GOKHALE EDUCATION SOCIETYS NASIK CENTRE EMPLOYEES CO OP CREDIT SOC LIMITED,NASHIK vs. ITO WARD 1(1), NASHIK

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ITA 2068/PUN/2026Status: DisposedITAT Pune30 October 2026AY 2019-209 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the CPC does not have the jurisdiction to disallow any claim under Section 143(1) of the Act. Regarding the eligibility of interest income for deduction under Section 80P(2)(a)(i), the Tribunal referred to the Supreme Court's decision in CIT vs. Karnataka State Co-operative Apex Bank, which held that income derived from funds placed with banks to carry on banking business is eligible for deduction. It also cited the Andhra Pradesh and Telangana High Court's decision in Vavveru Co-operative Rural Bank Ltd., which distinguished the Totgar's case and held that interest income earned by investing income derived from business and profession by a cooperative society is eligible for deduction. Furthermore, the Tribunal noted the Kerala High Court's decision in Pr. CIT vs. Sahyadri Co-operative Credit Society Ltd., which held that interest earned on deposits of surplus profit in permitted banks is an enhancement of profits and gains attributable to the main business and does not lose its character. Therefore, the Tribunal directed the Assessing Officer to allow the deduction under Section 80P(2)(a)(i) as claimed by the assessee. The grounds of appeal were allowed.

What were the facts?

The assessee, Gokhale Education Society’s Credit Society Limited, filed its return of income for Assessment Year 2019-20 on September 22, 2019, claiming a deduction of Rs. 1,82,99,503/- under Section 80P(2)(a)(i) of the Income Tax Act, 1961. The Central Processing Centre (CPC), in its order under Section 143(1), restricted this deduction to Rs. 1,12,96,620/- without providing a reason. The assessee's subsequent rectification request was rejected. An appeal to the Additional/Joint Commissioner of Income Tax (Appeals) was also dismissed. The assessee is a cooperative credit society registered under the Maharashtra Cooperative Societies Act, 1960.

What were the issues?

1. Whether the CPC had the jurisdiction to restrict the deduction claimed under Section 80P(2)(a)(i) in an order under Section 143(1)? 2. Whether interest income earned by the assessee from deposits with nationalized banks is eligible for deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961? Assessee's Contentions: The assessee argued that the CPC lacked the jurisdiction to restrict the deduction under Section 143(1). It further contended that the interest income earned from deposits with banks is eligible for deduction under Section 80P(2)(a)(i), as it arises from its business activities. The assessee relied on the Supreme Court decision in CIT vs. Karnataka State Co-operative Apex Bank and the Andhra Pradesh and Telangana High Court decision in Vavveru Co-operative Rural Bank Ltd. Revenue's Contentions: The Revenue relied on the order of the Joint Commissioner (Appeals), which had confirmed the disallowance. The Revenue's specific arguments regarding the ineligibility of interest income were not explicitly detailed in the judgment, beyond its reliance on the appellate order.

Which sections of the Income-tax Act were involved?

Section 80P(2)(a)(i),Section 143(1),Section 154,Section 250,Section 139(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, PUNE BENCHES “SMC” :: PUNE

Before: DR.DIPAK P. RIPOTE & SHRI VINAY BHAMORE

For Appellant: Shri Pramod Shingte –AR
For Respondent: Smt. Sonal L Sonkavde – Addl.CIT(DR)
Hearing: 01/10/2026Pronounced: 30/10/2026

PER DR. DIPAK P. RIPOTE, AM: This is an appeal filed by assessee against the order of Addl./Joint Commissioner of Income Tax (Appeals),Bhubaneshwar u/s 250 of the Income Tax Act 1961, for AY 2019-20 dated 12/02/2026, emanating from Rectification order u/s 154 of the Income tax Act 1961, dated 3/2/2021. ITA No.2068/PUN/2026 [A]

2.

The assessee has raised following grounds :

3.

We have heard both the parties and perused the records. The Ld.AR filed paper book and took us through the return of income filed by the assessee, copy of Order u/s 143(1) of the Act. Ld.AR submitted that the assessee is a cooperative credit society duly registered under Maharashtra Cooperative Societies Act 1960. Ld.AR submitted that the assessee had claimed deduction u/s 80P(2)(a)(i) of the Act of Rs.1,82,99,503/-.Ld.AR submitted that the CPC u/s 143(1) restricted it to Rs.1,12,96,620/- without any valid reason. Ld.AR submitted that CPC had no jurisdiction to restrict it.

4.

Ld.DR relied on the order of the Jt.CIT(A).

5.

In this case the assessee had filed Return of Income on 22/09/2019 for AY 2019-20 and due date for filling return of income was 30/09/2019. Thus, the Return of Income was filed within time u/s 139(1) of the Act. The CPC in the order u/s 143(1) restricted the claim of the assessee for deduction to Rs.1,12,96,620/-. The relevant para is as under :

6.

Assessee filed rectification request which was rejected. The assessee filed an appeal before Ld.CIT(A). The relevant paragraph of the Order u/s250 of the Act is as under :

7.

Thus the First Appellate Authority dismissed the appeal filed by the assessee .In this case we have verified the Return of Income filed by the assessee. The Assessee had claimed deduction u/s 80P(2)(a)(i) of the Act. The relevant page is scanned as under :

8.

The CPC do not have any jurisdiction to disallow any such claim u/s.143(1) of the Act.

9.

Ld. First Appellate Authority has confirmed the disallowance stating that interest income earned from Nationalised Banks is not eligible for deduction u/s.80P(2)(a)(i) of the Act.

10.

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 ?"

11.

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.

12.

The Hon’ble Supreme Court in the above case answered the question in favour of Assessee and against Revenue.

13.

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.

14.

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 Totagar’s 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 Co-operative 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".

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.

15.

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.

16.

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 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 (emphasis supplied)

17.

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 8 its members, from funds deposited with Cooperative Bank or Bank is eligible for deduction u/s 80P(2)(a) (i) of the Act.

18.

Accordingly, we direct Assessing Officer to allow deduction u/s 80P(2)(a) (i) of the Act as claimed by the assessee in the return of income. Accordingly, Grounds of appeal raised by the assessee are allowed.

19.

In the result, the appeal filed by the assessee is allowed.

Order pronounced in the open Court on 30th October, 2026. VINAY BHAMORE Dr.DIPAK P. RIPOTE JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; दिन ांक / Dated : 30th October, 2026 Satish

आदेशकीप्रतिलिपिअग्रेषित / Copy of the Order forwarded to : अपीलार्थी / The Appellant. 1. प्रत्यर्थी / The Respondent.

2.3.

The CIT(A), concerned.

4.

The Pr. CIT, concerned. विभागीयप्रतिनिधि, आयकर अपीलीय अधिकरण, “एस एम सी” बेंच, पुणे / DR, ITAT, 5. “SMC” Bench, Pune. गार्डफ़ाइल / Guard File. 6. आदेशानुसार / BY ORDER, Sunil Kumar Kumar More //// More

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