THE MILKCITY CO. OP. CREDIT SOC. LTD.,ANAND vs. THE ITO, WARD-5, ANAND

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ITA 444/AHD/2026Status: DisposedITAT Ahmedabad07 May 2026AY 2018-197 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the cooperative society is eligible for deduction under Section 80P(2)(a)(i) and 80P(2)(d) on interest income earned from members and a cooperative bank, respectively. The disallowance was made on hyper-technical grounds without adhering to natural justice principles.

What were the facts?

The assessee, a cooperative society, claimed deduction under Section 80P for interest income. The CPC disallowed this deduction due to a mistake in reporting in the ITR form, which was later rectified in a revised return. The CIT(A) upheld the disallowance without providing an opportunity to the assessee.

What were the issues?

Whether a cooperative society is eligible for deduction under Section 80P on interest income earned from a cooperative bank, and whether the disallowance without providing an opportunity to the assessee violates principles of natural justice.

Which sections of the Income-tax Act were involved?

Section 80P,Section 154,Section 263,Section 194A(3)(v),Section 80P(2)(a)(i),Section 80P(2)(d),Section 80P(4)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD

Before: DR.BRR KUMAR

For Appellant: Shri SN Divetia, with Shri Samir Vora, ARs
For Respondent: Shri Saresa Kartik Laxambhai, Sr.DR
Hearing: 15.04.2026Pronounced: 07.05.2026

PER: DR. BRR KUMAR, VICE PRESIDENT:

The captioned appeal has been filed by the Assessee against the order passed by the Addl/JCIT Commissioner of Income Tax (Appeal) Kochi, vide order dated 19.12.2025 for Assessment Year 2018-19. 2. The Assessee has taken the following grounds of appeal:-

1.

1 The order passed by U/s.250 passed on 19.12.2025 for A.Y. 2018-19 by Addl./JCIT(A), Kochi (for short CIT(A)") upholding the Asst.Year –2018-19 - 2– disallowance of deduction u/s 80P(2)(a)(1) and 80P(2)(d) aggregating to Rs. 8.98,716/ on hyper technical ground without giving any opportunity or notice is wholly illegal, unlawful and against the principles of natural justice.

1.

2 The Id. CIT(A) has erred in law or on facts in confirming the disallowance u/s 80P without giving any notice or opportunity to rectify the inadvertent and bona fide mistake committed by the data operator of the office of the tax consultant in reporting the said deduction in relevant columns of ITR form. Thus, there was a sufficient cause for the mistake in reporting said deductions. Thus, the impugned order of CIT(A) has been passed grossly against the principles of natural justice.

2.

1 The Id.CIT(A) has grievously erred in law and or on facts in upholding disallowance of deduction u/s 80P(2)(a)(1) and 80P(2)(d) aggregating to Rs. 8.98,716/- on hyper technical ground without giving any opportunity or notice

2.

2 That the in the facts and circumstances of the Id. CIT(A), ought not to have upheld the disallowance of deduction u/s 80P(2)(a)(i) and 80P(2)(d) aggregating to Rs. 8.98,716/ on hyper technical ground without giving any opportunity or notice.

3.

1 The Id.CIT(A) has grievously erred in law and or on facts in upholding disallowance of deduction u/s 80P(2)(d) of Rs. 50,000/-. It is, therefore, prayed that the addition upheld by the CIT(A) may kindly be deleted.

3.

The assessee is a Co. Operative Society engaged in providing credit facility to its members. It is duly registered under Gujarat Co. Op. Societies Act, 1961. It maintains regular books of accounts which are subject to audit. It had filed its original return of income for A.Y.2018-19 on 03.08.2018 declaring total income of Rs. Nil. Later on, a revised return was filed on 06.12.2018 declaring total income - 3– at Nil but rectifying the mistake in reporting the deduction u/s 80P in the ITR Form. Hence, the CPC while processing it made prima facie adjustment by way of disallowing the deduction claimed u/s 80P aggregating to Rs. 8,98,716/-and raised the demand of Rs. 5,05,740/-. Even the rectification proposed u/s 154 was also rejected by CPC

4.

Being aggrieved, the appellant had preferred appeal before NFAC.CIT(A) wherein it had challenged the disallowance of deduction claimed u/s 80P of Rs. 8.98,716/- and the basic deduction of Rs. 50,000/-. The assessee made written submission on 17.01.2025 before NFAC.CIT(A) contending that since the society was engaged in the business of providing credit facility to its members, the interest income received from its members and the interest income from Kheda Dist. Co. Op. Bank were exempt u/s 80P(2)(a)(i) and 80P(2)(d) respectively. However, surprisingly the CIT(A) without pointing out and giving any opportunity, rejected the said appeal on the ground that the appellant society had reported interest income Rs. O in Schedule BFLA(BP) Sl. No. ii, whereas, it had shown Rs.8,98,716/- in sl. No.xiii of BFLA(OS) and 80P(2)(f) Others

5.

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 Asst.Year –2018-19 - 4–

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] 168 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.)

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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]

 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]

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 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 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.

This Order pronounced in Open Court on 07.05.2026 (SUCHITRA KAMBLE) () Ahmedabad; Dated 07.05.2026 Manish, Sr. PSITA No.444/Ahd/2026 - 7–

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

2.

""यथ" / 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,

उप/सहायक पंजीकार (Dy./Asstt.

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