RAMRAO AHER NAGARI SAHKARI PATSANSTHA MARYADIT,DEOLA vs. ITO WARD 1(1), NASHIK

PDF · subscribers
ITA 1841/PUN/2026Status: DisposedITAT Pune10 July 2026AY 2018-197 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that interest earned by a cooperative credit society from funds deposited with banks is eligible for deduction under Section 80P(2)(a)(i) of the Act, following various judicial precedents. The addition made by the AO was directed to be deleted.

What were the facts?

The assessee, a cooperative credit society, claimed deduction under Section 80P on its interest income. The Assessing Officer treated the entire interest income as income from other sources and disallowed the deduction. The Commissioner (Appeals) upheld the AO's order.

What were the issues?

Whether interest income earned by a cooperative credit society from deposits with banks is eligible for deduction under Section 80P(2)(a)(i) of the Income Tax Act.

Which sections of the Income-tax Act were involved?

Section 80P,Section 57(iii),Section 143(3),Section 144B,Section 250,Section 270A,Section 234A,Section 234B,Section 234C

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, PUNE BENCH “SMC”, PUNE

Before: SHRI PAVAN KUMAR GADALE & SHRI Dr. DIPAK P. RIPOTE

For Appellant: Shri Piyush Bafna
For Respondent: Shri Ambarnath Khule, JCIT

आदेश /ORDER

PER Dr. DIPAK P. RIPOTE, A.M : This is an appeal filed by the Assessee against the order of the Learned Commissioner of Income Tax (Appeals), NFAC, Delhi [Ld.CIT(A)], passed u/s. 250 of the Income Tax Act, 1961 (‘the Act’) for AY 2018-19 on 10.02.2026, emanating from the Assessment Order u/s 143(3) r.w.s. 144B of the Act, dated 17.04.2021.

2.

The assessee has raised the following grounds of appeal : “1. On the facts and in the circumstances of the case and in law, the order passed by Ld. CIT-Appeal u/s 250 is bad in law and hence, may please be quashed. 2. On the facts and in the circumstances of the case and in law and without prejudice to other grounds, Ld. CIT-Appeal has erred in sustaining the action of Ld. AO of treating entire interest income of Rs.50,87,492/- bringing to tax as income from other sources and thereby further erred in gross total income at Rs 33,85,571/- in the assessment order without appreciating the valid legal and factual submission made by the Appellant and thus, the said addition deserves to be deleted.

ITA No. 1841/PUN/2026

3.

On the facts and in the circumstances of the case and in law and without prejudice to other grounds, Ld. CIT-Appeal has erred in sustaining the denial of deduction u/s 80P(2)(a)(i) of Act to the extent of Rs 33,85,571/- overlooking (A) the favorable judicial precedents including by the Hon'ble jurisdictional Pune ITAT in multiple cases as well as (B) the submission on merit advanced by the Appellant and hence, the impugned denial of deduction u/s 80P to the interest income of Rs 50,87,492/- may please be deleted. 4. On the facts and in the circumstances of the case and in law and without prejudice to other grounds, Ld. CIT-Appeal has erred in sustaining the denial of deduction u/s 80P(2) (d) of Act on account of interest received from the cooperative banks to the extent of Rs 33,85,571/- which is illegal and bad-in-law and hence, the impugned denial of deduction u/s 80P to the interest income of Rs 50,87,492/- may please be deleted. 5. On the facts and in the circumstances of the case and in law and without prejudice to other grounds, Ld. CIT-Appeal has erred in sustaining the action of Ld. AO of denial of deduction u/s 80P and thereby has further erred in sustaining the denial of claim of business loss of Rs 17,01,921, which is both incorrect and invalid. 6. On the facts and in the circumstances of the case and without prejudice to any other grounds, the learned AO erred in initiating the penalty proceedings u/s 274 r.w.s. 270A(2) of the Act. 7. On the facts and in the circumstances of the case and in law and without prejudice to other grounds, Ld. NFAC has erred in sustaining the levy of interest u/s 234A, 234B & 234C of the Act by Ld. AO and hence, the same may please be deleted. 8. The Appellant craves leave to add, amend, modify, alter, revise, substitute, or not press any or all grounds of the appeal, if deemed necessary at the time of hearing of the appeal, in the interest of justice.” 3. Findings and analysis: We have heard both the parties and perused the record. In this case, it is mentioned in the assessment order that the assessee filed return of income for AY 2018-19 on 03.10.2018 declaring income at Rs.Nil after claiming deduction u/s 80P of the Act Rs.33,85,571/-. The assessee’s case was selected for limited scrutiny to verify the assessee’s claim of deduction u/s 80P of the Act. Accordingly, Assessing Officer (AO) issued various notices. The assessee filed submissions as called for by the AO. It is mentioned in the assessment order that the assessee is a Co-operative Credit Society duly registered under Maharashtra Co-operative Society Act,

ITA No. 1841/PUN/2026

1960. It is further mentioned in the assessment order that the assessee is in the business of accepting deposits and advancing loans to and from its members. It is also mentioned in the assessment order that the AO observed that the assessee had earned interest income as under :

3.1 The AO in the assessment order held as under : “16. The assessee has failed to show beyond doubt that it has expended any expenditure with respect to earning of the interest income from co- operative banks and financial institutions. Only such expenditure that is expended wholly and exclusively to earn an income from other sources is eligible for deduction u/s 57(iii) of the Act. What section 57(iii) requires is that the expenditure must be laid out or expended wholly and exclusively for the purpose of making or earning income from other sources [CIT v. Rajendra Prasad Moody (1978) 115 ITR 519 (S.C.)]. The test to apply is that the expenditure should be expended wholly and exclusively to earn the income, as held by Hon'ble Supreme Court in the case of Smt. Padmavati Jaikrishna vs. Additional Commissioner of Income-tax. (1987) 32 Taxman 321 (S.C.). Since the assessee has failed to produce any evidence to show that it has expended any expenditure wholly and exclusively to earn interest income from co-operative banks, commercial banks, and other financial institutions, the entire interest income of Rs.50,87,492/- is brought to tax as income from other sources.”

3.2 Accordingly, AO assessed the income at Rs.33,85,571/-. Aggrieved by the assessment order, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) confirmed the assessment order. Aggrieved by the assessment order, now, the assessee is in appeal before this Tribunal.

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

ITA No. 1841/PUN/2026

4.

Hon’ble Supreme Court in the case of CIT vs. Karnataka State Co- operative Apex bank [2001] 251 ITR 194 (SC) observed as under : Quote, “The question in appeal reads : "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the interest income arising from the investment made out of reserve fund is exempt under section 80P(2)(a)(i ) of the Income-tax Act, 1961 ?"

While deciding the above question of Law raised by Revenue, the Hon’ble Supreme Court observed as under : Quote, “……There is no doubt, and it is not disputed, that the assessee-co- operative bank is required to place a part of its funds with the State Bank or the Reserve Bank of India to enable it to carry on its banking business. This being so, any income derived from funds so placed arises from the business carried on by it and the assessee has not, by reason of section 80P(2)(a)(i), to pay income-tax thereon. The placement of such funds being imperative for the purposes of carrying on the banking business, the income derived therefrom would be income from the assessee's business……” Unquote.

The Hon’ble Supreme Court in the above case answered the question in favour of Assessee and against Revenue.

Thus, the proposition of law emanating from the above decision is that Interest earned from Funds deposited with State bank of India by Co- Operative Bank is business income and eligible for deduction u/s 80P(2)(a) of the Act.

5.

The Hon’ble High Court of Andhra Pradesh and Telangana in the case of Vavveru Co-operative Rural Bank Ltd. [2017] 396 ITR 371 analyzed the provisions of Section 80P, succinctly distinguished the decision of Hon’ble Supreme Court in the case of Totagar Cooperative Sale Society, and held as under : Quote,“ 8. Therefore, the real controversy arising in these writ petitions is as to whether the income derived by the petitioners by way of interest on the fixed deposits made by them with the banks, is to be treated as profits and gains of business attributable to any one of the activities indicated in sub- clauses (i) to (vii) of clause (a) of sub-section (2) of section 80P or not. 9. While the petitioners place strong reliance upon a decision of the Division Bench of this court in CIT v. Andhra Pradesh State Co-operative Bank Ltd. [2011] 12 taxmann.com 66/200 Taxman 200/336 ITR 516, the Revenue places strong reliance upon the decision of the Supreme Court in Totgar's Co- operative Sale Society Ltd. v. ITO [2010] 188 Taxman 282/322 ITR 283. ……………………

ITA No. 1841/PUN/2026

34.

The case before the Supreme Court in Totgar's Co-operative Sale Society Ltd.'s case (supra) was in respect of a co-operative credit society, which was also marketing the agricultural produce of its members. As seen from the facts disclosed in the decision of the Karnataka High Court in Totgars, from out of which the decision of the Supreme Court arose, the assessee was carrying on the business of marketing agricultural produce of the members of the society. It is also found from paragraph-3 of the decision of the Karnataka High Court in Totgar's Co-operative Sale Society Ltd.'s case (supra) that the business activity other than marketing of the agricultural produce actually resulted in net loss to the society. Therefore, it appears that the assessee in Totgars was carrying on some of the activities listed in clause (a) along with other activities. This is perhaps the reason that the assessee did not pay to its members the proceeds of the sale of their produce, but invested the same in banks. As a consequence, the investments were shown as liabilities, as they represented the money belonging to the members. The income derived from the investments made by retaining the monies belonging to the members cannot certainly be termed as profits and gains of business. This is why Totgar's struck a different note. 35. But, as rightly contended by the learned senior counsel for the petitioners, the investment made by the petitioners in fixed deposits in nationalised banks, were of their own monies. If the petitioners had invested those amounts in fixed deposits in other co-operative societies or in the construction of godowns and warehouses, the respondents would have granted the benefit of deduction under clause (d) or (e), as the case may be. 36. The original source of the investments made by the petitioners in nationalised banks is admittedly the income that the petitioners derived from the activities listed in sub-clauses (i) to (vii) of clause (a). The character of such income may not be lost, especially when the statute uses the expression "attributable to" and not any one of the two expressions, namely, "derived from" or "directly attributable to". 37. Therefore, we are of the considered view that the petitioners are entitled to succeed. Hence, the writ petitions are allowed, and the order of the Assessing Officer, in so far as it relates to treating the interest income as something not allowable as a deduction under section 80P(2)(a), is set aside.” Unquote.

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

6.

In the case of Sahyadri Co-operative Credit Society Limited, the Sahyadri Co-operative Credit Society had deposited excess funds in the Banks or Institutions permitted by the Co-operative Societies Act. In that context, the Hon’ble Kerala High Court in the case of Pr.CIT Vs. Sahyadri

ITA No. 1841/PUN/2026

Co-operative Credit Society Ltd., [2024] 301 Taxman 36 (Kerala) vide order dated 04.09.2024 has held as under : Quote “7. On a consideration of the rival submissions, we are of the view that for the reasons stated hereinafter, the question of law that arises for consideration before us must be answered against the Revenue and in favour of the assessee. The permissible deduction that is envisaged under Section 80P(2) of the I.T. Act for a Co-operative Society that is assessed to tax under the head of 'Profits and Gains of Business or Profession' is of the whole of the amount of profits and gains of business attributable to any one or more of its activities. Thus, all amounts as can be attributable to the conduct of the specified businesses by a Co-operative Society will be eligible for the deduction envisaged under the statutory provision. The question that arises therefore is whether, merely because the assessee chooses to deposit its surplus profit in a permitted bank or financial institution, and earns interest on such deposits, such interest would cease to form part of its profits and gains attributable to its business of providing credit facilities to its members? In our view that question must be answered in the negative, since we cannot accept the contention of the Revenue that the interest earned on those deposits loses its character as profits/gains attributable to the main business of the assessee. It is not as though the assessee in the instant case had used the surplus amount [the profit earned by it] for an investment or activity that was unrelated to its main business, and earned additional income by way of interest or gain through such activity. The assessee had only deposited the profit earned by it in the manner mandated under Section 63 of the Multi-State Co-operative Societies Act, or permitted by Section 64 of the said Act. In other words, it dealt with the surplus profit in a manner envisaged under the regulatory Statute that regulated, and thereby legitimized, its business of providing credit facilities to its members. Under those circumstances, if the assessee managed to earn some additional income by way of interest on the deposits made, it could only be seen as an enhancement of the profits and gains that it made from its principal activity of providing credit facilities to its members. The nature and character of the principal income [profits earned by the assessee from its lending activity] does not change merely because the assessee acted in a prudent manner by depositing that income in a bank, instead of keeping it in hand. The provisions of the I.T. Act cannot be seen as intended to discourage prudent financial conduct on the part of an assessee.” Unquote

7.

Similarly, the Ld. AR submitted case laws wherein the similar view has been taken by the Hon’ble High Court of Telangana in the case of Ismailia Co-operative Credit Society Ltd. Vs. ACIT, (2026) 186 taxmann.com 1136 (Telangana) held as under : “28. This Bench is of the considered view that the findings given by the Assessing Officer, the Commissioner and the Appellate Tribunal do not hold good and that the appellant is prima facie entitled to the deduction under Section 80P(2)(a) of Income Tax Act. Accordingly, the substantial question of law is answered in favour of the appellant and against the respondent.”

ITA No. 1841/PUN/2026

8.

What emerges from the above referred decisions of Hon’ble Supreme Court and Hon’ble High Courts is that interest earned by Co-operative Credit Society registered under state cooperative society Act, which is engaged in the business of providing credit facilities to its members, from funds deposited with Cooperative Bank or Bank is eligible for deduction u/s 80P(2)(a)(i) of the Act.

9.

Similar view has been taken by ITAT Pune Bench in the case of ITO vs. Dhanshri Multi State Cooperative Society Ltd in ITA 463/PUN/2024, Arth Nagari SahakariPatsanstha Limited vs ITO Arth Nagari Sahakari Patsanstha Limited.

10.

The facts of the present case are identical to the facts of the cases referred above. Hence, respectfully following the judicial precedent, we hold that assessee is eligible for deduction u/s 80P(2)(a) of the Act on the Interest Income earned as mentioned above. Accordingly, the AO is directed to delete the addition.

11.

In the result, appeal of the assessee is allowed.

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

Sd/- Sd/- (PAVAN KUMAR GADALE) (Dr. DIPAK P. RIPOTE) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे/Pune; दिन ांक/Dated : 10-07-2026 Ravi Kumar Digitally signed by Ravi Kumar Ravi Kumar Date: 2026.07.13 12:10:46 +05'30' आदेश की प्रतितिति अग्रेतिि/Copy of the Order is forwarded to: 1. अपील र्थी / The Appellant 2. प्रत्यर्थी / The Respondent 3. The concerned Pr. CIT, Pune 4. DR, ITAT, ‘SMC’ Bench, Pune 5. ग र्ड फ ईल / Guard file. आदेशानुसार/ BY ORDER, // True Copy // Assistant Registrar आयकर अपीलीय अदिकरण,पुणे / ITAT, Pune

More judgments on Section 80P

All 5,069 judgments and leading authorities on Section 80P →

Recent GST High Court judgments

Search GST case law →