BANGANGA NAGARI SAHAKARI PAT SANSTHA MARYADIT OJHAR (MIG),NASHIK vs. THE INCOME TAX OFFICER, WARD - 1(1), NASHIK., NASHIK

The assessee has raised the following grounds of appeal : “1. On the basis of facts, in the circumstances of the case and as per law, the CIT(A) has erred in confirming the addition of Rs. 47,45,000/- made by the AO by invoking the provisions of section 68 of the Act, particularly when the provisions of section 68 are not applicable the cash deposited in bank account. 2. On the basis of facts and in the circumstances of the case, the CIT(A) is not justified in confirming the addition of Rs. 47,45,000/- on account of the cash deposited in bank account during demonetisation period, particularly when the impugned

The Ld. AR filed paper book and invited our attention to the paper book. With reference to ground regarding addition u/s 68 of the Act, the Ld. AR submitted that in the assessment order at para 05, the Assessing Officer (AO) has admitted that the assessee had submitted the details that cash deposited in the bank account was belonging to the members. The list of the members was provided along with address during the assessment proceedings. The Ld. AR further submitted that the assessee is only a custodian and not the owner of the money. Therefore, addition u/s 68 of the Act cannot be made in the case of the assessee once the details of the members of were filed. The Ld. AR invited our attention to page 116 of the paper book which was The Specified Bank Notes (Cessation of Liabilities) Act, 2017. The Ld. AR also invited our attention to Notification No. 3408 dated 08.11.2016 which is at page 120 of the paper book. The Ld. AR relied on the decision of ITAT, Pune in the case of Banganga Nagari Sahakari Patsanstha Maryadit Vs. ITO in ITA Nos. 1788 & 1789/PUN/2025 for AYs. 2022-23 &

The Ld. DR vehemently opposed the contention of the Ld. AR. The Ld. DR submitted that the assessee was not permitted to accept the de-notified currency notes after 08.11.2016. Therefore, the Assessing Officer was right in making addition u/s 68 of the Act. For section 80 of the Act, the Ld. DR relied on the decisions of Quepem Urban Co-operative Credit Society Ltd. Vs. Assistant Commissioner of Income Tax, (2015) 377 ITR 272 (Bombay) and in the case of Brahmarshi Co-op. Credit Society Ltd. Vs. Assistant Commissioner of Income Tax, (2025) 170 taxmann.com 336 (Gujarat).

We have heard both the parties and perused the records. In this case, the assessee had filed return of income for AY 2017-18 on 30.10.2017 declaring total income at Rs.Nil. The Assessing Officer noted that the assessee had deposited Rs.47,45,100/- in the form of de-monetized currency. The dates and amounts are reproduced here as under : Date Amount 10/11/2016 27,32,000/- 22/11/2016 5,000/- 23/11/2016 9,100/- 24/11/2016 11,000/-

Respectfully following the above decision of the ITAT, Pune, we hold that no addition can be made u/s 68 of the Act. Accordingly, we direct the AO to delete the addition of Rs.47,45,000/-.

The AO has denied the assessee’s claim of deduction u/s 80P(2)(a)(i) of the Act for Rs.3,80,340/- which was interest earned from IDBI Bank. The only contention of the AO is that the assessee has earned interest from nationalized bank and hence not eligible for deduction u/s 80P(2)(a)(i) of the Act. The AO relied on the decision in the case of Totgars’ Co-operative Sale Society Ltd. Vs. ITO (2010) 188 Taxman 282 (SC).

We will discuss various decisions to decide the issue before us.

The Hon’ble Supreme Court in the case of CIT vs. Karnataka State Co-operative Apex bank [2001] 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 ?" 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. The Hon’ble Supreme Court in the above case answered the question in favour of Assessee and against Revenue. 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.

The Hon’ble High Court of Andhra Pradesh and Telangana in the case of Vavveru Co-operative Rural Bank Ltd. [2017] 396 ITR 371 analyzed the provisions of Section 80P, succinctly distinguished the decision of Hon’ble Supreme Court in the case of Totagar 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.

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 Vs. Sahyadri Co-operative Credit Society Ltd., [2024] 301 Taxman 36 (Kerala) 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 Co-operative Societies Act, or permitted by Section 64 of the said Act. In other words, it dealt with

Similarly, the Ld. AR submitted case laws wherein the similar view has been taken by the Hon’ble High Court of Telangana in the case of Ismailia Co-operative Credit Society Ltd. Vs. ACIT, (2026) 186 taxmann.com 1136 (Telangana) held as under : “28. This Bench is of the considered view that the findings given by the Assessing Officer, the Commissioner and the Appellate Tribunal do not hold good and that the appellant is prima facie entitled to the deduction under Section 80P(2)(a) of Income Tax Act. Accordingly, the substantial question of law is answered in favour of the appellant and against the respondent.”

What emerges from the above referred decisions of Hon’ble Supreme Court and Hon’ble High Courts is that interest earned by Co-operative 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 vs. Dhanshri Multi State Cooperative Society Ltd in ITA 463/PUN/2024, Arth Nagari Sahakari Patsanstha Limited vs ITO Arth Nagari Sahakari Patsanstha Limited.

The Ld. DR has relied on the decision of Quepem Urban Co-operative Credit Society Ltd. (supra) which is distinguishable on facts. The Ld. DR also relied on the decision of Brahmarshi Co-op. Credit Society Ltd. (supra), however, we have already reproduced the decisions of Hon’ble Supreme Court, Hon’ble High Courts of Andhra Pradesh and Kerala. When two contrary decisions are available of two different High Courts on the same issue, then decisions favourable to the assessee shall be considered.

Since, the facts of the present case are identical to the facts of the cases referred above. Hence, respectfully following the judicial precedent, we hold that assessee is eligible for deduction u/s 80P(2)(a)(i) of the Act on the Interest Income earned as mentioned above. Accordingly, the AO is directed to delete the addition of Rs.3,80,340/-.

In the result, appeal of the assessee is allowed.