KANGOD GROUP VIVIDHODDESHAGALA SAHAKARI SANGHA NIYAMITA,SIRSI, UTTARA KANNADA vs. INCOME TAX OFFICER, WARD 1, SIRSI

The National Assessment Centre denied the assessee deduction under section 80P(2)(a)(i) of the Act in respect of interest of ₹ 44,53,203 earnedon deposits or investments with cooperative Page 1 of 7 banks, treated the same as income from other sources, and assessed the total income at ₹ 44,75,293 as against the returned income of ₹ 22,090.

Aggrieved, the assessee is in appeal before us. In ground No. 2, it mainly contends that the interest earned on investments with cooperative banks is attributable to the profits and gains of its business of providing credit facilities to its members and is therefore deductible under section 80P(2)(a)(i) of the Act. The Assessing Officer and the learned CIT(A), however, treated the interest as income from other sources and denied the deduction by relying on a decision of the Hon’ble Karnataka High Court holding that interest from cooperative banks is not eligible for deduction under section 80P(2)(d) of the Act.

The Registry has noted that the appeal has been delayed by 135 days. The order of the first appellate authority dated 30 August 2025 was received by the assessee on the same date, as stated in Form No. 36. The appeal was therefore required to be filed on or before 31 October 2025 but was filed only on 16 March 2026.

The assessee filed a petition seeking condonation of delay, supported by an affidavit. It explained that the delay occurred due to a bona fide and inadvertent mistake by the accountant handling assessment proceedings, appellate matters, income-tax compliance, and audit work. Although the appellate order was served on the assessee by email, it remained unattended because of an unintentional oversight while the accountant was managing multiple assignments.

The assessee also filed an affidavit of Mr. Venugopal Mohan Hegde, the accountant entrusted with filing the appeal, stating that he could not file it within time.The learned Authorized Representative reiterated these facts and submitted that the delay is because of sufficient cause and deserved to be condoned.

The learned Departmental Representative opposed the condonation petition and submitted that the assessee had not shown sufficient cause for the delay. He therefore contended that the appeal should not be admitted.

We have considered the rival submissions. The delay was caused by Mr. Venugopal Mohan Hegde, the assessee’s accountant, who was familiar with the facts of the case and was entrusted with filing the appeal. During the relevant period, he was handling assessment proceedings and several other assignments and, due to oversight and workload, failed to notice the appellate order. This is not a case where the assessee did not receive the appellate order; rather, after receipt, the employee responsible for filing the appeal failed to act in time for the reasons stated above. We find the explanation shows sufficientcause and therefore condone the delay and admit the appeal.

We have heard Sri Sandeep Chalapathy, Chartered Accountant, for the assessee, and Sri Ganesh R. Ghale, Standing Counsel, for the Department.

The learned Authorized Representative relied on the coordinate bench decision in ITA No. 1518/Bang/2025 for assessment year 2017-18 in the case of Karnataka State Registration and Stamps Department Officials Multipurpose Cooperative Society Ltd., dated 29 December 2025, where an identical issue was decided in favour of the assessee and deduction under section 80P(2)(a)(i) was allowed. He further relied up on 2015 (2) TMI 995 - KARNATAKA HIGH COURT [2015] 55 taxmann.com 447 (Karnataka)TUMKUR MERCHANTS SOUHARDA CREDIT COOPERATIVE LIMITED Versus THE INCOME TAX OFFICER, WARD-1, TUMKUR

The learned Departmental Representative supported the orders of the lower authorities and submitted that the issue is covered in favour of the Revenue by decisions of the Hon’ble Karnataka High Court. He relied up on 2025 (10) TMI 770 - KARNATAKA HIGH COURTM/s. Judicial Employees House Building Cooperative Society Limited Versus Income Tax Officer Ward -2 (2), Mysuru, 2017 (1) TMI 1100 - KARNATAKA HIGH COURTThe Pr. Commissioner of Income Tax, Versus The Totagars Co-operative Sale Society,[2017] 392 ITR 74, [2017] 78 taxmann.com 169 (Karnataka) and 2026 (4) TMI 272 - KARNATAKA HIGH COURT Bangalore Credit Co-Operative Society Limited Versus Income Tax Officer, Ward 7 (2) (1), Bengaluru.

Briefly stated, the assessee is a cooperative society registered on 30 January 1980 under the Karnataka Societies Act, 1959, with the principal object of providing credit facilities to its members. It earned interest of ₹ 4,53,203 from deposits with cooperative banks, including Kanara District Central Cooperative Bank Ltd. and Punjab and Maharashtra Cooperative Bank Ltd. The assessee claimed that this interest formed part of the profits attributable to its business of providing credit facilities to members. The Assessing Officer, relying on the decision of the Hon’ble Supreme Court reported in 322 ITR 283 and the decision of the Hon’ble Karnataka High Court reported in 395 ITR 611, treated the income as income from other sources and denied deduction under section 80P.

The assessee is a cooperative society engaged primarily in accepting deposits from, and providing credit facilities to, its members. The issue is whether interest received from cooperative Page 4 of 7 banks should be treated as business income or as income from other sources. The Assessing Officer treated it as income from other sources, whereas the assessee submits that it is business income attributable to its activity of providing credit facilities to members.

Section 80P allows deduction of the income specified in sub- section (2) from the gross total income of a cooperative society. For a cooperative society engaged inbanking or providing credit facilities to its members, the whole of the profits and gains attributable to such activity is deductible. The question is whether interest received from cooperative banks qualifies for deduction under section 80P(2)(a)(i). The assessee’s case is that the receipts are business income attributable to providing credit facilities to members. We find that the issue is covered in favour of the assessee by decisions of the Hon’ble Karnataka High Court.

We also note that the Assessing Officer relied on another decision of the Hon’ble Karnataka High Court holding that interest earned from cooperative banks is taxable as income from other sources and not as business income. It was further held that deduction under section 80P(2)(d)is not allowable in respect of such interest income.

Several coordinate benches have held that, where conflicting decisions of the Hon’ble Karnataka High Court exist, the decision with facts closer to those before the Tribunal should be followed. In the present case, the facts are closer to the decisions relied on by the assessee. Accordingly, the interest income is eligible for deduction under section 80P(2)(a)(i), and the assessee’s claim is allowed.

We further note that the division bench decision in ITA No. 158/Bang/2025 dated 29 December 2025, relied on by the learned Authorized Representative, has considered this issue in detail in paragraphs 15 to 23 and has decided it in favour of the assessee. We therefore hold that the assessee is entitled to deduction under section 80P(2)(a)(i) in respect of the interest income, as it is business income attributable to the cooperative society’s activity of providing credit facilities to its members. Ground No. 2 of the assessee’s appeal is accordingly allowed. The Assessing Officer is directed to grant deduction under section 80P(2)(a)(i) on the relevant income, including interest from the cooperative banks.

In view of our decision on ground No. 2, the remaining grounds of appeal do not require adjudication and are dismissed.

In the result, the appeal filed by the assessee is partly allowed. Order pronounced in the open court on 22nd June, 2026