MARATHWADA NAGARI SAHAKARI PATH SANSTHA MARYADIT,KALYAN vs. ASSESSING OFFICER, WARD 1(1), KALYAN

IN THE INCOME-TAX APPELLATE TRIBUNAL“F” BENCH,
MUMBAI
BEFORE Ms. KAVITHA RAJAGOPAL, JUDICIAL MEMBER
&
SHRI PRABHASH SHANKAR, ACCOUNTANT MEMBER
Marathwada Nagari Sahakari
Path Sanstha Maryadit,
Shop
No.
06,
1st
Floor,
Dhamnikar Plaza, Bhiwandi,
Thane – 421302, Maharashtra v/s.
बनाम
Assessing Officer, Ward –
1(1), Mohan Plaza, Wayle
Nagar, Khadakpada, Kalyan
– 421301, Maharashtra
स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: AAAAM9150E
Appellant/अपीलार्थी
..
Respondent/प्रतिवादी

Appellant by :
Shri Sushant Alme, AR
Respondent by :
Shri Vivek Perampurna, (CIT- DR)

Date of Hearing
03.07.2025
Date of Pronouncement
18.07.2025

आदेश / O R D E R

PER PRABHASH SHANKAR [A.M.] :-

The present appeal filed by the assessee Cooperative Society, emanates from the Revision order passed u/s 263 of the Income-tax Act,
1961 [hereinafter referred to as “Act”] by the Learned Commissioner of Income-tax, PCIT, Thane - 1 [hereinafter referred to ‘PCIT’] pertaining to assessment order passed u/s. 143(3) r.w.s. 144B of the Income-tax Act,
1961 [hereinafter referred to as “Act”] dated 20.09.2022 for the Assessment Year [A.Y.] 2020-21. P a g e | 2
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Karnataka High Court 395 ITR 611 which decided the issue in favour of the department by holding that the interest income earned by way of deposits of surplus funds in co-operative bank does not change its character and thus, clause (d) of section 80P(2) of the Act, would not apply in these circumstances. It was further stated that a co-operative bank even though registered as a co-operative society is not a co- operative society eligible for receiving the benefits of exemption or 100%
deduction u/s. 80P of the Act as its banking business is governed by the provisions of a special law “Banking Regulation Act, 1949”. In addition, the amendment of section 194A(3)(v) of the Act by Finance Act, 2015
w.e.f. 01.06.2015 excluding the co-operative banks from the genus categories of cooperative societies and making it liable to deduct Income tax at source on the interest paid by it to other persons, further indicates that the legislative intent is to exclude co-operative banks from the beneficiary category of co-operative societies entitled to exemption or 100% deduction of its income u/s. 80P of the Act. He concluded that the AO perfunctorily accepted the details available with him without any application of mind or detailed enquiry regarding pertinence of various case laws on this issue and went on to accept the returned income. No efforts were made to verify the legalities of provisions of 80P of the Act and its applicability in the present case. Therefore, the assessment order

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Marathwada Nagari Sahakari Path Sanstha Maryadit passed u/s. 143(3) of the Act was found to be erroneous in so far as prejudicial to the interest of the Revenue. Since no response was made by the assessee to the show cause issued by him, the matter was decided based on appreciation of facts in record, provisions of the Act in this regard and in the light of rulings of various courts of law. He concluded that instead of allowing the deduction claimed u/s 80P(2) of the Act, the AO should have disallowed the deduction and taxed the same under section 56 of the Act under the head “Income from other sources”.
Accordingly, the assessment order was set aside to the file of AO with a direction to disallow the entire amount of Rs. 41,83,886/- claimed by the assessee u/s 80P(2) of the Act and pass the assessment order afresh after giving a reasonable opportunity of being heard to it.
4. Before us, the ld.CIT(DR) has relied on the revision order while the ld.AR has vehemently agitated the action of the ld.PCIT inter alia claiming that the assessment order was neither erroneous nor prejudicial to the interest of the revenue in as much as the ld.AO while passing the order has duly considered the issue in details after calling for relevant details and information from the assessee. He finally accepted the claim of the assessee without taking any contrary or adverse view of the matter. Thus, there is apparent application of mind alongwith due

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Marathwada Nagari Sahakari Path Sanstha Maryadit enquiries into the matter. The ld.AR has made oral as well as written submission on the issues. A paper book has also been submitted.
4.1 The ld.AR also placed reliance on the decisions of hon’ble
Supreme Court on PCIT vs Shreeji Prints P.Ltd wherein the court has upheld the decisions of hon’ble Gujarat High Court in ITA
No.396/Del/2021 on the issue of section 263 where the AO had made detailed enquiries and the order could not be considered as erroneous and prejudicial .It is also claimed that written submissions made by the assessee on 20.03.2025 was not considered by the ld.PCIT. On merits, reliance is also placed on a recent decision of hon’ble Supreme Court in the case of Annasaheb Patil Mathadi Kamgar Sahkari Pathpedi
Limd in Civil appeal no.8719/2022 in which it is laid down that cooperative societies are not cooperative banks and entire income thereof is eligible for deduction u/s 80P(2)(a)(i) of the Act. Further, reliance is also placed on several decisions of coordinate benches of ITAT Mumbai involving invocation of section 263 of the Act on this issue wherein it has been held that the assessee cooperative societies were eligible for deduction u/s 80P(2) of the Act. Revision orders have been set aside and assessment order restored in ITA
No.1970/Mum/2023 in Pravara Gramin Bigar Sethi Sahkari

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Patsanstha,ITA
No.1356/Mum/2023
in Shree
Jyotirling
Sahakari Patsanstha and ITA No.726/Mum/2022 in Sahayadri
Nagari Sahkari. Besides, it is contented that in the case of assessee itself for AY 2017-18 ITAT, Mumbai bench has dismissed the appeal of the Revenue holding that the assessee is eligible for deduction u/s 80P(2)(d) of the Act.
4.2 It is further submitted that the assessee has made entire investment in fixed deposits with cooperative banks which are first registered as cooperative society and then licenced as cooperative banks by RBI. This facts has been accepted by many ITAT/High Courts.
Moreover, interest income is attributable to providing credit facilities and the same is operational income as its core business is of accepting deposits from members and advancing loans to them and making investment. It is prayed to quash the impugned revision order.
5. We have duly considered all the relevant facts of the case. It is noticed from the assessment order which was the subject matter of revisions that the AO has duly examined the issue in detail. According to the assessment order,
“the assessee submitted that they are a Co-operative Credit Society, registered under Maharashtra Co-operative Societies Act, 1960 with the object of self-help &
co-operation among members, accepting deposits and providing credit facilities

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Marathwada Nagari Sahakari Path Sanstha Maryadit to the members only and therefore income earned by the Co-operative Credit
Society is fully deductible u/s 80P(2)(a)(i) at the I.T. Act, 1961. As per submission, there are 5634 members, having deposits in their many schemes and daily deposit scheme. As per the provisions of rule 35 of Maharashtra Co-operative
Societies Rules, 1961, the collection of deposits made by them are governed, along with mandatory KYC compliance with PAN. Details of deposit collection statement of members are also been enclosed. The liabilities show is mainly comprising of these deposits. Further, regarding deduction u/s 80P(2)(a)(i) of the IT Act, 1961, the assessee submitted in details, the distinctive features of Co- operative Credit Societies vis a vis Co-operative Bank, various Judicial references, including Hon’ble Apex Court Judgement. The Mavilayi Service Co-operative Bank
Ltd. vs CIT, Calicut, Civil Appeal No. 8314 of 2019 and documentary evidence in respect of investment/expenditure/payment made to claim to deduction. In respect of the queries regarding low income in comparison very high investment, the assessee explained that the income generating assets of the society consists of loans and advances and mandatory investment with Co-operative Bank. During the year, they have received gross income comprising of loan to member, interest on investment and other receipts at Rs. 4,41,78,793/-. The percentage of gross income to above referred income earning assets is 13.60%, which is reasonable &
fair source for advancing loans to members and investment is share capital from members and interest accruals. Accrued interest has shown as interest receivable in their balance sheet. In addition to the above, the assessee has also furnished the details of statement showing investment in Co-operative Bank, Details of deposits accepted and repair during the year.
3.2 Reasons for inference drawn that no variation is required on the above issues:
In the light of the above facts and circumstances as well as considering the submission of the assessee company hereinabove, it is hereby inferred that no variation is required to the income returned by the assessee company.”
5.1
It is therefore evident that the issue under consideration has been deliberated by the AO by calling for relevant details, examining the same and concluding that no adverse view was required to be taken. In such a situation, we find that the ld.PCIT has wrongly observed that the assessment order is erroneous since the deduction was wrongly allowed.

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Apparently, the AO has taken one of the plausible views after due application of mind and in the light of relevant facts and the provisions of the Act. Therefore, in our considered view the assessment order could not be considered as erroneous and prejudicial to the interest of the Revenue for invoking the provisions of section 263 of the Act. We also find that the cited decision by the ld.AR fully support the above view not only w.r.t. section 263 of the Act as also to the merits of the case.

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Marathwada Nagari Sahakari Path Sanstha Maryadit by celebrated case of Malabar Industrial Co. Ltd. vs. CIT (243 ITR 83) are clearly made out in the present case. The ld. CIT-DR prayed for dismissal of appeal.
8. In the rejoinder submission, the ld. AR of the assessee submits that ld. PCIT while issuing show-cause notice under section 263 dated 05.02.2019 has clearly written in its show-cause notice that the Assessing Officer erroneously allowed the deduction. Thus, the language of show-cause notice itself suggests that the issue of deduction under section 80P was considered by Assessing Officer while passing the assessment order. Now, the question is if the deduction under section 80P is allowed without examining the issue or allowed erroneously.
9. The ld. AR of the assessee further submits that the Hon'ble Juri ictional
High Court CIT vs. Gabriel India Ltd. (2103 ITR 108 (Bom) held that if the Assessing Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by ld. PCIT simply because of according to him, the order should have been written more elaborately. This section does not visualize the case of the judgment of the learned Commissioner for that of Income Tax Officer, who passed the order, unless the decision is held to be erroneous. It was further held that when the ITO examined the accounts, make enquiry applied his mind to the fact and determined the income either by accepting the accounts or by making some estimation himself. And the Commissioner on perusal is of opinion that the estimation made by Officer is on the lower side and left to the Commissioner, he would have estimated the figure on higher side, the order of Assessing Officer cannot be substituted by Commissioner. The ld. AR of the assessee further submits that on merit/deduction under section 80P this case is clearly covered by the decision of Tribunal.
 PCIT vs. Goa PWD Staff Co-operative Credit Society Ltd. [2016] 242 Taxman
0422 (Bom. HC.)  CIT vs. Jafari Momin Vikash Co-op. Credit Society
Ltd. [2014] 362 ITR 331 (Guj. HC.
 ACIT vs. Metrocity Criminal Courts employees Mutually Aided co- op. Credit
Society Ltd. [2015] 39 ITR (Trib.) Hyderabad.  ACIT vs. People's Co-operative
Credit Society Ltd. [2019] 180 DTR (Ahd) (SB) (Trib.) 444. 10. We have considered the submission of the learned representative of the parties and have gone through the orders of authorities below. In the return of income, the assessee claimed interest income under the head Income from Other Sources of Rs. 12,87,629/- and after setting up of loss of Rs. 2,87,471/-, the assessee claimed deduction under Chapter- VA of Rs. 10,00,158/-. The income under the head
'Income from other Sources' the assessee claimed it as deductable under section 80P as interest income from Cooperative Societies. The Assessing Officer while passing the assessment order accepted the return of income. Admittedly, no discussion on the disallowance under Chapter-VA, including the deduction under section 80P in the assessment order. The ld. PCIT issued show-cause notice

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Marathwada Nagari Sahakari Path Sanstha Maryadit under section 263 for proposed revision of assessment order vide notice dated
05.02.2019. In the show- cause notice apart from the other contents, the ld. PCIT has mentioned that Assessing Officer has 'erroneously' allowed the deduction under section 80P(2)(d) on interest received from Vadasinor Pragati Samaj Co- operative Credit Society Ltd. Samaj Co-operative Credit Society Ltd. (supra). The assessee filed its detailed reply vide reply dated 12.02.2019, summary of which is already correctly recorded by ld. PCIT as we have referred above in para-14. 11. The Hon'ble juri ictional High Court in Quepem Urban Co-operative Credit
Society Ltd. vs. ACIT (377 ITR 272) held that Co-operative Society could not be regarded as a Co-operative Bank, mere fact that insignificant proportion of revenue was coming from non-members and was entitled for deduction under section 80P(2)((a)(i).
12. Further, the coordinate Bench of Mumbai Tribunal in Lady Ratan Tower C- operative Housing Society Ltd Vs ITO (supra), while following the decision of coordinate bench in M/s Vadasinor Pragati Samaj Co-operative Credit Society
Ltd. op. Society Ltd. (ITA No. 6547/Mum/2017 dated 25.04.2018) held that income by way of interest derived by assessee from its investment held that other
Co-operative Society shall be deducted in computing the total income. We have further noted in Kaliandas Udyog Bhavan Premises Co-op. Society Ltd.(supra) the decision was rendered by making reliance upon the decision of Hon'ble Karnataka in PCIT & Anr vs. Totagars Coperative Sale Society (392 ITR 74) and Hon'ble
Gujarat High Court in SBI vs. CIT (389 ITR 578 (Guj.) also held that interest income earned by assessee on investment held that a Co-operative Bank would be eligible for claim of deduction under section 80P(2)(d).
13. Considering the aforesaid legal preposition, we are of the view that assessee is entitled for deduction on interest earned from Co-operative Bank which are primarily a Co-operative Society, thus, in our view, the deduction allowed by Assessing Officer are in accordance with various judicial pronouncement, which cannot be branded as erroneous. The juri ictional High court in Gabriel India
Ltd. (supra) held that power of suo-moto revision under section 263 of the Act, is in the nature of supervisory juri iction and can be exercised, if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise the power of revision under this sub-section viz. (i) The order should be erroneous; and (ii) by virtue of the order being erroneous and prejudicial must have been caused to the interest of revenue. Further, the order cannot be termed as erroneous unless it is not in accordance with law, if the Assessing Officer acting in accordance with law make certain assessment, the same cannot be branded as erroneous by Commissioner simply because, according to him, he order should have been written more elaborately.
14. As we have noted above, the order passed by Assessing Officer, though not speaking, however, is in accordance with law, so far as deduction under section 80P is concerned. Therefore, in our considered view, the twin condition as P a g e | 13
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Marathwada Nagari Sahakari Path Sanstha Maryadit enunciated under section 263 are not furnished in the present case. Therefore, the ld. PCIT was not justified in treating the assessment order for revising it by exercising power under section 263. 15. So far as objection/statement of CIT-DR is concerned that the Assessing
Officer has not made proper enquiry or the order is silent about the deduction claimed and allowed to the assessee under section 80P. As we have noted earlier that ld. PCIT while issuing show-cause notice himself has recorded in the show- cause notice itself that Assessing Officer has erroneously allowed the deduction under section 80P(2)(d) on interest received from a Credit Co-operative Society.
Hence, we are not convinced with the submission that issue was not examined by Assessing Officer as the language of show-cause notice itself suggest that Assessing Officer erroneously allowed the deduction. Hence, the grounds of appeal raised by assessee are allowed, resultantly, the revision order passed by ld.
PCIT is quashed.”
5.3 Further, in the case of Shri Keshoraipatan Sahkari
Sugar Mills Ltd., Kota vs. PCIT, in ITA Nos.1745, 1746 &
1747/PUN/2024, on identical facts and circumstances, it was held as under:
“9. Thus, ld.AO has examined that issue as it is evident from the finding recorded in the assessment order. As the case was for this limited purpose the same has been examined and verified by the ld. AO as it emerges from the findings of the AO. The ld. Pr. CIT evidently did not place on record any apparent error on the part of the AO to substantiate that order passed by the ld. AO is prejudicial to the interest of revenue.
She only mentioned that the AO allowed deduction u/s. 80(P)(2)(d) on the interest income received from co-operative bank and thus AO erred in allowing the deduction u/s.80(P)(2)(d) on such interest income. She has not pin pointed any of the enquiry which is required to be made is not made by the ld. AO the fact from where the ld.
PCIT drawing interference is already on record and based on that information the ld.
AO drawn a plausible view on the matter.
There is no defect found from the enquiry that has been conducted by the ld. AO. He collected the information based on upon which he has allowed the claim to assessee and has verified the point raised in the limited scrutiny.
The decision and contentions raised by ld. DR contradictory so as to allowability of deduction and thus based on the decision of vegetable products the view which is favourable to the assessee shall be taken and the ld. AO has based on that set of facts taken a plausible view and completed the assessment. The ld. PCIT did not find any specific error or default of AO and thus we see no reasons in interfering the view that has already been taken. Since, in this case ld. AO has clearly conducted the enquiry

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Marathwada Nagari Sahakari Path Sanstha Maryadit and revenue did not pin point the error on the part of the assessing officer the order passed after due application of mind cannot be subjected to proceeding u/s. 263 of the Act. The ITAT Mumbai bench in the Mrs. Khatiza S. Oomerbhoy addressed this issue elaborately after referring to number of cases on revisionary powers vested in the Commissioner of Income-tax under section 263 of the Act and summed up the fundamental principles emerging from several cases as under-
(i) The CIT must record satisfaction that the order of the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. Both the conditions must be fulfilled.
(ii) Sec. 263 of the Act cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer and it was only when an order is erroneous that the section will be attracted.
(iii) An incorrect assumption of facts or an incorrect application of law will suffice the requirement of order being erroneous.
(iv) If the order is passed without application of mind, such order will fall under the category of erroneous order.
(v) Every loss of revenue cannot be treated as prejudicial to the interests of the Revenue and if the Assessing Officer has adopted one of the courses permissible under law or where two views are possible and the Assessing Officer has taken one view with which the does not agree. If cannot be treated as an erroneous order, unless the view taken by the Assessing Officer is unsustainable under law
(vi) If while making the assessment, the Assessing Officer examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determine the income, the Commissioner of Income-tax, while exercising his power under section 263 of the Act is not permitted to substitute his estimate of income in place of the income estimated by the Assessing Officer.
(vii) The Assessing Officer exercises quasi-judicial power vested in his and if he exercises such power in accordance with law and arrive at a conclusion, such conclusion cannot be termed to be erroneous simply because the Commissioner of Income-tax does not fee stratified with the conclusion.
(viii) The Commissioner of Income-tax, before exercising his juri iction under section 263 of the Act must have material on record to arrive at a satisfaction and (ix) If the Assessing Officer has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the Assessing Officer allows the claim on being satisfied with the explanation of the assessee, the decision of the Assessing Officer cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard.

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Co-operative Bank should be considered by a Co-operative Society and interest earned by Co-operative Society from Cooperative Bank would necessarily be deductible under section 80P(1) of the Act. Further, the hon'ble Gujarat High Court in Surat Vankar Sahakari Sangh Ltd. held that assessee co-operative society is eligible for deduction under section 80(P)(2)(d) in respect of gross interest received from co-operative bank without adjusting interest paid to said bank.Further, the same Court in the case of CIT vs. Sabarmantha District Co-Op. Milk Producers
Union Ltd. in Tax Appeal No. 473 of 2014 held as follows:
“4.0. Now, so far as proposed question no. B i.e. whether the Appellate Tribunal has substantially erred in upholding the order of the CIT(A) in deleting the disallowances of Rs.1,42,19,515/-under Section 80(P)(2)(d) of the Act is concerned, it is required to be noted that the assessee claimed deduction under Section 80(P)(2)(d) of the Act on the interest earned on the fixed deposit with Cooperative Bank and the Societies and it has been found that as such the income was received from the investment in Cooperative Societies and Cooperative Bank. Considering Section 80(P)(2)(d) of the Act when the only requirement was that the income should be received from investment in Cooperative Societies and the Cooperative Bank which in the present case has been fulfilled, it cannot be said that the learned Tribunal has committed any error in deleting disallowance of Rs. 1,42,19,515/- under Section 80(P)(2)(d) of the Act.
We are in complete agreement with the view taken by the learned Tribunal. Under the circumstances, undefined proposed question B is also answered against the revenue.”
5.5 In so far as the judgement in the case of hon'ble Supreme
Court in the case of Totagars Co-operative Sale Society Ltd. Vs.
ITO 322 ITR 283 is concerned, in our considered view, the case is distinguishable on facts and therefore not be applied in the instant case

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Marathwada Nagari Sahakari Path Sanstha Maryadit of the assessee. In that case, the society was also marketing the agricultural produce of its members and hence was engaged in carrying on the business of marketing agricultural produce of the members of the assessee. However, in the present case, the interest income earned by the assessee from deposits made with the Co-operative Banks form an integral part of its business.
6. We have heard the rival contentions, perused the materials on record and duly considered facts of the case in the light of applicable legal position and decisions relied upon. The main issue hinges on whether action of the AO in allowing the claim of the assessee u/s 80(P)(2) was incorrect. We find that there is specific finding and reference of the deduction claimed by the assessee in the assessment order. Thus, the ld. AO has taken a plausible view and also there is no lack of enquiry on the part of AO. We find that he has applied his mind and allowed the claim to the assessee.
7. Therefore, in view of the above discussion and respectfully following the decision referred and relied in the preceding paras, we do not find any merit in the impugned revision order which is hereby quashed, thus allowing the grounds of appeal.

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Place: म ुंबई/Mumbai
ददनाुंक /Date 18.07.2025
Lubhna Shaikh / Steno

आदेश की प्रयियलयि अग्रेयिि/Copy of the Order forwarded to :

सत्यावपि प्रवि ////
आदेशानुसार/ BY ORDER,

उि/सहायक िंजीकार (Dy./Asstt.