POONAM CO OPERATIVE HOUSING SOCIETY LTD ,MUMBAI vs. ITO WARD 24(3)(1), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “H(SMC)” MUMBAI BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI ANIKESH BANERJEE (JUDICIAL MEMBER) ITA No. 1287/MUM/2026 Assessment Year: 2020-21

Poonam Co Operative Housing Vs. Income Tax Officer, Ward 24(3)(1) Society Ltd. Piramal Chamber, Lalbaug, 1st Floor, Navkar Poonam, 45, Mumbai – 400058. Lallubhai Park Road, Andheri (West), Mumbai – 400058. PAN NO. AAAAP6170H Appellant Respondent

Assessee by : Ms. Ketki Mitta Revenue by : Shri Pravin Salunkhe, (SR. DR) Date of Hearing : 06/04/2026 Date of pronouncement : 20/04/2026 ORDER PER OM PRAKASH KANT, AM

This appeal by the assessee is directed against order dated 24.12.2025 passed by the learned Additional/Joint Commissioner of Income Tax (Appeals)-1, Jaipur [in short “Ld. CIT(A)”], for Assessment Year (AY) 2020-21, raising following grounds of appeal:

“GROUND NO. I: WRONG DENIAL OF DEDUCTION UNDER SECTION 80P(2)(d) The Learned Commissioner of Income Tax (Appeals) has erred In law and in facts in confirming the disallowance of deduction of 24,64,426/- claimed under Section 80P(2)(d) of the Income Tax Act, 1961, in respect of interest income earned by the appellant from Saraswat Co-operative Bank Limited;

ITA No. 1287/Mum/2026 Poonam Co Operative Housing Society Ltd. GROUND NO. 2: ERRONEOUS INTERPRETATION O SECTION 80P(2)(d): The Learned Commissioner of Income Tax (Appeals) has grossly erred in holding that a Co-operative Bank is not a Co-operative Society for the purpose of Section 80P(2)(d), Ignoring the fact that: (a) Saraswat Co-operative Bank Limited is registered under the Maharashtra Co-operative Societies Act, and(b) Section BOP(2)(d) does not exclude co-operative banks, unlike Section 80P(4), which applies only to the assessee being a Co-operative Bank; GROUND NO. 3: MISAPPLICATION OF SECTION 80P(4): The Learned Commissioner of Income Tax (Appeals) has erred In Law in invoking Section 80P(4) in the case of the Appellant, which is a Co- operative Housing Society and not a Co-operative Bank, whereas Section 80P(4) restricts deduction only in the case of assessee which r Co- operative Banks. GROUND NO.4: IGNORING BINDING JURISDICTIONAL PRECEDENTS: The Learned Commissioner of Income Tax (Appeals) has erred in law by ignoring binding decisions of the Honourable Bombay High Court and the Mumbai Income Tax Appellate Tribunal, wherein it has been consistently held that interest earned by a Co-operative Society from deposits with a Co-operative Bank qualifies for deduction under Section 80P(2)(d); GROUND NO.5: RELIANCE ON INAPPLICABLE JUDICIAL PRECEDENTS: The Learned Commissioner of Income Tax (Appeals) has erred in placing reliance on the decisions in Totgars Co-operative Sale Society Limited (Reported in 322 ITR 283 Page) and subsequent Karnataka High Court rulings, which: (a) Concern Section 80P(2)(a) and (b) Deal with business income v/s. income from other sources and are therefore inapplicable to deduction claimed under Section 80P(2)(d)GROUND NO. 6: INCORRECT APPLICATION OF MUTUALITY PRINCIPLE: The Learned Commissioner of Income Tax (Appeals) has erred in Invoking the principle of mutuality, which is irrelevant while examining deduction

ITA No. 1287/Mum/2026 Poonam Co Operative Housing Society Ltd. under Section 80P(2)(d), as the said provision grants a statutory deduction independent of mutuality. GROUND NO. 7: FAILURE TO APPRECIATE LEGISLATIVE INTENT: The Learned Commissioner of Income Tax (Appeals) failed to appreciate that:- (a) when the Legislature intended to exclude co-operative Banks, it did so specifically in Section 80P(4) (b) No such exclusion exists in Section 80P(2)(d), and (c) Reading such exclusion amounts to supplying words to the statute, which is impermissible in law. GROUND NO. 8: VIOLATION OF SETTLED PRINCIPLES OF INTERPRETATION: The Learned Commissioner of Income Tax (Appeals) erred in adopting a restrictive Interpretation of a beneficial provision, contrary to settled law that deduction provisions for co-operative societies must be liberally construed.” 2. Briefly stated, the facts of the case are that the assessee is a Cooperative Housing Society registered under the Maharashtra Cooperative Societies Act, 1960. The assessee filed its return of income on 15.12.2020, wherein the assessee claimed deduction of Rs. 4,64,426/-u/s. 80P of the Income Tax Act, 1961 (in short “the Act”). The said return was processed u/s. 143(1) of the Act and the claim of the deduction was not allowed. The assessee filed rectification application. The assessee simultaneously also filed the appeal against the order passed u/s. 143(1) of the Act. The ld. CIT(A) observed that the assessee earned interest on FDR from Saraswat Cooperative Bank of Rs. 3,74,208/- and Rs. 12,686/-. Further, the assessee also earned interest on saving account 3

ITA No. 1287/Mum/2026 Poonam Co Operative Housing Society Ltd. maintained with Saraswat Cooperative Bank of Rs. 77,532/-. The assessee claimed total interest of Rs. 4,64,426/- received from Saraswat Cooperative Bank as deduction u/s. 80P(2)(d) of the Act. The ld. CIT(A) noted that the aforesaid Cooperative Bank being under the control of the RBI and functions at par with commercial bank and therefore deduction u/s. 80P(2)(d) of the Act was not allowable. The relevant finding of the ld. CIT(A) is reproduced as under: 6.9 Thus, in view of the discussion, I find that the 'Co-operative Banks' are neither Co-operative Society nor Regional Rural Banks governed under regional Rural Development Bank, 1976. Apart from the above, I find that the co-operative banks registered under the provisions of Maharashtra Co- Operative Societies Act are also governed by RBI guidelines. Therefore, thecontention of the appellant that the co-operative bariks are co-operative societies and are eligible for deduction u/s 80P is not found acceptable in view of the specific provision of section 80P(4) of the Act which has delineated co-operative banks from the deduction u/s BOP and has entitled only primary agricultural credit society or a primary cooperative agricultural and rural development bank for such deduction. 6.10 Further, it is observed that the three important basic conditions of the principle of mutuality are not satisfied in the case of the appellant society in the case of interest earned from co-operative bank. Thus, in view of the above facts, it is observed that there is an element of profiteering in the activities of the co-operative society while earning interest at higher rates on the surplus thereof which will form part of its general reserve fund and even if the same is distributed as dividend even then the principle of mutuality is not satisfied as held by the Hon'ble Supreme Court in the case of CIT vs. Kumbakonam Mutual Benefit Fund Ltd., 53 ITR 241 (SC). Similarly, the Hon'ble Apex Court in the case of Bangalore Club vs. CIT [2013] 29 taxmann.com 29 (SC) with reference to interest earned from member banks have denied mutuality benefit and has held that the interest earned from the member banks will be eligible to income tax in the hands of the assessee (Bangalore Club). 6.11 Further, it is observed that the appellant society had placed its surplus fund at the disposal of the Co-operative Banks, with sole motive to earn interest which brings in the commerciality of the element. Therefore, 4

ITA No. 1287/Mum/2026 Poonam Co Operative Housing Society Ltd. the interest so earned by it has to be treated as the Revenue Receipt, taxable under the I.T. Act for which reliance is placed on the decision of the Hon'ble Supreme Court in the case of The Totgars Co-operative Sale Society Ltd. Vs. ITO 322 ITR 283 (SC) wherein it was held that interest on deposits were not business income but income from other sources and the society was not entitled to special deduction u/s 80P(2). The finding of the Hon'ble Supreme Court reads as follows:- "The words 'the whole of the amount of profits and gains of business' in section 80P(2) of the Income tax Act, 1961, emphasis that the income in respect of which deduction is sought by a Co-operative Society must constitute the operational income and not the other income which accrues to the Society". 6.12 It is also noted that Hon'ble Karnataka High Court in its judgement in the case of Totagars Co-operative Sales Society delivered on 05.01.2017 reported on 392 ITR 74 has held that for the purpose of section 80P(2)(d) aco-operative bank should be considered as a co-operative society. It also held that any interest earned by the co-operative society from a co- operative bank would necessarily be deductible u/s 80P(1). This judgement was delivered in favour of assessee. However, in a later judgement, the Hon'ble Karnataka High Court in the case of Totagars Co- operative Sales Society delivered on 16.06.2017 reported in 395 ITR 611 took a different view in favour of the revenue. 6.13 The Hon'ble Karnataka High Court which is also the jurisdictional High Court in its later decision in the case of Totagars Co-operative Sale Society 395 ITR 611(Karn) has explained its earlier decision and held that interest income earned on deposits whether with any other bank will be in the nature of income from other sources and not income from business and therefore the deduction u/s. 80P(2)(d) of the Act cannot be allowed to the Assessee. The headnote of this judgement is reproduced below.- "Section 80P of the Income-tax Act, 1961 Deductions Income of Co- operative societies(interest) Assessment year 2007-08 to 2011-12 Whether it is only primary agricultural credit society with its limited work of providing credit facility to its members which is governed by ambit and scope of deduction under section 80P Held, yes Whether, therefore, banking business, even though run by a co-operative bank, is excluded from beneficial provisions of deduction under section 80P-Held, yes assessee was a co-operative society engaged in marketing of agricultural produce grown by its members and providing credit facilities to those members During relevant years, assessee deposited its surplus funds in a co-operative bank Assessee's claim for deduction of interest income earned 5

ITA No. 1287/Mum/2026 Poonam Co Operative Housing Society Ltd. on said deposits undersection 80P(2)(d) was rejected by Assessing Officer - Whether in view of aforesaid legal position, impugned order passed by Assessee Officer did not required any interference -Held, yes Whether even otherwise, since interest income was not arising from business operations of assessee, its claim for deduction was rightly rejected Held, yes [Paras 13, 14 and23] [in favour of revenue)" The Hon'ble Court followed the decision of Hon'ble Gujarat High Court in the case of SBI Vs. CIT 389 ITR 578(Guj.) in which the Hon'ble Gujarat High Court have denied the benefit of section 80P(2) (d) and have held that it is only the income by way of interest or dividends derived by a Co- operative Society from its investments with any other Co-operative Society which is required to be deducted while computing the total income of the assessee. 6.14 Further, the Hon'ble Karnataka High Court held that such interest income isnot income from business but was income chargeable to tax under the head income from other sources and therefore there was no question of allowing deduction u/s.80P(2)(d) of the Act. The following points can be culled out from the aforesaid decision: 1. The words 'Co-operative Banks' are missing in clause (d) of subsection (2) of Section 80P of the Act. Even though a co-operative bank may have the corporate body or skeleton of a co-operative society but its business is entirely different and that is the banking business, which is governed and regulated by the provisions of the Banking Regulation Act, 1949. Only the Primary Agricultural Credit Societies with their limited work of providing credit facility to its members continued to be governed by the ambit and scope of deduction under Section 80P of the Act. (Paragraph 13 of the Judgment). 2. The banking business, even though run by a Co-operative bank is sought to be excluded from the beneficial provisions of exemption or deduction under Section 80P of the Act. The purpose of bringing on the statute book sub-section (4) in Section 80P of the Act was to exclude the applicability of Section 80P of the Act altogether to any co-operative bank and to exclude the normal banking business income from such exemption/deduction category. The words used in Section 80P(4) are significant. They are: "The provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society....... The words "in relation to" can include within its ambit and scope even the interest income earned by the respondent assessee, a co- operative Society from a Cooperative Bank. This exclusion by Section 80P(4) of the Act even though without any amendment in Section 80P(2)(d) 6

ITA No. 1287/Mum/2026 Poonam Co Operative Housing Society Ltd. of the Act is sufficient to deny the claim of the respondent assessee for deduction under Section 80P(2)(d) of the Act. The only exception is that of a primary agricultural credit society. (Paragraph-14 of the judgment) 3. The amendment of Section 194A(3)(v) of the Act excluding the Cooperative Banks from the definition of "Co-operative Society" by Finance Act, 2015 and requiring them to deduct income tax at source under Section 194A of the Act also makes the legislative intent clear that the Co-operative Banks are not that specie of genus cooperative society, which would be entitled to exemption or deduction under the special provisions of Chapter VIA in the form of Section 80P of the Act. (Paragraph 15 of the Judgment) 4. If the legislative intent is so clear, then it cannot be contended that the omission to amend Clause (d) of Section 80P(2) of the Act at the same time is fatal to the contention raised by the Revenue before this Court and subsilentio, the deduction should continue in respect of interest income earned from the co-operative bank, even though the Hon'ble Supreme Court's decision in the case of Respondent assessee itself is otherwise. (Paragraph 16 of the Judgment) 5. On the decision of the earlier decision of the Honble Karnataka High Court referred to in the earlier part of this order, the Court held that it did not find any detailed discussion of the facts and law pronounced by the Hon'ble Supreme Court in the case of the respondent assessee (Totagars Sales Co-operative society) and hence unable to follow the same in the face of the binding precedent laid by the Hon'ble Supreme Court. The Hon'ble Court observed that in paragraph 8 of the said order passed by a co- ordinate bench that the learned Judges have observed that "the issue whether a co-operative bank is considered to be a cooperative society is no longer res integra, for the said issue has been decided by the Income Tax Appellate "No other binding precedent was Tribunal itself in different cases. discussed in the said judgment. Of course, the Bench has observed that a Co-operative Bank is a specie of the genus co-operative Society, with which we agree, but as far as applicability of Section 80P(2) of the Act is concerned, the applicability of the Supreme Court's decision cannot be restricted only if the income was to fall under Section 80P(2)(a) of the Act and not under Section 80P(2)(d) of the Act. (Paragraph-18 of the Judgment) 6. The Court finally concluded that it would not make a difference, whether the interest income is earned from investments/deposits made in a Scheduled Bank or in a Cooperative Bank. Therefore, the said decision of the Co-ordinate Bench is distinguishable and cannot be applied in the present appeals, in view of the binding precedent from the Hon'ble Supreme Court." (Paragraph 19 of the Judgment). 7

ITA No. 1287/Mum/2026 Poonam Co Operative Housing Society Ltd.

6.15 It can thus be seen that the ratio laid down by the Hon'ble Karnataka High Court in the case of Totgars Cooperative Sales Society in 395 ITR 611 (Karn) is that in the light of the principles enunciated by the Supreme Court in Totgars Co-operative Sale Society (supra), in case of a society engaged in providing credit facilities to its members, income from investments made in banks does not fall within any of the categories mentioned in section 80P(2)(a) of the Act. However, section 80P(2)(d) of the Act specifically exempts interest earned from funds invested in co-operative societies. Therefore, to the extent of the interest earned from investments made by it with any co-operative society, a co-operative society is entitled to deduction of the whole of such income under section 80P(2)(d) of the Act. However, interest earned from investments made in any bank, not being a co- operative society, is not deductible under section 80P(2)(d) of the Act. The Hon'ble Karnataka High Court has categorically stated that the legislative intent is very clear that the Co-operative Banks are not that species of genus co-operative Society, which would be entitled to exemption or deduction under the special provisions of Chapter VIA in the form of section 80P of the Act. Thus, the contention of the appellant that the Co- operative banks are to be considered as co-operative societies cannot be accepted in view of the aforesaid judgement of the Hon'ble Karnataka High Court 6.16 The Hon'ble Bombay High Court in the case of CIT vs. Common Effluent Treatment Plant (Thane Belapur) Association [2010] 192 Taxmann 238 (Bom HC) vide para 27 with respect to interest received by Association from Bank have held as under:- "Para 27 ....... With respect, it must be pointed out that the mere fact that the funds which are invested in a fixed deposit with the bank are funds which originated from the contributions made by the members of the assessee cannot conclude the question as regards the taxability of the receipts on account of interest obtained from the investment of these funds. These receipts must partake of the character of income from other sources and would be eligible to tax." 6.17 The Hon'ble Kolkata High Court in the case of CIT, Kolkata X vs. South Eastern Railway Employees Co-op Credit Society Ltd. [2016] 73 taxmann.com 123 (Calcutta) with respect to interest earned from Bank etc. have held that: Where an employee's credit co-operative society earned income from investments in banks and other financial institutions, same was not eligible for deduction under section 80P.

ITA No. 1287/Mum/2026 Poonam Co Operative Housing Society Ltd. 6.18 Again, the Division Bench of Punjab and Haryana High Court in still a later decision reported in the same volume of ITR in the case of CIT vs Punjab State Cooperative Agricultural Development Bank Ltd. [2016] 389 ITR 607/76 taxmann.com 307(Punj & Har) concurred with the aforesaid view of the Gujarat High Court, distinguishing the view taken by the Andhra Pradesh High Court and Karnataka High Court. *....26. The substantial questions of law framed above are thus answered in favour of the Revenue and against the assessee and it is held that the income by way of interest earned by the assessee co-operative society during the Assessment Years 2007-08 to 2011-12 on the investments made in the co-operative bank are not eligible for deductions under Section80P(2) (d) of the Act." (Unquote)" 6.19 The Coordinate Bench of Mumbai ITAT in the case of Shiv Samrudhi Cooperative Housing Society in ITA No. 1073/Mum/2012 has observed as under: "6. We observe that assessee is a co-operative housing society and has derived income by way of interest from Co.op. Bank, S.B. Account and fixed deposit. Assessee claimed deduction of Rs. 3,27,201 u/s. BOP of the Act. We also observe that the Hon'ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd (supra) held that interest from bank deposits and government securities fall under the head "income from other sources" and it cannot fall within the expression "profit and gains of business". It is also held that such interest income cannot be said to be attributable to the activities of the society and interest income accruing to the society does not qualify for deduction u/s. 80P. The Hon'ble Madras High Court in the case of Madras Cricket Club vs ITO, 334 ITR 238 (Mad) also held that the principle of mutuality on investment of surplus funds in the form of F.D and securities does not specify the concept of mutuality and, therefore, the benefit of exemption cannot be extended to the interest. Income. We observe that Id CIT(A) following the above decisions confirmed the addition of Rs.3,27,101 made by the AO. There is no dispute to the fact that assessee has derived income by way of interest income, S.B. account and fixed deposit and, therefore, interest received by the assessee on the surplus funds is to be assessed under the head "income from other sources". In view of above and respectfully following the decision of Hon'ble Supreme Court in the case of The Totgars Cooperative Sale Society and also the decision of Hon'ble Madras High Court in the case of Madras Cricket Club(supra), we uphold the order of Id CIT(A) and reject the grounds of appeal taken by assessee."

ITA No. 1287/Mum/2026 Poonam Co Operative Housing Society Ltd. 6.20 Apart from the above, reliance is also placed on the latest judgement of Hon'ble ITAT of Bangalore in the case of M/s Krishnarajapet Taluk Agri Pro Co-operative Marketing Society Ltd. Vs. PCIT, Mysore in ITA No. 514/Bang./2021 dated 08.02.2022wherein all the judgement of the High Courts/Supreme Court on the issue has been elaborately discussed. 6.21 Further, it is observed that the Hon'ble High Court of Gujarat in a very recent decision in the case of Katlary Kariyana Merchant Sahkari Sarafi Mandali Ltd. Vs Assistant Commissioner of Income-tax [2022] 140 taxmann.com 602 (Gujarat) has again reconfirmed that interest earned by the cooperative society on the investment made in a Cooperative Bank is not eligible for deduction under section 80P(2)(d) of the Act and following theabove decisions, it has held as under (a) This Court further finds that by virtue of amendment in section 194A(3)(v) of the Income-tax act, it has also excluded the co-operative banks from the definition of "co-operative society" by the Finance act, 2015. The High Court of Karnataka has taken note of this amendment in the case of Totagars Co-op/sale society (supra) thereby holding that the effect of the aforesaid amendment explicitly makes clear intention of legislation that cooperative banks are not specie of genus co-operative society, which would be entitled to exemption or deduction under the special provisions of Chapter VI-A in the form of section 80P of the Act. (b) Section 71 of the Gujarat Co-operative Societies Act, 1961 permits a society to invest or deposit its fund in the State Bank of India. Therefore, while investment in the State Bank of India is permissible under section 71 of that Act, there is no statutory obligation cast upon the appellant to deposit funds as a part of its business. The said provision also permits investment of funds in any co-operative bank or any banking company approved for this purpose by the Registrar on such conditions as the Registrar may from time to time impose. However, insofar as the provisions of the Income-tax Act are concerned, under section 80P(2)(d) thereof, it is only the income by way of interest or dividends derived by a cooperative society from its investments with any other cooperative society which is required to be deducted while computing the total income of the assessee. "Thus, following the decision of the Hon'ble Supreme Court in the case of Totagars Co-operative Sale Society Ltd. v. ITO [2010] 188 Taxman 282/322 ITR 283 it was held that interest earned from investments made in any bank, not being co-operative society, is not deductible under section 80P(2)(d) of the Act. 6.22 Further, in view of the aforesaid discussion and judicial pronouncements of the different Hon'ble High Courts and of Hon'ble 10

ITA No. 1287/Mum/2026 Poonam Co Operative Housing Society Ltd. Supreme Court, on the basis of detailed discussion and on the basis of overall facts and circumstances of the case, I respectfully following the aforesaid decisions of the higher courts concur with the AO that the provisions of Sec. 80P(4) are found applicable in the case of the appellant and appellant is not entitled for deduction u/s 80P(2)(d). Thus, the assessing officer is found justified in not allowing deduction to the appellant u/s 80P(2)(d) on the interest income earned from Banks/ Co- operative Banks. Accordingly, the disallowance of deduction u/s 80P(2)(d) of the Act of 4,64,426/- made by the AO is sustained. In view of the above, the ground No. 1 & 2 are dismissed.” 3. We have heard the rival submissions of the parties and perused the relevant material on record. As far as deduction u/s. 80P(2)(d) is concerned, the only requirement is that the said interest income should be earned from the deposits made with the other co- operative societies. Thus, the sole issue is whether the Saraswat Cooperative Bank is primarily a Cooperative Society or not. The coordinate bench in a series of decisions has held that if the Cooperative Bank is primarily a Cooperative Society then it is eligible to Section 80P(2)(d) of the Act. a. Palm Court M Premises Co-operative Society Ltd. vs. Principal Commissioner of Income-tax [2022] 145 taxmann.com 415 (Mumbai - Trib.)[09-09-2022] b. Akshaya co-op Credit Society Ltd. vs. Income-tax Officer [2025] 181 taxmann.com 109 (Panaji - Trib.)[28-11-2025] 4. In view of the binding precedents on the issue in dispute, we hold that the assessee is entitled to deduction u/s. 80P(2)(d) of the Act if the Saraswat Cooperative Bank is registered as a Cooperative Society. Since, the ld. CIT(A) has noted that the said bank is not a Cooperative Society, whereas the assessee before us has contested

ITA No. 1287/Mum/2026 Poonam Co Operative Housing Society Ltd. that under the Maharashtra Cooperative Society Act, all the Cooperative Banks are primarily registered as society, we feel it appropriate to restore this issue to the file of ld. AO for limited verification whether the Saraswat Cooperative Bank is primarily a Cooperative Society and then decide the issue in dispute in accordance with law and our finding above. If required, the assessee may file a necessary certificate of registration as Cooperative Society in this regard from the said bank. 5. Accordingly, ground no. 1 of the appeal of the assessee is allowed for statistical purposes. The other grounds are therefore rendered academic and we are not adjudicated upon.

Order pronounced in the open Court on 20/04/2026.

S Sd/- Sd/- Sd/- (ANIKESH BANERJEE) (OM PRAKASH KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 20/04/2026 Karishma J. Pawar, Sr. P.S. Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. 12

ITA No. 1287/Mum/2026 Poonam Co Operative Housing Society Ltd.

//True Copy//

BY ORDER,

(Assistant Registrar) ITAT, Mumbai