SHREE NIRANT NAGRIK SAHAKARI MANDALI LIMITED,VADODARA vs. THE DY.CIT, CIRCLE-2(1)(1), VADODARA

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ITA 1534/AHD/2025Status: DisposedITAT Ahmedabad15 May 2026AY 2018-196 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that proportionate expenses are deductible against interest income under Section 57. It further ruled that interest earned from cooperative banks is eligible for deduction under Section 80P(2)(d), following jurisdictional High Court decisions.

What were the facts?

The assessee, a cooperative society, claimed deductions for proportionate expenses against interest income and under Section 80P(2)(d) for interest earned from cooperative banks. The CIT(A) disallowed these claims, restricting deductions and holding interest from cooperative banks ineligible.

What were the issues?

Whether proportionate expenses are allowable against interest income, and if interest earned from cooperative banks is eligible for deduction under Section 80P(2)(d).

Which sections of the Income-tax Act were involved?

Section 57,Section 80P(2)(d)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD

Before: DR. B.R.R. KUMAR, VICE-

For Appellant: Shri Ankit Choksi, AR
For Respondent: Shri Arvind Kumbhare, Sr.DR
Hearing: 19.03.2026Pronounced: 15.05.2026

PER DR. B.R.R. KUMAR, VICE-PRESIDENT:

-

The captioned appeal has been filed by the assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (in short “NFAC”), Delhi order dated 06.06.2025 relevant to Assessment Year 2018-19. 2. The assessee has raised the following grounds of appeal:

1.

Disallowance of Proportionate Expenses under Section 57-Interest Income: The learned Commissioner of Income Tax (Appeals) [CIT(A)) has erred, both in law and on facts, in upholding the disallowance of 13,23,825 under - 2– Section 57, by erroneously restricting the deduction only to administrative expenses against interest income assessable as "Income from Other Sources" and by disregarding the appellant's method of proportjenate expense allocation that has been consistently accepted in earlier years. The learned CIT(A) failed to appreciate the binding ITAT decision in the appellant's own case for AY 2014-15, and other relevant tribunal orders, which held that net interest income, arrived at after allocating proportionate expenses (including interest on members' deposits), is taxable under section 56, and that such method is accepted and judicially recognized. The learned CIT(A) did not consider that the expenditure incurred by the appellant has a direct or proximate nexus with the interest income earned and, hence, such expenses are deductible under Section 57, as per settled legal principles. iv. The learned CIT(A) ought to have followed the principle of consistency and not departed from settled practice without any change in facts or law.

2.

Disallowance of Deduction under Section 80P(2)(d) Interest from Co- operative Banks: L The learned CIT(A) has erred in law and on facts in upholding the disallowance of deduction under Section 80P(2)(d) on interest income of 13,64,623 earned from investments with co-operative banks, by holding that interest from co-operative banks is not eligible for deduction.

11.

The learned CIT(A) misapplied the Supreme Court judgment in The Citizen Co-operative Society Ltd., which pertains to the eligibility under Section 80P(2)(a)(i) and relates to different facts and law, and has no bearing on the present claim under Section 80P(2)(d).

Deduction under section 80P(2)(d) of the Act

3.

The issue before us is to determined whether the co-operative bank is also treated as co-operative societies for the purpose of allowing deduction u/s.80P(2)(d) of the Act. This issue stands settled by the order of the juri ictional High Court in the case of PCIT Vs. Ashwinkumar Arban Co-Operative Society Ltd, [2024]

- 3– taxmann.com 314 (Gujarat). For the sake of ready reference, snippets of the said order is reproduced below:-

“Section 80P, read with section 263 of the Income-tax Act, 1961 Deductions Income of co-operative societies (Interest from co- operative bank) Assessment year 2018-19- Principal Commissioner invoked revisional powers under section 263 on ground that Assessing Officer had allowed deduction on interest earned by assessee, a cooperative society, from investment made with a cooperative bank under section 80P(2)(d) which was erroneous and prejudicial to Interest of revenue Tribunal reversed Principal Commissioner's order holding that cooperative bank was a cooperative society registered under Gujarat State Cooperative Societies Act and, therefore, interest earned by assessee from said bank was eligible for deduction under section 80P(2)(d) - Whether deduction under section 80P(2)(d) is available to cooperative societies on income earned as interest on investment made with cooperative bank which in turn, is a cooperative society itself - Held, yes - Whether exclusion of applicability of section 80P to cooperative banks by section 80P(4) would not disentitle assessee from claiming deduction under section 80P(2)(d) in absence of any amendment in said section - Held, yes - Whether thus, provisions of section 80P(2)(d) would be applicable to instant case and Principal Commissioner was not justified in invoking revisional powers under section 263 which was rightly reversed by Tribunal - Held, yes [In favour of assessee)

***  The controversy sought to be canvassed with regard to deduction under section 80P(2)(d) is no more res integra in view of the decision of this Court in case of Katlary Kariyana Merchant Sahkari Sarafi Mandali Ltd. v Asstt. Commissioner of Income Tax [2022] 140 taxmann.com 602 (Guj.) as well as in case of State Bank of India v Commissioner of Income Tax (2018) 389 ITR 578 (Guj.) wherein it was held that the deduction under section 80P(2)(d) is available to the cooperative societies on the income earned as interest on the investment made with the cooperative bank which in turn, is a cooperative society itself. [Para 28]

- 4–

 Reliance placed by the revenue on decisions of the Karnataka High Court in Totgars’ Cooperative Sale Society (2017) 395 ITR 611 and Supreme Court in case of Totgars Cooperative Sale Society Ltd v. Income Tax Officer 322 ITR 283 (S.C), the Karnataka High Court appears to have taken into consideration the amendment in section 194A(3)(v) wherein the cooperative bank is excluded from the applicability of tax to be deducted at source. However, it appears that the interpretation made by the Karnataka High Court to the effect that the cooperative banks have been excluded from the definition of the cooperative societies by Finance Act, 2015 by amending section 194A(3)(v) is concerned, on perusal of section 194A (3), it appears that it provides for exemption from deducting Tax Deducted at Source from the income on interest other than interest on securities as the cooperative societies other than cooperative banks meaning thereby that the cooperative banks are liable to deduct TDS from the interest other than interest on securities. Therefore it cannot be said that cooperative banks are excluded from the definition of cooperative societies by such an amendment. [Para 29]

 Moreover, as reliance placed on the aforesaid decision for applicability of section 80P(4) in the facts of the case is also not possible to accept as section 80P(4) would be applicable to the cooperative bank when the cooperative bank is liable to pay tax under the provisions of the Act and in such eventuality, the provision of section 80P would not be applicable as per the amendment of sub- section (4) of section 80P. Therefore, the exclusion of applicability of section 80P to cooperative banks by section 80P (4) would not disentitle the respondent- assessee from claiming deduction under section 80P(2)(d) in absence of any amendment in the said section and that would not be sufficient to deny the claim of the respondent-assessee for deduction of interest earned from investment made in a cooperative bank which is also a cooperative society from the total income. [Para 30]

 The Apex Court in case of Kerala State Co-operative Agricultural & Rural Development Bank Ltd. v. Assessing Officer in 458 ITR 184 while considering various provisions of the Banking Regulation Act read with provisions of the Income Tax Act has held that the provision of section 80P(4) would not be applicable to a cooperative bank which is not a bank as per the - 5– provisions of the Banking Regulation Act, 1949.[Para 31]

 In view of the above the provisions of section 80P(2)(d) would be applicable in the facts of the case and the Principal Commissioner was not justified in invoking revisional powers under section 263 which is rightly reversed by the Tribunal holding that the cooperative bank is a cooperative society registered under the Gujarat State Cooperative Societies Act and in view of the various decisions of the Court, the Tribunal after following the same has come to the conclusion that the assessment was not erroneous allowing deduction of section 80P(2)(d) which is in consonance with the various decisions of the Court as a twin condition invoking section 263 as to the assessment being erroneous and prejudicial to the interest of the revenue are not being fulfilled. [Para 33]  In view of the foregoing reasons the question is answered in favour of the assessee and against the revenue. Tax Appeals being devoid of any merit are dismissed [Para 34].”

Respectfully following the decision of the Hon’ble juri ictional High Court and on merits be ground raised by the assessee in this appeal is hereby allowed.

4.

In the result, the appeal filed by the assessee is allowed.

The order is pronounced in the open Court on 15.05.2026. (SUCHITRA KAMBLE) VICE-PRESIDENT () () Ahmedabad; Dated 15.05.2026 MV - 6–

आदेश की "ितिलिप अ"ेिषत/Copy of the Order forwarded to : 1. अपीलाथ" / The Appellant

2.

""थ" / The Respondent. संबंिधत आयकर आयु" / Concerned CIT 3. 4. आयकर आयु"(अपील) / The CIT(A)- 5. िवभागीय "ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड" फाईल / Guard file.

आदेशानुसार/ BY ORDER,सहायक पंजीकार (Dy./Asstt.

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