SHRI CHAMUNDA CREDIT CO OP SOCIETY LTD,RAJKOT vs. ADDITIONAL/JOINT/DEPUTY COMMISSIONER, RAJKOT

ITA No.834/Rjt/2025 Shri Chamunda Credit Co Op Society Ltd आयकर अपील�य अ�धकरण, राजकोट �यायपीठ, राजकोट। In The Income Tax Appellate Tribunal, “SMC” Rajkot Bench, Rajkot

Before Dr. Arjun Lal Saini, Accountant Member आयकर अपील सं./ITA No.834/Rjt/2025 िनधा�रण वष� /Assessment Year: (2018-19) Shri Chamunda Credit Co Op Additional/Joint/Deputy Society Ltd., Commissioner Vs Famous Shopping Center, Chandra Aayakar Bhavan, Race Course . Park Main Road, 150 Feet Road, Ring Road, Rajkot, Gujarat, Rajkot, Gujarat 360005 360001 �ायीलेखासं /.जीआइआरसं /.PAN/GIR No.: AABAS9343J (Assessee) (Respondent)

िनधा�रती क� ओर से/Assessee by : Shri J. R. Mankodi, Ld. AR राज�व क� ओर से/Respondent by: Shri Abhimanyu Singh Yadav, Ld. Sr. DR सुनवाई क� तारीख /Date of Hearing : 13/04/2026 घोषणा क� तारीख /Date of Pronouncement : 02/07/2026 आदेश /ORDER Per Dr. Arjun Lal Saini, AM:

Captioned appeal filed by the assessee, pertaining to assessment year (AY) 2018-19, is directed against the order passed under section 250 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 05.08.2025 by the National Faceless Appeal Centre (NFAC), Delhi/ Commissioner of Income Tax (Appeals) [in short ‘Ld.CIT(A)’] which in turn arises out of an assessment order passed by the Assessing Officer (in short ‘AO’) u/s 143 read with section 143(3A) & 143(3B) of the Act dated 08.02.2021.

ITA No.834/Rjt/2025 Shri Chamunda Credit Co Op Society Ltd 2. The grounds of appeal raised by the assessee are as follows: “1. On the facts and circumstances of the case, regarding the disallowance of deduction claimed by the appellant u/s 80P(2)(a)(i) of Income-tax Act, 1961 of Rs 8,93,480/-being interest earned on deposit from State Bank of India, the Hon. Additional/Joint/Deputy/ACIT/Income-tax Officer, National e-Assmt Centre, Delhi. has failed to consider and follow binding decision rendered by Hon Supreme Court as regards eligibility to avail the deduction by Co-operative Credit Society, which was delivered prior to the one relied upon in the assessment and therefore, the order passed is unlawful and requires to be quashed. 2. The appellant craves leave to add, amend, alter or withdraw all or any ground of appeal at any time up to the date of hearing of appeal.”

In this case, the assessee had filed return of income on 14.08.2018 declaring total income at Rs. Nil after claiming deduction of Rs.88,95,000/- under chapter VI-A of the Income-Tax Act, 1961 (hereinafter referred to "the Act"). The case was selected for Limited Scrutiny under CASS for the following reasons: Deduction under chapter VI-A from Total Income. Accordingly, notice u/s 143(2) of the IT Act was issued on 23.09.2019 which was duly served upon the assessee electronically through E-mail. As part of e- governance initiative, the assessee was requested to furnish all the required details through E-proceeding facility. Thereafter, notice u/s 142(1) of the Act along with detailed questionnaire was issued on 01.06.2020 and was duly served on the assessee through email. The assessee had made compliance to the above notice on 16.06.2020 and 06.07.2020. Thereafter the case was transferred to the AO-Regional e-Assessment Unit on 13.10.2020. Notice u/s.142(1) of the Act was served upon the assessee on 13.11.2020. In response to the notice the assessee made compliance on 27.11.2020 & 28.11.2020. The Page | 2

ITA No.834/Rjt/2025 Shri Chamunda Credit Co Op Society Ltd assessee is a Co-Operative Credit Society registered under The Gujarat Co- operative Society Act and engaged in the business activities of providing credit facilities to its members. The submissions/explanations filed by the assessee have been duly considered. On verification of details filed along with the return of income, computation of income and also details submitted by the assessee during the course of assessment proceedings, it was noticed that the assessee has claimed deductions of Rs.88,95,000/- under Section 80P(2)(a)(i) of the Act in respect of different activities being carried out by it. Further, it was noticed that during the year under consideration, the assessee has fixed deposits and saving accounts with various Co-operative Banks and Nationalized Banks and has also earned interest and dividend income from investment in shares. The amount of interest received from Co-operative Banks and Nationalized Banks is shown at Rs.28,63,091/- and total amount of Rs.43,200/- has been shown as dividend from investment in shares of Shree Rajkot District Co-operative Bank Ltd. and Shree Rajkot Jilla Sahkari Prakashan and Mudranalay Ltd. and all the above amount has been credited in the Profit and Loss account. The assessee has prepared a common Income and Expenditure account for the year ended 31.03.2018. From above it is evident that surplus fund with the society had been invested in financial instruments, only with the intent of earning further higher returns on them. The soul of any cooperative society is its non-profit making intentions, however here, the assessee deviates and contradicts from the same. The assessee had also invested in shares and fixed deposits with the Co-operative/Nationalized Banks and had earned dividend income and interest income. Fixed deposits, Shares and securities, mutual funds, etc. are various types of financial instruments for investment. Thus any income earned by making investments in such financial instruments will not constitute as business income of the assessee as the assessee is an Co-operative society and as it is not the business activities of the assessee and hence such income cannot be allowed u/s 80P2(a)(i). Further, the very basis of functioning of any co-

ITA No.834/Rjt/2025 Shri Chamunda Credit Co Op Society Ltd operative society would be the principle of mutuality. If we go through the principle of mutuality, the three important basic conditions of the Principle are as under: 1) There must be a complete identity between the contributors and participators. 2) The actions of the participators and contributors must be in furtherance of the mandate of the association. 3) There must be no scope of profiteering by the contributors from a fund made by them which could only be expended or returned to themselves. However, all the above conditions are not satisfied in the case. Here, income is generated by parking surplus funds in FD, dividends etc. of nationalized and cooperative banks. Thus, parking of such fund is not a mandatory business obligation for the cooperative society but is rather parked to earn better profits. Thus, there is an element of profiteering in the activities of co-operative society while earning interest at higher rates from the surplus. Therefore, it will form part of its general reserve fund.

ITA No.834/Rjt/2025 Shri Chamunda Credit Co Op Society Ltd taxed u/s. 56 of the Act. In view of the aforesaid discussion, it is held that the income by way of interest of Rs.19,69,611/-earned on investments with Co- operative Banks, interest of Rs.8,93,480/- earned on investments with Nationalized banks and dividend income of Rs.43,200/- totaling to Rs.29,06,291/- earned by the assessee during the year under consideration are not business receipts as claimed by the assessee and hence are not eligible for deductions under section 80P(2)(a)(i) of the Act and it is held to be income under the head of 'income from other sources' u/s 56 of the Act which is taxed as such. In view of the above, deduction amounting to Rs.29,06,291/- claimed by the assessee u/s 80P of the Act is disallowed and the same is added to the total income of the assessee as 'Income from other sources'. Accordingly, penalty proceedings u/s 270A of the Act is separately initiated for under reporting income in consequence of misreporting of income. Subject to the above and after taking in to consideration details available on record and detail filed during the course of assessment proceedings, total income of the assessee is computed as under:

“I have carefully considered the facts of the case, contention of the appellant, case laws relied on and order passed by the AO. According to the assessing Officer interest income received from Co-operative Bank and Dividend on shares of Co- operative bank is not income from business. Therefore, according to the AO the said income is treated as income from other sources. Therefore, deduction u/s80(P)(2)(ai) was not allowed by the AO. However, the appellant has claimed deduction u/s80(P). As per section 80(P)(2)(d) any interest income received by a Co-operative Society from a Co-operative bank (Co-operative Society) is allowable as deduction. The assesse has relied on the judgement of Thorapadi Urban Co-operative Credit Society Ltd. Vs. ITO W.P.Nos. 11172, 11174, 11177 and 11180 of 2023 dated 10.10.2023 of Madras High Court, wherein it is clearly held that appellant Co-

ITA No.834/Rjt/2025 Shri Chamunda Credit Co Op Society Ltd operative Society is entitled to avail the benefit of Section 80P(2)(d) in respect of income received from another Co-operative Society. The main issue is to decide in the present case is as to whether the petitioner Co- operative Society is entitled for a deduction for the interest income received from the Co-operative Bank. It would be appropriate to extract hereunder the relevant portion of Section 80P(2)(d). "80 P. Deduction in respect of income of co-operative societies: (1) (2) The sums referred to in sub-section (1) shall be the following, namely:- (a) to (c) (d) "in respect of any income by way of interest or dividends derived by the co- operative society from its investment with any other co-operative society, the whole of such income" A reading of the above said provision makes it clear that in the event if any Co- operative Society derived income by way of interest from investment made in any other Co-operative Society the whole such interest is eligible for deduction. Now the issue is as to whether the Co-operative Bank would fall within the purview of the term 'Co-operative Society. In the present case, the petitioner produced a document to show that the Co-operative Bank, where they have made investments was registered under the Tamil Nadu Co-operative Societies Act, 1983 on 20.5.2003. In this regard, he also produced a copy of the Certificate of Incorporation of the said Co-operative Bank. Therefore, it is clear that the investment made by the petitioner is a Co-operative Bank registered under the Co-operative Societies Act. The Income Tax Act, 1961 has also defined 'Co-operative Society' under Section 2(19) as follows: "2(19). "Co-operative society" means a co-operative society registered under the Co-operative Societies Act. 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies. Similarly dividend income from shares of a Co-operative bank (Co-operative Society). The details in respect have been provided by the appellant however out of the total Interest of Rs.28,63,091/- an amount of Rs.8,93,480/- is from State Bank of India which is not a Co-operative Society (Co-operative Bank). The said interest of Rs.8,93,480/- is not eligible for deduction u/s80(P)(2)(2d)”.

ITA No.834/Rjt/2025 Shri Chamunda Credit Co Op Society Ltd assessee submitted that the addition sustained by the Ld. CIT(A) is a disputed issue however since the money pertains to the Members, therefore deduction should be allowed to the assessee under section 80P (2) (d) of the Act, in respect of interest of an amount of Rs.8,93,480/-, which is received from the State Bank of India, which is not a Co-operative Society or Co-operative Bank. On the other hand, Ld. DR for the revenue submitted that there is no infirmity in the order passed by the Ld. CIT(A). The Ld. CIT(A) has given reasonable relief to the assessee and since the assessee is not eligible to claim deduction under section 80P (2) (d) of the Act, in respect of interest of Rs.8,93,480/-, which is received from the State Bank of India, and the State Bank of India is a government bank and it is neither a Co-operative Society nor Co-operative Bank, hence, appeal of the assessee should be dismissed. I note that assessee received interest of Rs.8,93,480/-, from the State Bank of India, which is neither a Co-operative Society nor Co-operative Bank, therefore, I find merit in the arguments advanced by the learned DR for the Revenue, as the said interest of Rs.8,93,480/- is not eligible for deduction u/s 80(P)(2)(d) of the Act. Hence, I dismiss the appeal of the assessee.

Order is pronounced in the open Court on 02/07/2026.

SSSd/- [ Dr. Arjun Lal Saini ] लेखा सद�य/Accountant Member Rajkot Date: 02/07/2026 आदेश की �ितिलिप अ�ेिषत/ Copy of the order forwarded to :  अपीलाथ�/ The Assessee  ��थ�/ The Respondent  आयकर आयु�/ CIT  आयकर आयु�(अपील)/ The CIT(A) Page | 7

ITA No.834/Rjt/2025 Shri Chamunda Credit Co Op Society Ltd  िवभागीय �ितिनिध, आयकर अपीलीय आिधकरण, राजकोट/ DR, ITAT, RAJKOT  गाड� फाईल/ Guard File

By Order

Assistant Registrar/Sr. PS/PS ITAT, Rajkot