TAMIL NADU HANDLOOM WEAVERS CO-OP SOCIETY LTD.,CHENNAI vs. ITO, CHENNAI

आदेश / O R D E R

PER MANU KUMAR GIRI, JM:

The captioned Appeal filed by the Assessee is directed against the order of the Ld. Commissioner of Income Tax (Appeals), NFAC, Delhi, [CIT(A)] dated 16.02.2026 Assessment Year 2020-21. 2. Grounds of appeal raised by the assessee are as under: - 1. The order of the CIT(A) is erroneous, bad in law and liable to be quashed, as the same is opposed to the facts of the case and provisions of the Act. 2. The CIT(A) ought to have seen the AO grossly erred in disallowing the claim for deduction u/s. 80P in respect of

ITA No 2177/Chny/2026 (AY 2020-21) Tamil Nadu Handloom Weavers Co-op So. Ltd Vs ITO :: 2 :: interest income of Rs 12,46,61,977/- received from the bank. 3 The Commissioner, under the revisionary power u/s 264 of the Act in the prior year, allowed the interest income received from the bank as deduction u/ss80P(2)(a)(ii) and 80P(2)(d) of the Act. Since there was no change in factual position, the AO without considering the same disallowed the deduction claim u/s 80P of the Act, and the CIT(A) went wrong in upholding the same. 4 The CIT(A) failed to appreciate the fact that the Appellant is eligible to claim deduction u/s 80P(2)(a)(ii) of the Act, since the entire income was attributable to the activities of the society. 5 The CIT(A) erred in holding that the interest received from the Co-operative Banks is outside the scope of section 80P(2)(d) of the Act, as it is not covered by the term "Co-operative society". 6. The CIT(A) erred in upholding the levy of interest u/ss 234A & 234B of Rs.8,38,786/- and Rs.1,25,81,490/- respectively. 7. Any grounds that may be raised at the time of hearing. 3. Brief facts of the case are that the assessee, Tamil Nadu Handloom Weavers Co-operative Society Ltd. (Co-optex), is a State Apex Weavers' Co-operative Society established by the Government of Tamil Nadu to support primary handloom weavers' co-operative societies by supplying raw materials, providing marketing assistance and other support. It claims to be engaged in a cottage industry eligible for deduction u/s. 80P(2)(a)(ii). For A.Y. 2020-21, the assessee filed its return declaring Nil income after claiming deduction u/s. 80P. During the year, the assessee earned interest income of Rs.12,46,61,977/- comprising: o Tamil Nadu State Apex Co-operative Bank (TNSCB) – Rs.6,43,13,607/- o REPCO Bank – Rs.6,01,49,346/- o Thiruvananthapuram District Co-operative Bank – Rs.7,312/-

ITA No 2177/Chny/2026 (AY 2020-21) Tamil Nadu Handloom Weavers Co-op So. Ltd Vs ITO :: 3 :: o State Bank of India (Savings Bank) – Rs.1,91,712/- The AO denied deduction u/s. 80P in respect of the above interest income. He held that interest earned on deposits with co- operative/commercial banks is not attributable to the business activities of the assessee. He treated the interest income as Income from Other Sources u/s. 56. AO relied judgment of the Hon’ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd. v. ITO 322 ITR 283 SC and held that interest from co-operative banks is not eligible for deduction u/s. 80P(2)(d). Further held that interest from SBI is also not eligible u/s. 80P(2)(a)(ii). Consequently, he disallowed deduction of Rs.12,46,61,977/- and levied consequential interest u/s. 234A and 234B. 4. On appeal, the ld.CIT(A) confirmed the assessment order. He held that section 80P(4) distinguishes co-operative banks from ordinary co-operative societies. He further held that interest from deposits with co-operative banks cannot qualify u/s. 80P(2)(d). He noted that interest income arises from bank deposits and not from the assessee's cottage industry activities hence it is taxable as Income from Other Sources. He relied upon: o Totgars Co-operative Sale Society Ltd. 322 ITR 283 SC o Totgars Co-operative Sale Society Ltd. (Kar HC) 395 ITR 611 (Kar). o Bangalore Club (SC) o Mantola Co-operative Thrift & Credit Society (Delhi HC) o CSI Airport Employees Co-op Credit Society (Kerala HC) o Liberty India (SC) o Citizen Co-operative Society (SC). Accordingly, the ld.CIT(A) dismissed the appeal.

ITA No 2177/Chny/2026 (AY 2020-21) Tamil Nadu Handloom Weavers Co-op So. Ltd Vs ITO :: 4 :: Now assessee is in appeal before Tribunal. 5. The ld.AR for the assessee submitted that the assessee is a State Apex Weavers' Co-operative Society carrying on the business of a cottage industry therefore, the interest income is attributable to its business and qualifies for deduction u/s. 80P(2)(a)(ii). He argued that section 80P(4) merely denies deduction to co-operative banks themselves. It does not deny deduction to a co-operative society receiving interest from a co-operative bank. He stated that a co- operative bank continues to be a co-operative society therefore interest received from co-operative banks is deductible u/s. 80P(2)(d). He pleaded that the AO and CIT(A) wrongly relied on Totgars (SC), which dealt with surplus funds and is distinguishable. He relied upon: o Thorapadi Urban Co-operative Credit Society Ltd. v. ITO (Madras HC) o ITO v. Yendagandhi Large Sized Co-operative Society Ltd. (ITAT Visakhapatnam) o The Madras High Court Cooperative Society Ltd. v. ITO (ITAT Chennai) o Cambay Electric Supply Industrial Co. Ltd. v. CIT (SC) for the wider meaning of "attributable to". o Potheri Village Weaning Food Manufacturing Women's Development Industrial Coop. v. ITO (ITAT Chennai) o Irula Snake Catchers Industrial Cooperative Society Ltd. v. ITO (ITAT Chennai). He further submitted that the Commissioner had already allowed identical deduction u/s. 264 for A.Y. 2010-11 and there was no change in facts. He contended that interest received from SBI

ITA No 2177/Chny/2026 (AY 2020-21) Tamil Nadu Handloom Weavers Co-op So. Ltd Vs ITO :: 5 :: savings account was incidental to normal banking operations and hence deductible u/s. 80P(2)(a)(ii). 6. The ld.DR for the revenue submitted that interest on bank deposits is a separate source of income and is assessable u/s. 56. He stated that the income is not attributable to the assessee's weaving/cottage industry activities. After insertion of section 80P(4), co-operative banks stand excluded from the scope of section 80P benefits therefore interest received from them cannot qualify u/s. 80P(2)(d). He relied on: o Totgars Co-operative Sale Society Ltd. (SC) (2010) o Totgars Co-operative Sale Society Ltd. (Kar HC) (2017) o Bangalore Club (SC) o Mantola Co-operative Thrift & Credit Society (Delhi HC) o CSI Airport Employees Co-op Credit Society (Kerala HC). 7. We have heard the rival submissions and perused the record and gone through the case cited at bar. We note that the assessee is a State Apex Weavers' Co-operative Society engaged in a cottage industry. We observe that the issue regarding interest from deposits with co-operative banks is covered by the jurisdictional Madras High Court in Thorapadi Urban Co-operative Credit Society Ltd., which held that section 80P(4) restricts only the deduction available to co- operative banks and does not deny deduction u/s. 80P(2)(d) to a co-operative society earning interest from investments with co- operative banks. Similar is the orders of the co-ordinate Bench decisions in The Madras High Court Cooperative Society Ltd., Potheri Village Weaning Food Manufacturing Women's Development Industrial Coop., and Irula Snake Catchers Industrial Cooperative Society Ltd.

ITA No 2177/Chny/2026 (AY 2020-21) Tamil Nadu Handloom Weavers Co-op So. Ltd Vs ITO :: 6 :: As regards interest from SBI, the we accept the assessee's contention that the savings bank account was maintained in the ordinary course of banking transactions and such interest was attributable to the business of the assessee as a cottage industry and therefore eligible for deduction u/s. 80P(2)(a)(ii). We also note that in an earlier year, the Commissioner had accepted an identical claim u/s. 264, and there was no change in facts warranting a different view. Accordingly, we hold the interest from co-operative banks is allowable as deduction u/s. 80P(2)(d) and interest from SBI savings account is allowable u/s. 80P(2)(a)(ii). The orders of the AO and CIT(A) were set aside to this extent, and the appeal of the assessee was allowed by directing the AO to grant deduction u/s. 80P(2)(a)(ii) and 80P(2)(d) on the respective interest income. Consequential levy of interest u/s. 234A and 234B would be recomputed in accordance with law. 8. In the result, the appeal of the assessee is allowed as above. Order pronounced in the open court on the 06th day of July 2026 in Chennai.

Sd/- Sd/- (प�ावती एस) (मनु कुमार िग�र) (PADMAVATHY S) (MANU KUMAR GIRI) लेखा सद)या/ACCOUNTANT MEMBER �या�यक सद)य/JUDICIAL MEMBER चे�नई/Chennai, *दनांक/Dated: 06th July, 2026. SNDP, Sr. PS SANDEEP Digitally signed by SANDEEP KUMAR KUMAR Date: 2026.07.08 09:42:49 +05'30'

ITA No 2177/Chny/2026 (AY 2020-21) Tamil Nadu Handloom Weavers Co-op So. Ltd Vs ITO :: 7 ::

आदेश क ��त+ल,प अ-े,षत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF