MARKANJA PRIMARY AGRICULTURAL CREDIT CO-OPERATIVE SOCIETY LIMITED,SULLIA vs. INCOME TAX OFFICER, PUTTUR, MANGALURU

ITA 678/BANG/2026Status: DisposedITAT Bangalore29 September 2026AY 2018-1910 pages
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What were the facts?

The assessee, Markanja Primary Agricultural Credit Cooperative Society Limited, filed appeals for assessment years 2017-18 and 2018-19 against orders of the CIT(A) dated 24 December 2025, which upheld the Income Tax Officer's assessments. The original assessments were made under section 143(3) on 18 December 2019 for AY 2017-18 and 19 March 2021 for AY 2018-19. The assessee, a cooperative society registered under the Karnataka Co-operative Societies Act, 1959, provides credit facilities to its members. For AY 2017-18, it declared a total income of ₹17,150 and claimed a deduction of ₹51,54,539 under section 80P. The Assessing Officer disallowed the deduction under section 80P, treated interest income of ₹17,30,111 as income from other sources, and disallowed provisions totalling ₹39,20,727 for interest payable, audit fees, and interest due to the District Co-operative Bank. This resulted in an assessed total income of ₹90,92,470. The CIT(A) upheld these disallowances.

What did the Tribunal hold?

The Tribunal held that the interest income earned by the assessee cooperative society on funds temporarily deposited with banks is attributable to its business of providing credit facilities to its members and is therefore eligible for deduction under section 80P(2)(a)(i). The Tribunal relied on the Karnataka High Court's decision in Tumkur Merchants Souharda Credit Co-operative Ltd. v. ITO, which held that interest earned on such deposits is attributable to the business and not a separate business. The Tribunal distinguished the Supreme Court's decision in Totgars Co-operative Sale Society Ltd. v. ITO, noting that the funds were not payable back to members. The Tribunal also noted that the assessee made no specific claim under section 80P(2)(d), making that provision inapplicable. Regarding the provisions for expenses, the Tribunal held that they gave rise to a corresponding charge in the profit and loss account, were not contingent, and were related to the assessee's business. Even if disallowed, any disallowance would increase profits, leading to a corresponding deduction under section 80P. Consequently, the Tribunal directed the Assessing Officer to allow deduction under section 80P(2)(a)(i) for the assessee's entire income attributable to the business, including the interest income. Grounds related to section 80P(2)(d) were dismissed as no claim was made. The grounds concerning interest under sections 234B and 234C were dismissed as consequential. The appeals were partly allowed.

What were the issues?

1. Whether the assessee cooperative society is entitled to a deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961, on its entire income, including interest income from cooperative banks and scheduled banks, when it transacted with nominal members and its investments were made from reserve and statutory funds. - Assessee's contention: The decision relied upon by the AO was inapplicable. Its members belonged to different classes, held their own capital, and the State Government was an investor. The interest income was profit attributable to the business of providing credit facilities to members, and the jurisdictional Karnataka High Court had decided this in its favour. The provisions were made in accordance with co-operative society guidelines, were not contingent, and were allowable expenditure. - Revenue's contention: The orders of the lower authorities, which denied the deduction, were supported. 2. Whether the assessee is entitled to a deduction under section 80P(2)(d) for interest income received from cooperative banks and dividend income from investments in scheduled banks and cooperative banks that are not cooperative societies. - Assessee's contention: The AO and FAA erred in not granting the benefit of deduction u/s 80P(2)(d) for interest received from cooperative banks. - Revenue's contention: Not recorded. 3. Whether the provisions totalling ₹39,20,727 for interest on borrowed funds, deposits, and audit fees are allowable as expenditure under section 36(1)(iii) and section 43B of the Income Tax Act, 1961. - Assessee's contention: The provisions were made in accordance with applicable co-operative society guidelines for the relevant year, were not contingent, and were therefore allowable expenditure. The interest accrued on term loans and deposits was subsequently paid before the filing of the return of income and qualified for deduction under Section 36(1)(iii), complying with Section 43B. - Revenue's contention: Not recorded. 4. Whether interest under sections 234B and 234C of the Income Tax Act, 1961, was wrongly levied. - Assessee's contention: The FAA and AO erred in law by levying interest u/s 234B and 234C of the Act. - Revenue's contention: Not recorded.

Which sections of the Income-tax Act were involved?

Section 80P,Section 80P(2)(a)(i),Section 80P(2)(d),Section 36(1)(iii),Section 43B,Section 234B,Section 234C,Section 143(3),Section 56

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, BANGALORE

Before: SHRI PRASHANT MAHARISHI & SHRI KESHAV DUBEY

PER SHRI PRASHANT MAHARISHI, VICE PRESIDENT

1.

These appeals by the same assessee concern assessment years 2017–18 and 2018–19. By separate orders dated 24 December 2025, the learned CIT(A) dismissed the assessee’s appeals against the assessments made by the Income Tax Officer, Ward 1, Puttur (the learned AO), under section 143(3) of

The order continues below.

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