessment order. 2. Any other ground which may be raised during the course of appellate proceeding.” 3. The facts of the case in assessment year 2013-14 are that the assessee filed a return of income declaring a total income of rupees Nil after claiming deduction under section 80P(2)(a)(i) of Rs. 205,74,48,184/-. The case was selected for scrutiny and the assessment was completed under section 143(3) at the returned income. Thereafter, a rectification order under section 154 was passed on 22.01.2016 allowing a refund of Rs. 5,20,54,480/-. Subsequently, the case was reopened for assessment by issue of notice under section 148 on 30.03.2021. Subsequently, notices under section 142(1) were also issued. The Assessing Officer observed that the assessee had shown interest income of Rs. 30,89,64,817/- from investment made out of surplus funds, not required immediately for business purposes. He was, therefore, of the opinion that the assessee was not eligible to claim the deduction under section 80P on this amount, as the same should have been treated as income from other sources. His view was based on his understanding of the decision of the Hon’ble Supreme Court in the case of Totgars Cooperative Sale Society Limited vs. ITO, Karnataka (2010) 188 6

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 taxman 282 (SC). Accordingly, he asked the assessee as to why the disallowance ought not to be made. In response, the assessee submitted that the assessee had to borrow loan on interest from the National Bank for Agriculture and Rural Development (NABARD) and the National Backward Classes Finance and Development Corporation (NBCFDC). On this borrowed money, the assessee had to pay interest. The amount which was borrowed, was subsequently disbursed by the assessee to its member farmers and interest was received from them. The loan obtained from NABARD and NBCFDC for the purposes of disbursement to member farmers, were invested in short term fixed deposits in Cooperative Banks as well as a Commercial Banks to maintain the liquidity of the fund, both for repayment and disbursement of loans. Thus, the investment of the funds in short term fixed deposits were an integral part of its business and hence the income from the same should not be treated as, “income from other source”. The Assessing Officer considered the reply of the assessee but did not find the same to be acceptable. He held that the fundamental objective of the assessee was the disbursal of loan to its member farmers and the investment in FDRs were not mentioned anywhere in its objectives. He debunked the explanation of the assessee that the investment in FDRs were to provide liquidity on the grounds that the assessee has huge funds to meet its liquidity requirements. It earned total interest income of Rs. 593,51,41,404/- for the year under consideration out of which interest income from investments in U.P. Cooperative Bank and Commercial Bank was only Rs. 30,89,64,817/-. Interest paid by the assessee for year under consideration was Rs. 220,68,28,553/- and this demonstrated that the assessee had sufficient funds to meet its liquidity requirements. Accordingly, he held that the

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 investment in fixed deposits was not for maintenance of liquidity. He held that they were out of the surplus funds of the society and were liable to be assessed as income from other sources taxable under section 56 of the Income Tax Act and therefore, outside the purview of deduction under section 80P. The ld. AO pointed out that as per the aforesaid decision of the Hon’ble Supreme Court in the case of Totgars Cooperative Sale Society Limited (supra), the deduction under section 80P was only available to operational income. He also listed out a number of cases where a claim of deduction under section 80P(2)(a)(i) was rejected, following the decision of the Hon’ble Supreme Court. The ld. AO further held that interest earned from banks is not covered by the principle of mutuality and therefore, would be taxable in the hands of the assessee for the aforesaid proposition. He placed reliance on the decision of the Hon’ble Supreme Court in the case of Bangalore Club vs. CIT (2013) 350 ITR 509. The ld. AO further stated that provisions relating to exemption and deduction needed to be construed strictly in view of the decision of the Hon’ble Supreme Court in the case of Commissioner of Customs (Import), Mumbai vs. Dilip Kumar & Company and Others in C.A. No.3327 of 2007. He, therefore, issued another show cause notice to the assessee. In response, the assessee submitted the facts of the case of Totgars Cooperative Sale Society Limited (supra) were different from the facts of the assessee’s case. In that case, no interest was being provided to members of cooperative against retained sale proceeds while in the case of the assessee, the assessee was paying interest on borrowing. It also asserted that if it was unable to pay the interest on time, there would be a penalty of 2% as per the terms of its agreement with NABARD. The investments in FDRs had been made to maintain liquidity so that the

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 principal and interest to NABARD paid in a timely manner. Therefore, the investment was an integral part of a business and not income from other sources. As per objective sheet of the assessee, in Sr. No. 8, the assessee was authorized to invest its regular funds in bank to earn profits and therefore, the investment was made as per its bye laws. Finally, it was submitted that the investments were from the regular funds of the assessee. However, the ld. AO did not accept the submissions of the assessee. Quoting from the decision of the Hon’ble Karnataka High Court in the case of PCIT, Hubli vs. Totgars Cooperative Sale Society Limited (2017) 83 taxman.com 140 (Karnataka), he pointed out that the amount was not eligible for deduction under section 80P(2)(d) as the words, “Cooperative Banks” were missing in clause (d) of sub-section (2) of section 80P of the Act. He further pointed out that the Hon’ble High Court had held that the character of income depends on the nature of activity for earning the income and income by way of interest earned by deposit or investment of idle or surplus funds does not change its character irrespective of the fact whether such income was earned from scheduled or Cooperative Bank. He further pointed out that with the insertion of sub section 80P(4) Cooperative Banks which possessed the license from RBI to do banking business were excluded from 80P(2)(d) and since the investment was made in banks which had banking license, the entire amount of Rs. 30,89,64,870/- was disallowable u/s 80P(2)(d) also. Accordingly, he disallowed the same and brought it to tax. He also declined to allow deduction u/s 57(iii) as the assessee could not show that it had made expenditure solely to earn this interest income.

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 was invalid because it was based on a change of opinion. The matters had already been enquired into by the Assessing Officer in the previous assessment proceeding under section 143(3) and the assessee had disclosed fully and truly all material facts necessary for the assessment. Since the ld. AO had examined the records of the assessee and come to the conclusion that the deduction under section 80P of the Act was rightly claimed, the initiation of re-assessment proceedings was therefore based on a change of opinion with regard to the same facts. There was no fresh documentary evidence on record and there was no additional information in his possession which could show that income had escaped assessment. Hence, the case of the assessee could not have been lawfully reopened as per the decision of the Hon’ble Supreme Court in the case of CIT vs. Kelvinator of India 256 ITR 1. Furthermore, the Division Bench of the Hon’ble Gujarat High Court in the case Garden Silk Mills Ltd. & vs Union Of India 1992 (61) ELT 393 had expressed a similar opinion. The assessee also relied upon the Hon’ble Supreme Court decision in the case of State of Uttar Pradesh and Others vs. Aryavart Chawal Udyog and Others (2015) 17 SCC 324 for this proposition. It further relied upon the decision of the Hon’ble Supreme Court in the cases;

i. CIT vs. Bhanji Lavji (1971) 79 ITR 582 (SC)

ii. Anil Hassanand Gajwani vs. Income Tax Officer (2014) 226 Taxman 123 (Guj)

iii. CIT vs. Vaishali Avenue (2014) 226 taxman (Raj)(Mag)

iv. Ashwin Khemchand Jhakoria vs. DCIT (2014) 226 taxman 203 (Guj)(Mag)

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 The assessee also submitted that the re-assessment in the aforesaid case was without jurisdiction as more than four years had passed from the end of the relevant assessment year because there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. It placed reliance on a number of case laws in support of this proposition. Thereafter, it made submissions of its case on merits along the lines of these submissions made to the Assessing Officer. It also quoted a number of case laws to show that Courts had held that deposits made for business purposes in various banks were attributable to business and therefore, deductible under section 80P. The assessee further submitted that the Hon’ble Supreme Court judgment in the case of Totgars Cooperative Sale Society Limited (supra) was not applicable for the facts of the assessee case firstly because it was parking its funds in nationalized and Cooperative Banks due to statutory requirements of U.P. Cooperative Societies Act and therefore, the earning of such interest income was attributable to the business of the assessee and hence allowable for deduction under section 80P of the Act. Secondly, it was taking loans from NABARD, which had to be repaid alongwith interest for the purposes of making advances to its members from whom it earned interest and temporary parking of the funds with banks before disbursement to members, or those received from members before repayment to NABARD, was only for the purposes of maintaining liquidity. Therefore, as the funds were parked in the bank as part of regular business activity, the interest from them was assessable as income from business and not income from other sources. Without prejudice to the above, it also submitted that the interest from U.P. Cooperative Bank was also allowable as deduction under section 80P(2)(d) of the Income Tax

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 Act. It held that the failure to claim the deduction alternatively under section 80P(2)(d) was on account of the mistake of the counsel and it should not be deprived of deduction that was due on this account. It invited the attention of the ld. CIT(A) to the CBDT Circular No. 14 (XL-35) dated 11.04.1955 to show that the Assessing Officer was obliged to grant the assessee all the deductions which it was entitled to.

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 Officer on account of interest received by the assessee from Cooperative / Commercial banks.

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 invested the amount in fixed deposit receipts and earned interest on it, which was not incidental to its business. Furthermore, it could not be ascertained that the total interest earned alongwith the principal amount has been disbursed in the form of loan to its members as the assessee had not submitted any documentary evidence in this regard. However, he observed that, of the total interest income of Rs. 58,49,64,437/-, interest amounting to Rs. 24,37,30,246/- had been earned from investment with the U.P. Cooperative Bank Limited. He examined the interest certificate and held that since the assessee was entitled to deduction under section 80P(2)(d) of the Income Tax Act in respect of this interest, the same was liable to be treated as exempt. For the remaining interest income earned, relying upon the decision of the Hon’ble Supreme Court in the case of Totgars Cooperative Sale Society Limited vs. ITO (supra) and the decision of the Hon’ble Allahabad High Court in Cooperative Cane Development Union in ITA No. 520/2008, he held that the interest income earned from fixed deposits receipts do not fall under the purview of deduction under section 80P(2)(a)(i). Accordingly, he made an addition of Rs. 34,12,34,191/- in this regard.

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 and restored the order of the Income Tax Tribunal which had held the same to be business income. The ld. CIT(A) considered the submissions of the assessee and reiterated his order passed in assessment year 2013-14 thereby confirming the disallowance of Rs. 34,12,34,1918/-.

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 the provisions of section 36(1)(va) and section 2(24)(x). He placed reliance on the decisions of various Courts that held so and added back a sum of Rs.14,53,34,425/- in this regard. The AO also noted that the interest income of Rs. 58,49,64,436/- included Rs. 30,84,90,527/- as interest received from banks and other income of Rs. 3,27,43,664/-. Thus, in his view, total interest and other income of Rs. 34,12,34,191/- was taxable in the hands of the assessee. He found that during the course of a rectification order under section 154 that was passed on 18.07.2019, the taxable income had been determined at Rs. 28,25,23,560/- after the deduction of loss of Rs. 6,40,26,100/-. He held that the adjustment of loss of Rs. 6,40,26,100/- was not allowable. The assessee again contested the levy of tax on this income stating that since investments in FDRs was necessary to maintain liquidity for paying interest on capital borrowed from NABARD, the interest should be treated as business income of the assessee and benefit under section 80P should be allowed. But the Assessing Officer again, rejected this submission and held that interest income amounting to Rs. 6,40,26,100/- that had been earned by the assessee was not eligible for deduction under section 80P(2) of the Act. He therefore, disallowed the same and added it back to the income of the assessee under section 56 of the Income Tax Act.

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 supplementary or additional information coming into his possession, which could go on to show that income chargeable to tax had escaped assessment. It was submitted that for mere change of opinion, the case could not be reopened. Various judgments of the Hon’ble Supreme Court were cited by the assessee in this regard. With regard to the details of payment of EPF that were listed in the audit report, the assessee submitted that all the payments had been made before the filing of the income tax return. The ld. AO had made an addition of Rs. 27,53,14,062/- but Rs. 12,99,79,637/- out of the same were employers’ contribution while Rs. 14,53,34,425/- were employee contribution. This was despite the fact that on page 6 of his assessment order, he had only added back the employee’s contribution. Hence, this was a clear mistake on the part of the Assessing Officer. The assessee further argued that since these amounts had been deposited before the due date of filing of the return and in view of various judgments which he cited in the course of its submissions, it deserved to be given the benefit of the judgment of the Hon’ble Supreme Court in the case of CIT vs. Vegetable Products Limited (1973) 88 ITR 192 and the entire addition deserved to be deleted. With regard to addition of Rs. 6,40,26,100/-, the assessee sought to challenge the entire addition of Rs. 34,12,34,191/- made during the first round of assessment by reiterating its submissions that had been made before the ld. CIT(A) in earlier appeals against the order passed under section 143(3) for the assessment year 2016-17 and in the order passed under section 147 for the assessment year 2013-14. With regard to the specific disallowance of an addition of Rs. 6,40,26,100/-, it was submitted that as per the provisions of section 71(1), the assessee was entitled to have losses set off against its’ income, if any assessable for the assessment year under any head. The

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 assessee had not claimed any deduction under section 80P of Rs. 6,46,26,100/- rather the Assessing Officer had assessed Rs. 6,40,26,100/- as loss under the head, “income from business and profession” and income of Rs. 34,12,34,191/- under the head income from other sources. From a plain reading of sub-section (1) of section 80A of the Income Tax Act, it was clear that deduction could only be claimed under Chapter VI-A upto gross total income and section 80AB of the Income Tax Act further restricted the deduction under Chapter VI-A to the head of income mentioned in the section under which the deduction is claimed. Thus, by virtue of combined reading of section 80AB and section 80A(1) of the Income Tax Act, no deduction could be claimed under section 80P(2)(a)(i) of the Act when there is a loss under the head, “income from business and profession”. Thus, it could not be said that 80P deduction was allowed by the Assessing Officer from business loss while passing the order under section 154 of the Income Tax Act. Furthermore, the assessee had only claimed deduction of business loss of Rs.6,40,26,100/- against income from other sources of Rs. 34,12,34,191/- that had been computed by the Assessing Officer during the assessment under section 143(3). It had not claimed any deduction under section 80P(2)(d) in respect of this amount and therefore, the Assessing Officer was mistaken in adding the same back on this account. The ld. CIT(A) considered the submissions of the assessee. With regard to the disallowance of expenditure claimed on account of contribution to provident fund, he pointed out that in the recent judgment by the Hon’ble Supreme Court in the case of Checkmate Services (P.) Ltd. vs. CIT (2022) 143 taxman.com 178 (SC), it had been held that section 43B(b) did not cover employees’ contribution to provident fund, ESI etc., deducted from the salaries of employees and the

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 allowance/disallowance of the same had to be considered under section 36(1)(va) r.w.s. 2(24)(x) only. Accordingly, he confirmed the addition to the extent of Rs. 14,53,34,425/- but allowed the assessee relief in respect of employers’ contribution which had accidently been added back by the AO while computing the income. With regard to the disallowance of Rs. 6,40,26,100/- and the challenge to the entire addition of Rs. 34,12,34,191/- that were added back in the assessment order under section 143(3), the ld. CIT(A) considered the submissions made by the assessee and observed that the assessee was registered with U.P. Cooperative Societies Act and carrying out a business of providing long term agricultural loan to its members for agricultural purposes only. He noted that the assessee borrowed money on interest mainly from National Bank for Agriculture and Rural Development (NABARD) and from National Backward Classes Finance and Development Corporation (NBCFDC). The money received by way of re-financing and instalment payments from its members is parked temporarily in the form of short investments for a small period of time. He noted that the funds invested by the society in banks were not surplus funds but operational funds. He quoted from the judgment of the Hon’ble Madras High Court in the case of Chennai Central Cooperative Bank Limited vs. ITO in TCA No.1203 of 2010 (dated 13.12.2022) wherein the Hon’ble Court had held that the assessee was entitled to the benefit of deduction under section 80P(2)(a)(i) on both SLR and non-SLR investments made in bonds if the same were done as part of banking business. The ld. CIT(A) held that when the primary business of the assessee was providing credit facilities, then the investment made by the assessee even in scheduled banks, if not from surplus funds, would be investments made for the purposes of business and the interest on

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 such investment would be eligible for deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961. He further relied upon the following decisions.

a. PCIT, Asansol vs. Gunja Samabay Krishi Unnayan Samity Ltd., (ITA No.270/2022) (Calcutta)

b. Ghatkesar Farmers Service Cooperative Society Limited vs. ITO in ITA No.111/HYD/2023 (Hyderabad ITAT)

c. The Rifle Factory Cooperative Society Limited vs. ACIT in ITA No. 41/KOL/2023 (ITAT Kolkata)

Accordingly, he deleted the disallowance of Rs. 6,40,26,100/- made by the AO and allowed the ground of appeal in favour of the assessee.

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 business loss and to safeguard the business and therefore, the interest was incidental to its business. It was pointed out that the assessee was liable to pay interest in NABARD on this fund and for its claim of exemption, the assessee relied upon the judgment of the Hon’ble Karnataka High Court in the case of M/s Tumkur Merchant Souharda Credit Co-operative Ltd. vs. ITO in ITA No. 307 of 2014 dated 28.10.2014. The ld. AO considered the reply of the assessee but did not find to be tenable. He pointed out that it could not be determined that the total interest earned alongwith the principal amount was disbursed to the farmer members in the form of loan as the assessee had not submitted any documentary evidence in this regard. However, he observed that, of the interest income of Rs. 23,18,44,967/-, interest income of Rs. 17,54,79,522/- had been earned from investment with U.P. Cooperative Bank Limited and because the interest earned on FDRs invested with a Cooperative Society ought to be treated as exempt, accordingly he found the same eligible for deduction under section 80(2)(d) of the Income Tax Act. However, he held that the assessee’s revised return had been filed after issuance of notice under section 143(2) of the Income Tax Act and therefore, the revised return was non-est as it was filed beyond the time prescribed under the Income Tax Act. Therefore, since the deductible income in the original return had been claimed at only Rs. 14,68,33,135/-, the deduction could only be considered to this extent. Therefore, irrespective of his earlier findings, he restricted the disallowance to Rs. 5,63,65,445/- which was the interest claimed on deposit other than with Cooperative Banks in the original return filed by the assessee and he made a further disallowance of Rs. 2,86,46,397/- on account of re-classification of

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 interest income as, “income from other sources” not eligible for deduction under section 80P.

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 disallowance of Rs. 8,50,11,842/- held that while this amount which was earned from investment with Cooperative Banks by the assessee society was entitled for deduction under section 80P(2)(d) but the same had not been claimed in the original return of income. It had been claimed in the revised return of income which had been filed on 28.09.2018, which was beyond the time prescribed for revising the return of income as per section 139(5) of the Income Tax Act, 1961. The revised return had been filed after the due date and therefore, he was in agreement with the findings of the AO in disallowing the extra deduction which was claimed by the assessee, in view of the judgment of the judgment of the Hon’ble Supreme Court Goetze India Ltd., vs. CIT (2006) 284 ITR 323 (SC) wherein the Hon’ble Supreme Court had held that fresh claims could only be made through a revised return. Accordingly, the ld. CIT(A) held that the proper course of action for the assessee would be to file a condonation petition before the ld. Pr. CIT / CIT to make revised return of income and unless this delay was condoned, no relief could be given by the CIT(A) on this ground. Accordingly, the appeal of the assessee was dismissed on this account.

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 to the business activity of the assessee from cooperative activities. Accordingly, he issued a show cause notice to the assessee in this regard asking why the said interest should not disallowed. In response to the said show cause notice, the assessee submitted the details of the interest earned by it from various banks and reiterated that it was in the business of providing credit facilities to its members which was re-financed by NABARD and NBCFDC by providing loans on interest. These funds obtained on interest were further disbursed to various branches for disbursal of funds to member farmers and this entire process went on throughout the year as per the demand and availability of fund. After receiving the loan from NABARD and NBCFDC, as there were various formalities to be complied with by the 323 branches spread all over the state and when these required conditions and formalities were completed, the process of credit facilities were started. Therefore, in the interim period, the assessee invested the money in short term fixed deposits of various banks to save themselves from business loss as the assessee had to repay this amount to NABARD with interest. It was further added that as per section 59 of the U.P. Sahkari Cooperative Societies Act, 1965, the assessee was bound to invest its funds with any bank. Therefore, the same was an essential part of carrying out of business. It was submitted that a sum of Rs. 12,25,65,102/- was earned as interest from investment in FDR in U.P. Cooperative Bank Limited which was governed under the U.P. Cooperative Societies Act, 1965 hence the income earned from them to the tune of Rs. 12,25,65,102/- was exempt under section 80P(2)(d). It was submitted that the Hon’ble Allahabad High Court in the assessee’s own case in CIT vs. Rajya Sahkari Bhumi Vikas Bank Limited by its order dated 23.12.2024 had held that the assessee was entitled to

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 exemption under section 80P(2) of the Act, 1961. It was submitted that this was the previous name of the assessee and therefore, this judgment had been pronounced by the Hon’ble Allahabad High Court in the assessee’s case. However, the Assessing Officer was not convinced. He pointed out that the decision rendered by the Hon’ble Allahabad High Court was with reference with Government securities and not to fixed deposits placed in the bank. Furthermore, the Assessing Officer drew reference to the decision of the Hon’ble Supreme Court in the case of Totgars Cooperative Sale Society Limited vs. ITO (2010) 188 taxman 282 (SC) to hold that the interest earned on deployment of surplus funds was not income from business and profession but income from other sources. Furthermore, since the interest had been earned without adhering to the principle of mutuality therefore, relying upon the case of Totgars Cooperative Sale Society Limited (supra) and the case of Madras Gymkhana Club Limited vs. DCIT (2009) 183 taxman 333 (Mad), the ld. AO held that the deduction under section 80P to the extent of Rs. 16,49,72,229/- was not allowable. Accordingly, he added the same back to the income of the assessee.

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 members which were placed in short term deposits to ensure liquidity and ensure the assessee from business loss even while the same were waiting to be disbursed to the farmers and those funds that were received for farmers that were awaiting repayment to NABARD and NBCFDC. It was further submitted that as per section 58 and section 59 of the U.P. Cooperative Societies Act, 1965 and Rule 165 of the U.P. Cooperative Society Rules, 1965, the assessee was obliged to place its reserve funds with a bank and therefore, this deposit of funds was an essential part of carrying out business. The ld. CIT(A) considered the submissions of the assessee and applying the decision of the Hon’ble High Court of Madras in the case of Chennai Cooperative Bank vs. ITO in TCA No. 1203 of 2010, he held that since the primary business of the assessee was of providing credit facilities and since the investment had not been made out of surplus funds, the investment made by the assessee in various banks was part of its business activities and therefore, the interest on such investment would be eligible for deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961. He also placed reliance on certain other judgments which he listed in his appeal order and deleted the addition of Rs. 16,49,72,230/- earned from investments with Cooperative Banks by the assessee society, that had been made by the Assessing Officer holding them to be entitled for deduction under section 80P(2)(a)(i) of the Act. Accordingly, the appeal came to be allowed.

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 information in this regard. Upon response, received from the assessee, it was found that an amount of Rs. 11,89,50,698/- had been received from U.P. Cooperative Bank while Rs. 9,03,783/- had been received from Canara Bank. Once again, in justification of its claim the assessee cited the fact that it had to obtain loan on interest from NABARD and NBCFDC for providing finances to its member farmers. Since, there was a time lag between the receipt of the loans and their disbursement, the loans that were received were kept in fixed deposits till they were disbursed and similarly, when repayments/interest was received from the member farmers, the same were placed in fixed deposits until the loans or interest to NABARD and NBCFDC were required to be repaid. Thus, the investment made by the assessee was intrinsic to its activity of providing credit facilities to its members and was attributable to its business activities therefore, the said interest was allowable for deduction under section 80P(2)(a)(i). The ld. AO considered these submissions of the assessee but was not convinced with them. Going through the objectives of the assessee bank, he held that investment in FDRs is not one of the objectives and therefore, the assertion that the investment was attributable to its business was not tenable. He also debunked the claim that the fixed deposits were required to be opened to maintain the liquidity pointing out that the assessee earned total interest income of Rs. 529,34,28,543/- for the year under consideration and therefore, had no liquidity problem that would require it to make investments in the form of fixed deposits. He pointed out that the income derived as interest by depositing with banks were not admissible deduction in view of section 80P(2) of the Income Tax Act, 1961 as had been held in the case of Totgars Cooperative Sale Society Limited vs. ITO, Karnataka (2010) 188 taxman 282

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 (SC) but rather that they were income from other sources taxable under section 56 of the Income Tax Act, that would not qualify for the deduction under section 80P. He further pointed out that the same view had been taken in the Katlary Kariyana Merchant Sahkari Sarafi Mandali Ltd. vs. ACIT by a decision of the Hon’ble Gujarat High Court rendered in 2022. He, therefore, proposed to disallow this amount of Rs. 11,89,50,698/- as claimed under section 80P(2)(d) and added back to the income of the assessee under section 56 of the Income Tax Act. The ld. AO also observed that from Form No. 3 CD, it could be seen that the contribution received from the assessee for provident fund as referred to in section 36(1)(va) amounting to Rs. 35,16,73,997/- had not been deposited on / before the due date. Accordingly, he issued a notice to the assessee asking it to submit the details. In response, the assessee submitted that an amount of Rs. 13,69,60,087/- could not be deposited in terms of section 139(1) of the Income Tax Act of which the employer’s contribution was Rs. 6,66,10,261/- and the employees’ contribution was Rs. 7,03,49,826/-. Due to an inadvertent mistake, a sum of Rs. 13,69,60,087/- had been added back in the computation of income as per section 43B of the Act while it should actually have been only Rs. 6,66,10,261/-. The assessee submitted a detailed reply to the show cause notice issued by the Assessing Officer while the gist of the reply was the same as the reply furnished in earlier assessment years, it was pointed out that the allegation made in the assessment order that the assessee had sufficient funds to make the repayment to NABARD was incorrect because the assessee had to take an overdraft of Rs. 66,06,55,022/- in order to make the payment to NABARD. The principal repayment was due on the 31st July and 31st of January, every year and the interest repayment was due on 1st August and

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 1st February of every year. If the principal and interest was not paid on the due date, NABARD charged penal interest over and above 2% of the normal rate of interest. It was to avoid this penal interest that the assessee was required to invest some money in the form of short-term FDR. This investment was made from the regular funds of the assessee and not any surplus funds. There was never any question of surplus funds because loan applications were always pending with the assessee from farmers. Thus, the disallowance for deduction under section 80P(2) of the Act was totally wrong. In any case, it was submitted that the Registrar, Cooperative Societies, U.P., Lucknow vide letter no. 1240 dated 20.07.2010 had authorized all nationalized banks alongwith U.P. Cooperative Bank and State Bank of India for investing money as provided under section 59 of the U.P. Cooperative Societies Act and the assessee was obligated to invest this money in accordance with the provisions of the U.P. Cooperative Societies Act, 1965. It was further submitted that the case of the Totgars Cooperative Sale Society Limited vs. ITO, Karnataka (supra) and Katlary Kariyana Merchant Sahkari Sarafi Mandali Ltd. vs. ACIT (supra) were not applicable to the case of the assessee because those were not surplus funds of the farmers upon which interest was being earned and not being passed on to the farmers. In the case of the assessee, loans had been obtained for an interest for providing re-financing and were intrinsic to the business activity of the assessee which was providing credit facility to its members. Furthermore, the assessee was statutorily bound under section 59 of the U.P. Cooperative Societies Act, 1965 to make investments in FDR to safeguard the erosion of their funds whereas in the case of the Totgars, no such restriction was there. It was submitted that the assessee relied upon the decision of the Hon’ble

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 Karnataka High Court in the case of M/s Tumkur Merchant Souharda Credit Co-operative Ltd. vs. ITO (ITA No.307 of 2014 dated 28.10.2014, wherein the Hon’ble High Court had observed that the Hon’ble Supreme Court in the case of Totgars Cooperative Sale Society Limited vs. ITO (supra) has not laid down any law and therefore, the same could not be applicable in every case. It also placed reliance on a number of other case laws that it cited in its submission. Accordingly, it prayed that the interest earned from short term FDRs of Cooperative / scheduled banks was its business income which were eligible for deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961. The learned AO considered the submissions of the assessee. However, he was not convinced by them. Relying upon the decision of the Hon'ble Supreme Court in the case of M/s Totgars Cooperative Sale Society Ltd. v. ITO (supra), he observed that the funds invested in banks were not eligible to be treated as business income eligible for deduction; rather, the interest earned thereon was taxable as "Income from Other Sources." The learned AO also placed reliance on the decision of the Hon'ble Gujarat High Court in the case of State Bank of India vs. CIT (2016) 72 taxman.com 64 (Guj) wherein the Hon'ble High Court expressed its disagreement with the decision of the Hon'ble Karnataka High Court in M/s Tumkur Merchants Souharda Credit Co- operative Ltd. v. ITO (2015) 55 taxmann.com 447, holding that the decision of the Hon'ble Supreme Court in Totgars Cooperative Sale Society Ltd. had laid down the applicable law on the issue. The learned AO further relied upon the decision of the Hon'ble Punjab & Haryana High Court in the case of CIT vs. Punjab State Cooperative Agriculture Development Bank Ltd., (2016) 389 ITR 607 (P&H) wherein the Hon'ble High Court agreed with the view taken by the Hon'ble Gujarat High Court and held that a cooperative society was

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 not entitled to claim deduction under section 80P(2)(a)(i) in respect of interest earned on reserve funds, cash deposits and amounts advanced to its employees. He also referred to the decision of the ITAT, Ahmedabad Bench, in the case of State Bank of India Employees Cooperative Credit & Supply Society Ltd. [2015] 57 taxmann.com 367 (Ahd. Trib.), wherein the Tribunal held that although the assessee had accepted deposits from its members and kept its surplus funds in a bank, the interest earned on such deposits did not have a direct nexus with the business of providing credit facilities to its members and, therefore, such interest income was not eligible for deduction. Accordingly, the learned AO concluded that the interest income earned by the assessee, being a cooperative society, was taxable under the head "Income from Other Sources" under section 56 of the Act and, therefore, deduction under section 80P was not admissible. Furthermore, he observed that in PCIT, Hubli v. Totgars Cooperative Sale Society Ltd. (2017) 83 taxmann.com 140 (Karnataka), the Hon'ble Karnataka High Court had held that the interest earned by a credit cooperative society from surplus funds was not eligible for deduction under section 80P(2)(d). The learned AO further observed that, after the insertion of section 80P(4), which excluded cooperative banks from the ambit of section 80P, the investments made with U.P. Cooperative Bank were not eligible for deduction under section 80P(2)(d). Likewise, the interest earned on investments made with Canara Bank was also not eligible for deduction under section 80P of the Act. Accordingly, he made the disallowance of Rs. 11,98,54,481/-. With regard to the disallowance under section 36(1)(va), the learned AO observed that the same was liable to be disallowed in view of the decision of the Hon'ble Gujarat High Court in Gujarat State Road Transport Corporation (2014) 41

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 taxman.com 100 (Gujarat). However, since the assessee had already disallowed an amount of Rs. 13,69,60,087/- in its computation of income, he restricted the disallowance to Rs.21,47,11,910/-.

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 16. Both the assessee and the Revenue are aggrieved with various aspects of the aforesaid orders passed by the ld. CIT(A). While the assessee has come in appeal against the orders passed in the assessment years 2013- 14, 2016-17 (against the appeal relating to the order under section 143(3)) and the orders passed in the assessment year 2017-18 on the issue of disallowance under section 80P, the Revenue has come in appeal against the orders of the ld. CIT(A) in assessment years 2016-17 (re-assessment proceedings) 2018-19 and 2020-21 with regard to the decision of the ld. CIT(A) to delete the additions made on account of disallowance of deduction under section 80P by holding them to be eligible for deduction under section 80P(2)(a)(i). Additionally, the assessee has also preferred appeals against the appeal order passed by the ld. CIT(A) in re-assessment proceedings for the assessment year 2016-17 where the ld. CIT(A) has upheld the disallowance made for delay in payment of employees’ contribution of EPF / ESI and not allowing the same as deduction under section 80P of the Act and in the assessment years 2020-21, where the ld. CIT(A) has again upheld the computation of the ld. AO in disallowing employers’ and employees’ contribution of EPF / ESI and subsequently not allowing deduction under section 80P of the Act in consequence of such disallowance.

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 (NABARD) and the National Backward Classes Finance and Development Corporation (NBCFDC) for re-financing. Accordingly, the assessee bank took interest bearing loans from NABARD and remitted them to its various branches for disbursal to member applicants. Interest was earned on the loans so disbursed, which were received by the bank and accounted for in its income. As the same was intrinsic to its business of providing credit, the same were claimed as exempt under section 80P. Furthermore, in view of the fact that the funds from NABARD were disbursed to its various branches depending on demand and completion of various formalities prior to the loan and considering that the loans so obtained from NABARD were interest bearing, as a matter of prudent business practice. the assessee invested the funds so received in short term fixed deposits with scheduled and Cooperative Banks, so that it could earn income upon the same, which in turn could be used to repay the principal alongwith interest to NABARD as and when the same fell due. It was, therefore, submitted that the deposit of funds was intrinsic to the business of the assessee which was providing credit facilities to its members, and therefore, the interest generated from such activity was attributable to the business of the assessee. Accordingly, it was eligible for deduction under section 80P(2)(a)(i). In certain assessment years, the ld. CIT(A) had accepted this contention and allowed the deduction to the assessee. However, in other assessment years, the ld. CIT(A) had not accepted the assessee’s contention and, by applying the judgment in the case of Totgars Cooperative Sale Society Limited vs. ITO (supra), had disallowed the claim for deduction under section 80P. It was submitted that as could be seen, the case of the assessee was completely different from the cases cited by the ld. CIT(A) while making the disallowance. While in the assessee’s case,

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 the funds were those that were taken on interest bearing loan and not immediately required for disbursal, they did not represent surplus which had not been distributed to the members. Accordingly, they were not idle funds but funds received in the normal course of business and since those funds were interest bearing, therefore, the assessee could not be faulted for seeking to minimize its losses by short term deposits of these funds so that prompt payments could be made alongwith interest, as and when the repayment became necessary. The ld. AR further submitted that in fact the case of the assessee was completely covered by the decision of the Hon’ble Calcutta High Court in West Bengal State Cooperative Agriculture and Rural Development Bank Limited vs. Dy. Commissioner of Income Tax (2025) 177 taxman.com 469 (Calcutta) wherein the Hon’ble High Court had given relief in an identical case. In that case, the assessee Cooperative Society was engaged in the business of providing credit facilities to its members and had received funds from NABARD, which were to be lent to members in several instalments. Since the assessee borrowed in a wholesale manner and lent on a retail basis, there was always some floating funds which was invested in short term deposits with banks. In that case also, the assessee had claimed that interest income earned on such deposits was attributable to its lending business and the Assessing Officer had held that the interest income so earned was not eligible for deduction under section 80P(2)(a)(i) of the Act. However, the Hon’ble Calcutta High Court had held that interest earned on such deposits with the bank would be eligible for deduction under section 80P(2)(a)(i). Accordingly, it was prayed that the decision of the ld. CIT(A) in assessment years 2016-17, 2018-19 and 2020-21 be upheld and the decision of the ld. CIT(A) in assessment years 2013-14, 2016-17 (against 143(3)) and

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 2017-18 be overturned and the deduction should be allowed to the assessee. 18. With regard to the disallowance of Rs. 8,50,18,850/- made by the ld. CIT(A) in the appeal in the appeal relating to assessment year 2017-18, the ld. AR submitted that the ld. CIT(A) ought to have allowed the deduction in view of his own finding that the assessee was eligible for the deduction without being fettered by the findings of the Assessing Officer that the same had been claimed by way of a revised return outside of the time. It had been held by the Hon’ble Bombay High Court in the case of Commissioner of Income Tax vs. Pruthvi Brokers and Shareholders Pvt. Ltd., (2012) 349 ITR 336 (Bom) that the CIT(A) was not fettered by the decision of the Hon’ble Supreme Court in the case of Goetze India Limited but was obliged to consider any fresh evidence or claim that the assessee may make before him in resolving an issue. Accordingly, since his own finding had held that the assessee was eligible for the deduction in terms of section 80P(2)(i), he should not have made the disallowance in this regard.

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 were also required to be given on account of the decision of the Hon’ble Allahabad High Court in PCIT, Kanpur vs. Surya Merchants Limited (2016) 72 taxman.com 16 (Allahabad) wherein the Hon’ble Allahabad High Court had held in a matter relating to section 80-IB, that if disallowance was made under section 40A(3) then the amount added back would be entitled to be considered for the benefit under section 80-IB of the Act. Accordingly, the ld. AR prayed that such directions ought to have been issued by the ld. CIT(A) and she prayed that the orders of the ld. CIT(A) may be modified accordingly. Similarly, in arguing the matter relating to assessment year 2020-21, the ld. AR submitted that while making the disallowance under section 36(1)(va) of Rs. 1,47,11,910/-, the Assessing Officer and the ld. CIT(A) had omitted to consider that the said amount pertain to both the employer’s contribution and the employee’s contribution. It was submitted that it was only the employee’s contribution of Rs. 7,03,49,826/- which attracted the provisions of sub-clause 24(x) of section (2). Therefore, at best the disallowance could be restricted to Rs. 7,03,49,826/- and furthermore, even if the disallowance was made and the amounts added back to the income of the assessee, as the assessee had been found eligible for deduction under section 80P(2)(a)(i), these amounts had to be taken into consideration while allowing the deduction under section 80P. Accordingly, it was prayed that the order of the Assessing Officer and the ld. CIT(A) may be overturned on this account and necessary directions issued.

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 considered as income from business and profession that could be deducted under section 80P, but these could only be considered as income from other sources. Furthermore, the Hon’ble Karnataka High Court in a subsequent decision in the case of the same assessee had pointed out that even if the funds were deposited in a Cooperative Bank, that would not change the nature of the income and the income would continue to remain income from other sources that was not eligible to be considered for allowing the deduction under section 80P(2)(a)(i). The ld. DR further pointed out that the Assessing Officer and the ld. CIT(A) in various years had also drawn reference to several other decisions wherein this principle had been upheld including decisions of the Hon’ble Gujarat High Court and the Hon’ble Punjab & Haryana High Court. In certain years, the ld. CIT(A) had granted relief to the assessee by relying upon the decision of the Hon’ble Madras High Court in the case of Chennai Central Cooperative Bank Limited vs. ITO but had ignored to consider the decisions that were relied upon by the Assessing Officer while making the disallowance. It was submitted that in the A.Y. 2016-17 while making the disallowance of Rs. 6,40,26,100/-, the ld. AO had placed reliance on the case of Totgars Cooperative Sale Society Limited vs. ITO, Karnataka (supra). The ld. CIT(A) had failed to consider that these funds that were lying with the assessee were idle funds that were deployed for the purpose of earning interest income and were not immediately required for the purpose of lending to its members. Therefore, the case of Totgars clearly applied to the facts of the case and the ld. CIT(A) was incorrect in deleting the disallowance. In the A.Y. 2018-19, the ld. CIT DR pointed out that the ld. CIT(A) had omitted to consider the case law of Madras Gymkhana Club Limited vs. DCIT 183 taxman 333 (Madras) where the Assessing Officer had

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 demonstrated that to be eligible for the deduction under section 80P, the mutuality concept must be met and investment of surplus funds with some member banks and other institutions in the form of fixed deposits and securities, which in turn resulted in earning of huge surplus amount by way of interest, could not be held to be satisfy the mutuality concept. Similarly, in the A.Y. 2020-2021, the ld. CIT DR pointed out that while passing the order, the ld. AO had placed reliance on the decision of the Bangalore Club Limited vs. CIT (2013) 350 ITR 509, wherein the concept of mutuality had been explained and pointed out that as long as the flow of money within the club and its members were maintained, nobody who was not privy to this mutuality benefitted from the arrangement. However, as soon as these funds were placed in fixed deposits with banks, the closed flow of funds suffered from deflections due to exposure to commercial banking operations and this ruptured the privity of mutuality violating the one-to-one identity between contributors and participators. The ld. AO had pointed out that similarly section 80P had been based on the concept of mutuality and exempts any income derived by the society from its members only and therefore, the above decision of the Bangalore Club Limited vs. CIT (supra) was squarely applicable to the facts of the particular case and interest earned from funds deposited lacked the degree of proximity between the assessee and its members therefore, they were fit to be disallowed. The ld. CIT(A) had not considered this aspect. On the issue of disallowance confirmed by the ld. CIT(A) on account of the failure to deposit employee’s contribution with the appropriate authority before the due date, the ld. CIT DR submitted that the matter now stood settled by the orders of the Hon’ble Supreme Court in the

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 case of Checkmate Services (P.) Ltd. vs. CIT (2022) 143 taxman.com 178 (SC) and therefore, there was no further scope for discussion on the matter.

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 and Rural Development Bank vs. DCIT (2025) 177 taxman.com 469 (Calcutta), the Hon’ble Calcutta High Court was dealing with a virtually identical case. In that matter, the assessee received funds from NABARD and lent those funds to hundreds of members. Since the assessee borrowed from NABARD in a whole scale manner to lend on retail basis, there was always some floating funds. That floating fund had a cost that is interest payable to NABARD and therefore, the same was invested in short term deposits which yielded income to the assessee and partly compensated the cost of loan, namely the interest payable to NABARD. Therefore, the assessee’s case was that these activities were integral to their business of lending and interest earning on the deposits was attributable to their lending business. Furthermore, the assessee contended that they receive repayment from borrowers in several instalments and they have to in turn repay NABARD twice a year i.e. on 31st January and 31st July of each year as per the scheduled fixed by the NABARD. Therefore, the assessee had to accumulate the fund to pay the instalment on the scheduled dates and the interest income so derived, if not immediately required to be lent to members on account of instalment falling due after some period, the assessee cannot keep the said amount idle and therefore, deposited the amount in bank so as to earn interest and such interest earned is attributable to the profits and gains of business or providing credit facilities to its members. The Assessing Officer did not accept the submissions of the assessee applying the decision of the Hon’ble Supreme Court in Totgars Cooperative Sale Society Limited vs. ITO, Karnataka (supra). He also held that the amounts were not eligible for deduction under section 80P(2)(d). The ld. CIT(A) and the Tribunal also dismissed the appeal filed by the assessee against the additions made by the

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 Assessing Officer. However, the Hon’ble Calcutta High Court in consideration of the assessee’s appeal held that the case of the assessee’s case was completely different from the Totgars Cooperative Sale Society Limited vs. ITO, Karnataka (supra) as the amount which was deposited in the bank was not an amount due to the members and it was not the liability of the society to its members. Therefore, the interest earned from such deposits in the bank should be held to be eligible for deduction under section 80P(2)(a)(i) of the Act. It drew reference to the decision of the Hon’ble Karnataka High Court in M/s Tumkur Merchant Souharda Credit Co-operative Ltd. vs. ITO (2015) 55 taxman.com 447 wherein it had been held that where a cooperative society was engaged in the business of providing credit facilities to its members, and deposited excess amounts for short term in banks, interest earned was entitled to be deducted under section 80P of the Act. It also drew reference to the decision of the Andhra Pradesh and Telangana High Court in the case of Vavveru Co-operative Rural Bank Ltd. v. Chief Commissioner of Income Tax (2017) 88 taxman.com 728 and the decision of the Hon’ble Kolkata High Court in Pr. CIT, Asansol vs. Gunja Samabay Krishi Unnayan Samity Ltd., (2023) 147 taxman.com 518 (Cal) to hold that all these decision would clearly apply to the facts of the assessee’s case and would lead to the irresistible conclusion that the lower authorities had erred in not granting the deduction to the assessee under section 80P(2)(a)(i) and in following the decision in Totgars Cooperative Sale Society Limited vs. ITO, Karnataka (supra), which was not applicable to the facts and circumstances of the case. Accordingly, it allowed the deduction under section 80P(2)(a)(i) to the assessee on the basis of identical facts as exist in the cases before us. Therefore, following the decision of the Hon’ble High Court of Calcutta in

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 West Bengal State Cooperative Agriculture and Rural Development Bank Limited vs. DCIT (supra), which was delivered on identical facts, we hereby hold that since the assessee was engaged in the business of providing credit facilities to its members and received interest bearing funds from NABARD which while awaiting disbursal were invested in short term deposits, the said activity was intrinsic to its activity of providing credit facilities to its members therefore the interest earned from such deposits was business income that is eligible to be deducted under section 80P(2)(a)(i). We further note that in the assessment proceedings for the A.Y. 2017–18, the ld. CIT(A), despite recording finding that the assessee is eligible for deduction u/s 80P, has restricted it to the amount claimed in the original return, upholding the order of the ld. AO, in consideration of the judgment of the Hon'ble Supreme Court in the case of Goetze (India) Ltd. However, he has failed to consider that, as per the judgment of the Hon'ble Bombay High Court in Pruthvi Brokers (supra), the ld. CIT(A) was not bound by such fetters in considering the claim of the assessee. Hence, we hold that, having recorded his finding that the assessee was eligible for deduction u/s 80P(2)(a)(i), he should have allowed the complete deduction to the assessee. Accordingly, we uphold the decision of the ld. CIT(A) in assessment years 2016-17 (in the 147 assessment), 2018-19 & 2020-21 and overturn his decisions in assessment years 2013-14, 2016-17 (in the 143(3) assessment) and assessment year 2017-18 on this issue of eligibility for deduction under section 80P(2)(a)(i).

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 contribution is required to be made as per the provisions of section 36(1)(va) r.w.s. 2(24)(x) for the purposes of obtaining deduction and that the same are not covered by the provisions of section 43B(b). Therefore, we cannot find any fault in the decision of the ld. CIT(A) to uphold the addition of Rs. 14,53,34,425/- in the A.Y. 2016-17 on account of the failure of the assessee to deposit this amount by the due date. However, in view of the Circular No. 37 of 2016 issued by the CBDT and the decision of the Hon’ble Allahabad High Court in PCIT, Kanpur vs. Surya Merchants Limited (2016) 72 taxman.com 16 (Allahabad), we restore the matter to the file of the Assessing Officer for recomputing the deduction under section 80P in the light of the said Circular and Court decision. With relation to the disallowance made by the Assessing Officer of Rs. 21,47,11,910/- in A.Y. 2020-21, it is observed that while the assessee has claimed that the total amount that remained payable as EPF in terms of section 139(1) of the Income Tax Act was only Rs. 13,69,60,087/-, the AO has observed that a total of Rs. 35,16,73,990/- had not been credited by the assessee to the respective employee’s accounts in the relevant funds or funds on or before the due date as per the Explanation 36(1)(va) of the Act. The ld. AR has submitted that this entire amount is not only on account of employees’ contribution but also on account of employers contribution and that in respect of employers’ contribution, only a sum of Rs. 6,66,10,261/- remained to be paid as EPF in terms of section 139(1) of the Act. Accordingly, it was submitted that the entire amount of disallowance requires to be looked into and restricted to the amount of employees contribution to the provident fund and thereafter the assessee is entitled for deducting this amount of disallowance under section 80P by virtue of the aforesaid CBDT Circular and the decision of the

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 Hon’ble Allahabad High Court in the case of PCIT, Kanpur vs. Surya Merchants Limited (2016) 72 taxman.com 16 (Allahabad). Accordingly, in view of the aforesaid facts, we deem it appropriate to restore this matter back to the file of the Assessing Officer for bifurcation of employers and employee’s contribution and determination of what amounts were disallowable under section 36(1)(va) r.w.s. 2(24)(x) and what amounts were disallowable under section 43B of the Income Tax Act. Thereafter, we direct that the Assessing Officer may recompute the deduction under section 80P after giving effect to the CBDT Circular No. 37/2016 and the decision of the Hon’ble Allahabad High Court in PCIT, Kanpur vs. Surya Merchants Limited (supra).

ITA Nos.317, 318,418,419,420/LKW/2023 A.Ys. 2013-14, 2016-17, 2016-17, 2017-18 & 2020-21 U.P. Sahkari Gram Vikas Bank Ltd., And ITA Nos.7, 8 & 9/LKW/2024 A.Ys.2016-17, 2020-21 & 2018-19 26. In ITA No. 419/Lkw/2023, Ground Nos. 1, 3 & 4 are held to be allowed, while the remaining grounds are dismissed as not pressed. The appeal is held to be partly allowed.

Order pronounced on 30.07.2026 in the Open Court. Sd/- Sd/- Sd/- [SUDHANSHU SRIVASTAVA] [NIKHIL CHOUDHARY] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 30/07/2026 Sh Copy forwarded to: 1. Appellant– 2. Respondent– 3. CIT DR, ITAT, 4. CIT, 5. The CIT(A) By order Sr. P.S.