SHREE GHADGENATH GRAMMIN BIGARSHETI SAHAKARI PATSANSTHA MARYADIT ,KOLE vs. INCOME TAX OFFICER, WARD 1 , SATARA

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “SMC”, PUNE BEFORE SHRI R. K. PANDA, VICE PRESIDENT AND SHRI VINAY BHAMORE, JUDICIAL MEMBER आयकर अपील सं. / ITA No.1207/PUN/2026 िनधा�रण वष� / Assessment Year : 2018-19 Shree Ghadgenath Gramin Vs. ITO, Ward-1, Satara. Bigarsheti Sahakari Patsanstha Maryadit, A/p. Kole, Kole, Kole, Karad- 415110. PAN : AAFAS9168R Appellant Respondent Assessee by : Shri Umesh Kumar Mali Revenue by Shri Vaibhav Madhavrao Dhere : (Virtual) Date of hearing : 23.07.2026 Date of pronouncement : 06.10.2026 आदेश / ORDER PER VINAY BHAMORE, JM: This appeal filed by the assessee is directed against the order dated 27.08.2024 passed by Ld. CIT(A)/NFAC for the assessment year 2018-19. 2. There is delay in filing of the present appeal. After going through the application for condonation of delay, we are satisfied with the reasons mentioned in the application for condonation of delay duly supported by an affidavit that the applicant was

2 ITA No.1207/PUN/2026 prevented by sufficient & reasonable cause for not filing the appeal within the prescribed time limit. After hearing Ld. DR, we condone the delay and proceed to adjudicate the appeal. 3. The appellant has raised the following grounds of appeal :- “GROUND NO. 1 - Disallowance of Deduction U/s 80P of Rs. 27,58,575/- On the facts and circumstances of the case, the learned AO erred in disallowing the entire deduction of Rs. 27,58,575/- claimed u/s 80P without properly considering the nature of income and the evidences furnished. 2.1) The appellant earned interest income of Rs. 1,75,87,455/- from investments in Co-operative Banks and Societies, which is eligible for deduction u/s 80P2(a)(i) as well as 80P(2)(d). However, the AO not only disallowed this deduction but also wrongly included net profit of Rs. 27,58,575/- earned from loans to members. Prayer: The appellant prays that the disallowance of deduction u/s 80P(2)(d) and 80P(2)(a)(i) amounting to Rs. 27,58,575/- be quashed and the rightful deduction be allowed. Ground No.2 The appellant craves leave to add, alter, amend, or delete any of the above grounds of appeal.” 4. Facts of the case, in brief, are that the assessee is a credit cooperative society duly registered under the Maharashtra Cooperative Societies Act and is engaged in the activity of providing credit facilities to its members and accepting deposit from them. The assessee filed its return of income on 04.10.2018 by declaring income of Rs.Nil after claiming deduction u/s 80P2(a)(i) of the IT Act. The case was selected for scrutiny and notices u/s 143(2) & 142(1) respectively were issued to the

3 ITA No.1207/PUN/2026 assessee. The Assessing Officer by relying on the judgement of Hon’ble Supreme Court in the case of Totgar’s Co-operative Sales Society Ltd. vs. Income-tax Officer, Karnataka [2010] 188 Taxman 282 (SC) disallowed the deduction of Rs.27,58,575/- claimed by the assessee u/s 80P(2)(a)(i) of the IT Act and accordingly, vide order dated 31.03.2021 completed the assessment proceedings u/s 143(3) of the IT Act by determining the income of the assessee at Rs.27,58,575/- as against the income of Rs.Nil returned by the assessee. The above assessed income includes addition of Rs.27,58,757/- being disallowance of deduction u/s 80P(2)(a)(i) of the IT Act. 5. Being aggrieved with the above assessment order, the assessee preferred an appeal before Ld. CIT(A)/NFAC. Not being satisfied with the reply and submissions of the assessee, Ld. CIT(A)/NFAC dismissed the appeal and confirmed the order passed by the Assessing Officer. 6. It is the above order against which the assessee is in appeal before this Tribunal. 7. We have heard Ld. Counsels from both the sides and perused the material available on record including the paper book and copy of case laws furnished by the assessee. In this regard, we find that

4 ITA No.1207/PUN/2026 the issue of deduction u/s 80P(2)(a)(i) regarding interest income earned by credit cooperative society from its investments with other banks including nationalized bank and cooperative bank is no more res integra in the light of various decisions passed by Jurisdictional Pune ITAT including the decision of Income-tax Officer vs. Shree Ravalnath Cooperative Housing Finance Society Ltd. [2026] 184 taxmann.com 242 (Pune - Trib.)[05-03-2026] wherein the Tribunal following judgements in the case of Pr. CIT vs. Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd. [2023] 150 taxmann.com 173/293 Taxman 547 (SC), Pr. CIT vs. Annasaheb Patil Mathadi Kamgar Sahakari Pathpedhi Ltd [IT Appeal No. 933 of 2017, dated 14-10-2019], Vavveru Co- operative Rural Bank Ltd. vs. Chief CIT [2017] 88 taxmann.com 728 (Andhra Pradesh and Telangana), Pr. CIT vs. Sahyadri Co- operative Credit Society Ltd., distinguished the case of Totgar’s Co-operative Sales Society Ltd. relied on by the Assessing Officer & it was observed that the facts of Totgar’s Co-operative Sales Society Ltd. (supra) are completely different since Totgar’s Co- operative Sales Society Ltd. (supra) was also engaged in the activity of sale of agricultural produce therefore, it is not applicable to the facts of credit cooperative society which is engaged in

5 ITA No.1207/PUN/2026 banking business i.e. providing credit facilities to its members and accepting deposits from them and in the course of banking business have earned interest on its investments with other banks including nationalised banks. In the above case of Income-tax Officer vs. Shree Ravalnath Cooperative Housing Finance Society Ltd. [2026] 184 taxmann.com 242 (Pune - Trib.)[05-03-2026] the Tribunal dismissed the appeal filed by the Revenue by observing as under :- “14. In the case of the Assessee, it is an admitted fact that Assessee is a Co-operative Credit Society. Its business consists of providing credit facilities to its members. It has been submitted by Assessee before Assessing Officer and ld.CIT(A) that as per the Maharashtra Co- operative Society Act and Reserve Bank of India Guidelines, Assessee has to maintain certain fixed deposits. Therefore, in these facts and circumstances of the case, the interest earned by assessee on the fixed deposits is business income and hence, eligible for deduction u/s.80P(2)(a)(i) of the Act. 15. Hon'ble Supreme Court in the case of CIT v. Karnataka State Co- operative Apex Bank [2001] 118 Taxman 321/251 ITR 194 (SC) observed as under : Quote, "The question in appeal reads : "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the interest income arising from the investment made out of reserve fund is exempt under section 80P(2)(a)(i) of the Income-tax Act, 1961 ?" 16. While deciding the above question of Law raised by Revenue, the Hon'ble Supreme Court observed as under : Quote, " ............There is no doubt, and it is not disputed, that the assessee-co-operative bank is required to place a part of its funds with the State Bank or the Reserve Bank of India to enable it to carry on its banking business. This being so, any income derived from funds so placed arises from the business carried on by it and the assessee has not, by reason of section 80P(2)(a)(i), to pay income-tax thereon. The placement of such funds being imperative for the purposes of carrying on the banking business, the income derived therefrom would be income from the assessee's business " Unquote.

6 ITA No.1207/PUN/2026 17. The Hon'ble Supreme Court in the above case answered the question in favour of Assessee and against Revenue. 17.1 Thus, the proposition of law emanating from the above decision is that Interest earned from Funds deposited with State bank of India by Co-Operative Bank is business income and eligible for deduction u/s.80P(2)(a) of the Act. 18. The Hon'ble Bombay High Court in the case of Pr. CIT v. Annasaheb Patil Mathadi Kamgar Sahakari Pathpedhi Ltd [IT Appeal No. 933 of 2017, dated 14-10-2019] dismissed the appeal of the revenue on the following questions of law raised by the revenue : "The Revenue urges the following two questions of law for our consideration : (a) Whether on the facts and circumstances of the case and in law, the Tribunal is correct in holding that assessee is entitled to deduction u/s 80P(2)(a) and (d) of the IT Act, 1961 (b) Whether on the facts and circumstances of the case and in law, the Tribunal is right to allow the relief to the assessee by holding that the assessee being Co-operative Credit Society is not a Co-operative Bank hence entitled for deduction u/s 80P(4) of the I.T. Act despite the fact that the assessee is carrying on the banking business and has been categorized as Co-operative Bank / other Bank ?" 19. Revenue's SLP filed in the case of Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd (supra) was dismissed by Hon'ble Supreme Court vide order dated 20.04.2023, Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd (supra). 19.1 Thus, the issue is settled now that a cooperative society registered under a state cooperative society Act or Central Cooperative Society Act will not be considered as Bank unless it has received Banking License from RBI. Section 80P(4) shall not be applicable to Such Cooperative Credit Societies and such Cooperative Credit Societies will be entitled for deduction u/s 80P(2)(a) of the Act. When we read the above proposition of law laid down by Hon'ble Supreme Court along with the proposition of law laid down by Hon'ble Supreme Court in the case of Karnataka State Co-operative Apex Bank (supra) , the proposition of law emanating is that Interest earned by depositing Funds with banks by such Co-operative Credit Societies will be Business Income and will be eligible for deduction u/s 80P(2)(a) of the Act. 20. Same proposition of Law has been laid down by The Hon'ble High Court of Andhra Pradesh and Telangana in the case of Vavveru Co- operative Rural Bank Ltd. v. Chief CIT [2017] 88 taxmann.com 728/396 ITR 371 (Andhra Pradesh and Telangana). 21. The Hon'ble High Court of Andhra Pradesh and Telangana in the case of Vavveru Co-operative Rural Bank Ltd. (supra) analysed the provisions of Section 80P, succinctly distinguished the decision of Hon'ble Supreme Court in the case of Totgars, Co-operative Sale Society Ltd. (supra), and held as under : Quote,"8. Therefore, the real

7 ITA No.1207/PUN/2026 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. 35. But, as rightly contended by the learned senior counsel for the petitioners, the investment made by the petitioners in fixed deposits in nationalised banks, were of their own monies. If the petitioners had invested those amounts in fixed deposits in other co-operative societies or in the construction of godowns and warehouses, the respondents would have granted the benefit of deduction under clause (d) or (e), as the case may be. 36. The original source of the investments made by the petitioners in nationalised banks is admittedly the income that the petitioners derived from the activities listed in sub-clauses (i) to (vii) of clause (a). The character of such income may not be lost, especially when the statute uses the expression "attributable to" and not any one of the two expressions, namely, "derived from" or "directly attributable to".

8 ITA No.1207/PUN/2026 37. Therefore, we are of the considered view that the petitioners are entitled to succeed. Hence, the writ petitions are allowed, and the order of the Assessing Officer, in so far as it relates to treating the interest income as something not allowable as a deduction under section 80P(2)(a), is set aside."Unquote. 21 .1 Thus, Hon'ble High Court of AP & TS held that Interest Income earned by investing Income derived from Business and Profession by a Co-Operative Society was eligible for deduction u/s.80P(2)(a) of the Act. 22. In the case of Sahyadri Co-operative Credit Society Limited, the Sahyadri Co-operative Credit Society had deposited excess funds in the Banks or Institutions permitted by the Co-operative Societies Act. In that context, the Hon'ble Kerala High Court in the case of Pr. CIT v. Sahyadri Co-operative Credit Society Ltd. [2024] 166 taxmann.com 445/301 Taxman 36 (Ker) vide order dated 04.09.2024 has held as under : 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

9 ITA No.1207/PUN/2026 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 (emphasis supplied) 23. What emerges from the above referred decisions of Hon'ble Supreme Court and Hon'ble High Courts is that Interest earned by Cooperative Credit Society registered under state cooperative society Act, which is engaged in the business of providing credit facilities to its members, from funds deposited with Cooperative Bank or Bank is eligible for deduction u/s 80P(2)(a) (i) of the Act. Similar view has been taken by ITAT Pune Bench in the case of ITO v. Dhanshri Multi State Cooperative Society Ltd [IT Appeal No. 463 (Pune) of 2024, dated 13-6-2024]. Arth Nagari SahakariPatsanstha Limited Vs. ITO Arth Nagari Sahakari Patsanstha Limited. 24. In the result, appeal of the Revenue is dismissed.” 8. Respectfully following the above decision passed in the case of Income-tax Officer vs. Shree Ravalnath Cooperative Housing Finance Society Ltd. [2026] 184 taxmann.com 242 (Pune - Trib.)[05-03-2026], we find force in the arguments of Ld. counsel of the assessee that the reliance of the Assessing Officer on the case law of Totgar’s Co-operative Sales Society Ltd. (supra) is not correct and the assessee is entitled to claim deduction u/s 80P(2)(a)(i) of the IT Act with regard to the interest income earned by the assessee from its investments with other nationalised and cooperative banks being business income and accordingly, we

10 ITA No.1207/PUN/2026 deem it appropriate to set-aside the order passed by Ld. CIT(A)/NFAC and direct the Assessing Officer to allow assessee’s claim of deduction of Rs.27,58,575/- made u/s 80P(2)(a)(i) of the IT Act regarding interest income earned from its investments with nationalised and other banks. Thus, the grounds raised by the assessee are allowed. 9. In the result, the appeal filed by the assessee is allowed. Order pronounced on this 06th day of October, 2026. Sd/- Sd/- (R. K. PANDA) (VINAY BHAMORE) VICE PRESIDENT JUDICIAL MEMBER पुणे / Pune; �दनांक / Dated : 06th October, 2026. Sujeet/DOC Sujeet Kumar Digitally signed by Sujeet Kumar Sharma Sharma Date: 2026.10.08 10:56:06 आदेश क� �ितिलिप अ�ेिषत / Copy of the Order forwarded to : +05'30' अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The Pr. CIT concerned. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “SMC” ब�च, 4. पुणे / DR, ITAT, “SMC” Bench, Pune. गाड� फ़ाइल / Guard File. 5. आदेशानुसार / BY ORDER, // True Copy // Assistant Registrar आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune.