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Facts
The assessee, a cooperative society, claimed deduction under Section 80P(2)(d) for interest earned from investments in cooperative banks. The AO allowed this deduction after verification. However, the Ld. PCIT invoked Section 263, considering the interest income not eligible for deduction and treating the assessment order as erroneous.
Held
The Tribunal held that the AO had consciously taken a view to allow the deduction and that a mere difference of opinion between the AO and PCIT does not make the assessment order erroneous. Relying on Supreme Court judgments, the Tribunal found that the issue of deduction of interest income from investments in cooperative banks has been consistently decided in favor of the assessee.
Key Issues
Whether interest income earned by a cooperative society from investments in cooperative banks is eligible for deduction under Section 80P(2)(d) of the Income Tax Act, and if the PCIT can revise an assessment order based on a difference of opinion with the AO.
Sections Cited
263, 143(3), 144B, 80P, 80P(2)(d), 80P(4)
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Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: SHRI ANIKESH BANERJEE & SHRI PRABHASH SHANKAR
O R D E R Per Anikesh Banerjee (JM):
The instant appeal of the assesse was filed against the order of the Learned Principal Commissioner of Income-tax, Thane-1 [in short, ‘the Ld.PCIT] passed under section 263 of the Income-tax Act, 1961 [in short, “the Act”] for A.Y. 2020- 21, date of order 27/03/2025. The impugned order emanated from the order of the Assessment Unit, Income-tax Department [in short, “the Ld.AO”] passed under section 143(3) read with section 144B, date of order 20/09/2022.
2 ITA 3591/Mum /2025 TMT Employees Co-operative Credit Society Ltd 2. The brief facts of the case are that the assessee is a society and has filed the return of income for impugned assessment year admitting taxable income at Nil. The return was processed under section 143(1) of the Act. Subsequently, the case was selected for complete scrutiny under CASS to verify – (i) High creditors / liabilities; and (ii) deduction from Total Income under Chapter VI-A. The Ld.AO issued notice and completed assessment after duly verifying the deduction claimed under section 80P of the Act. The assessee claimed deduction U/s 80P(2)(d) of related to the interest earned from investment in co-operative banks. The relevant observation of the Ld.AO in page 3 is extracted below:- “Assessee in response to notices submitted information, on verification of the same, vide its reply letters dt. 14.07.2021 & 22.01.2022, it is noticed that, the assessee society was registered as Credit Resource Society under the Maharashtra Cooperative Societies Act, 1960. The Main object of the society is granting credit facilities to its members, who are salaried persons of TMT (Thane Municipal Transport), as per various schemes enumerated in the Byelaws of the society for this purposes. The society earned interest on the various loans granted by it to its members. It invites deposits from its members under various schemes designed by it and pays interest on such deposits and the society has invested in other cooperative societies and earned interest. Further the assessee explained in detail the issue of High creditors/liabilities as i, various deposits received; ii. Bank loan from TOCC Bank, iii. Various other liabilities. Further the assessee has explained the eligibility U/s 80P of the Act. for the deductions claimed under chapter VIA, in detail. The same is considered and verified. The assessee has uploaded all the relevant information as called for and after verification of the information submitted electronically, the same is found to be in order.” (Emphasis supplied) 3. The Ld.PCIT, by invoking provisions of section 263 considered that the interest earned from investment in co-operative bank is not eligible for deduction U/s 80P(2)(d) of the Act and the alleged amount is taxable income. The Ld. PCIT 3 ITA 3591/Mum /2025 TMT Employees Co-operative Credit Society Ltd relied on the order of Hon’ble Supreme Court in the case of Totagar’s Cooperative Sales Society vs ITO, Karnataka 322 ITR 283 (SC), date of order 08/02/2010. So, accordingly, the interest earned amount to Rs. 43,67,941/- is treated as income of the society and the impugned assessment order is considered as erroneous and prejudicial to the interest of the revenue.
The Ld. DR argued and stands in favour of the order of the Ld. PCIT.
We have heard the rival submissions and perused the documents available on record. On careful consideration, we find that the issue was duly examined by the Ld. AO in the impugned assessment order, wherein the claim for deduction under section 80P of the Act was verified. Therefore, no lapse is found in the verification of the interest income claimed as deductible under section 80P of the Act. However, the Ld. PCIT has taken a contrary view by placing reliance on the judgment of the Hon’ble Supreme Court in Totagar’s Co-operative Sales Society (supra) and held that the assessment order is erroneous and prejudicial to the interests of the revenue. It is pertinent to note that the issue relating to deduction of interest income from investments made in co-operative banks under section 80P(2)(d) has been consistently decided in favour of the assessee by various judicial forums, including the Hon’ble High Court of Gujarat in the case of PCIT v. Ashwinkumar Arban Co- operative Society Ltd. [2024] 168 taxmann.com 314 (Gujarat). In the said judgment, the High Court upheld the deduction claimed by the assessee under section 80P(2)(d), while duly considering the decision of the Hon’ble Supreme 4 ITA 3591/Mum /2025 TMT Employees Co-operative Credit Society Ltd Court in Kerala State Co-operative Agricultural and Rural Development Bank Ltd. v. Assessing Officer [2023] 154 taxmann.com 305 / 295 Taxman 675 / 458 ITR 384 (SC). The relevant portion of the Gujarat High Court’s decision reads as follows: "28. Having heard learned advocates for the respective parties and considering the controversy arising in these tax appeals, we are of the opinion that the controversy sought to be canvassed with regard to deduction under section 80P(2)(d) of the Act is no more res integra in view of the decision of this Court in the case of Katlary Kariyana Merchant Sahkari Sarafi Mandali Ltd. (supra) as well as State Bank of India (supra), wherein it was held that the deduction under section 80P(2)(d) of the Act is available to co-operative societies on the income earned as interest from investments made with a co-operative bank, which, in turn, is a co-operative society."
Further reliance has also been placed on the judgment of the Hon’ble Supreme Court in PCIT v. Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Limited, Civil Appeal No. 8719 of 2022, dated 20.04.2023, wherein it was held as under: "Even otherwise, on merits also and taking into consideration the CBDT Circulars and even the definition of 'bank' under the Banking Regulation Act, the respondent/assessee cannot be said to be a co-operative bank/bank and, therefore, section 80P(4) shall not be applicable, and the respondent/assessee shall be entitled to exemption/benefit under section 80P(2) of the Income-tax Act."
Similarly, in Kerala State Co-operative Agricultural and Rural Development Bank Ltd. v. Assessing Officer [2023] 458 ITR 384 (SC), the Hon’ble Supreme Court held: "15.14... In the instant case, although the appellant society is an apex co-operative society within the meaning of the State Act, 1984, it is not a co-operative bank within the meaning of section 5(b) read with section 56 of the Banking Regulation Act, 1949.
5 ITA 3591/Mum /2025 TMT Employees Co-operative Credit Society Ltd In the result, the appeals filed by the appellant are allowed and the orders of the Kerala High Court and other authorities to the contrary are set aside. Consequently, we hold that the appellant is entitled to the benefit of deduction under section 80P of the Act."
We observe that the Ld. AO had consciously taken a view to allow the deduction under section 80P. On the other hand, the Ld. PCIT has taken a different view on the same issue. In this regard, the observation of the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 109 Taxman 66 (SC) is relevant. The Court held: “9. The phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue. For example, where an ITO adopts one of the courses permissible in law and it results in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, such a situation cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law.” In light of the above judicial guidance, it is clear that a mere difference of opinion between the Ld. AO and the Ld. PCIT cannot render the assessment order erroneous and prejudicial to the interests of the Revenue. We, therefore, respectfully rely on the ratio laid down by the Hon’ble Supreme Court in Malabar Industrial Co. Ltd. (supra). Accordingly, the revisionary order passed by the Ld. PCIT under section 263 of the Act is set aside.
6 ITA 3591/Mum /2025 TMT Employees Co-operative Credit Society Ltd 5. In the result, the appeal filed by the assessee bearing