STATE BANK OF INDIA EMPLOYEES CO-OP. CR. SOCIETY LTD.,JALGAON vs. ITO WARD 1(4) JALGAON, JALGAON

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH: SMC BEFORE SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER I.T.A.No.609 & 610/PUN/2026 (Assessment Year :2020-21 & 2018-19 ) State Bank Of India ITO Ward 1(4), Employees Co-op, Credit Income Tax Office, Society Limited, vs. Old B J Market, SBI Main Branch, Jalgaon-425001, SBI Chowk, Maharashtra. Jalgaon-42001, Maharashtra. PAN:AABAS7240L (Appellant) (Respondent)

For Assessee : Shri.Vinay V Kawdia.AR (Virtual) For Revenue : Shri. Manish Mehta.JCIT. Sr.DR

Date of Hearing : 29.06.2026 Date of Pronouncement : 30.06.2026 ORDER PER PAVAN KUMAR GADALE, JUDICIAL MEMBER These two appeals are filed by the assessee against the separate orders of NFAC/CIT(A) passed u/se 250 of the Act. The assessee has raised the grounds of appeal challenging the action of the CIT(A) in sustaining the denial of claim of deduction u/sec80P(2)(a)(i) of the Act made by the assessing officer in respect of interest income from scheduled banks. 2. Since the issues involved in these appeals are common, identical and similar and for the sake of convenience, shall take up ITA 610/PUN/2026 for the Assessment Year 2018-19 as a lead case and facts narrated.

Whereas the Ld.AR relied on the decision of The Honble Income Tax Tribunal in ITA.No.1596&1597/PUN/2025 dated 08-01-2026 – Shree Sant Savta Gramin Bigar Seti Sahakari Pathasanstha Maryadit. Vs Asst IT Delhi dealt at Para 8 to 9.3 of the order on the subject matter of interest on deposits with nationalized banks as under:

“8. It is an admitted fact that Assessee had earned interest income of Rs.6,48,075/- from State Bank of India and Bank of India. The Assessing Officer had not allowed deduction claimed under section 80P(2)(a)(i) of the Act, on the said interest income. This issue is squarely covered in favour of the Assessee.

8.1 The Hon’ble High Court of Andhra Pradesh and Telangana in the case of Vavveru Co- operative Rural Bank Ltd. [2017] 396 ITR 371 analysed the provisions of Section 80P, succinctly distinguished the decision of Hon’ble Supreme Court in the case of Totagars Cooperative Sale Society, and held as under

: Quote,“8. Therefore, the real controversy arising in these writ petitions is as to whether the income derived by the petitioners by way of interest on the fixed deposits made by them with the banks, is to be treated as profits and gains of business attributable to any one of the activities indicated in sub-clauses (i) to (vii) of clause (a) of sub-section (2) of section 80P or not. 9. While the petitioners place strong reliance upon a decision of the Division Bench of this court in CIT v. Andhra Pradesh State Cooperative Bank Ltd. [2011] 12 taxmann.com 66/200 Taxman 200/336 ITR 516, the Revenue places strong reliance upon the decision of the Supreme Court in Totgar's Co-operative Sale Society Ltd. v. ITO [2010] 188 Taxman 282/322 ITR 283. …………………… 34. The case before the Supreme Court in Totgar's Co-operative Sale Society Ltd.'s case (supra) was in respect of a co-operative credit society, which was also marketing the agricultural produce of its members. As seen from the facts disclosed in the decision of the Karnataka High Court in Totgars, from out of which the decision of the Supreme Court arose, the assessee was carrying on the business of marketing agricultural produce of the members of the society. It is also found from paragraph-3 of the decision of the Karnataka High Court in Totgar's Co- operative Sale Society Ltd.'s case (supra) that the business activity other than marketing of the agricultural produce actually resulted in net loss to the society. Therefore, it appears that the assessee in Totgars was carrying on some of the activities listed in clause (a) along with other activities. This is perhaps the reason that the assessee did not pay to its members the proceeds of the sale of their produce, but invested the same in banks. As a consequence, the investments were shown as liabilities, as they represented the money belonging to the members. The income derived from the investments made by retaining the monies belonging to the members cannot certainly be termed as profits and gains of business. This is why Totgar's struck a different note.

8.2 Thus, the Hon’ble High Court of AP & TS held that Interest Income earned by investing Income derived from Business of providing credit facilities, Loans by a Co-Operative Society was eligible for deduction u/sec.80P(2)(a) of the Act.

Quote “7. On a consideration of the rival submissions, we are of the view that for the reasons stated hereinafter, the question of law that arises for consideration before us must be answered against the Revenue and in favour of the assessee. The permissible deduction that is envisaged under Section 80P(2) of the I.T. Act for a Co-operative Society that is assessed to tax under the head of 'Profits and Gains of Business or Profession' is of the whole of the amount of profits and gains of business attributable to any one or more of its activities. Thus, all amounts as can be attributable to the conduct of the specified businesses by a Co-operative Society will be eligible for the deduction envisaged under the statutory provision. The question that arises therefore is whether, merely because the assessee chooses to deposit its surplus profit in a permitted bank or financial institution, and earns interest on such deposits, such interest would cease to form part of its profits and gains attributable to its business of providing credit facilities to its members? In our view that question must be answered in the negative, since we cannot accept the contention of the Revenue that the interest earned on those deposits loses its character as profits/gains attributable to the main business of the assessee. It is not as though the assessee in the instant case had used the surplus amount [the profit earned by it] for an investment or activity that was unrelated to its main business, and earned additional income by way of interest or gain through such activity. The assessee had only deposited the profit earned by it in the manner mandated under Section 63 of the Multi-State Cooperative Societies Act, or permitted by Section 64 of the said Act. In other words, it dealt with the surplus profit in a manner envisaged under the regulatory Statute that regulated, and thereby legitimized, its business of providing credit facilities to its members. Under those circumstances, if the assessee managed to earn some additional income by way of interest on the deposits made, it could only be seen as an enhancement of the profits and gains that it made from its principal activity of providing credit facilities to its members. The nature and character of the principal income [profits earned by the assessee from its lending activity] does not change merely because the assessee acted in a prudent manner by depositing that income in a bank, instead of keeping it in hand. The provisions of the I.T. Act cannot be seen as intended to discourage prudent financial conduct on the part of an assessee.” Unquote

9.1 Thus, Hon’ble Kerala High Court has held that the character of income does not change. The Hon’ble Kerala High Court held that interest earned from deposits in permitted banks will be eligible for deduction u/s.80P of the Act. The Hon’ble Kerala High Court’s decision is dated 04.09.2024 means, after the decision of Hon’ble Supreme Court in the case of Totagar’s Co- operative Sales Society Ltd.

9.2 Accordingly, we hold that assessee is eligible for deduction u/s.80P of the Act, on the interest income earned by the assessee from Co-operative Banks and Nationalized Banks.

9.3 Respectfully following the judicial precedent, we direct the Assessing Officer to allow deduction u/sec.80P of the Act on the interest earned. Accordingly, Ground No.1 of the Assessee is allowed. “