EKTA SAHAKARI PATPEDHI MARYADIT,VIRAR vs. INCOME TAX OFFICER, ASSESSMENT UNIT, NEW DELHI

Appellant by : Shri Bhupendra Shah,AR Respondent by : Shri Manish Ajudiya (Sr. DR) Date of Hearing 03.03.2025 Date of Pronouncement 10.03.2025 आदेश / O R D E R PER PRABHASH SHANKAR [A.M.] :- The above captioned appeals have been filed by the assessee against the orders by the Learned Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] pertaining to the order passed u/s. 143(3) of the Income- tax Act, 1961 [hereinafter referred to as “Act”] for the Assessment Years [A.Y.] 2018-19 and 2020-21. Since the issues are common and & 106/Mum/2025 A.Y. 2018-19& 2020-21 Ekta Sahakari Parpedhi Maryadit interlinked, these appeals are being taken up together for adjudication vide this composite order for the sake of brevity.

3.1 In light of the non-compliant attitude of the assessee, levy of cost needs to be evaluated in this case as cost serves as a necessary deterrent to ensure that taxpayers act with due diligence in pursuing their appeals and respecting the timelines and processes laid down under the law. Moreover, considering assessee’s non-compliant and non-cooperative attitude and lack of diligence in pursuing the appeal, we impose on the assessee a cost of Rs.12,500/- each aggregating to Rs 25,000/-for both the above appeals. The cost shall be deposited to the credit of the Income Tax Department within 15 days of the receipt of this order.

2. In the facts and circumstances of the case and in law, the learned A.O. erred in denying deduction u/s 80P(2)(d) amounting to RS 42,56,170/- a. by way of income from other sources in respect of interest earned on fixed deposit with Co-operative bank and b. also overlooking the fact that debatable addition cannot be sustained u/s 143[1].

3. In the facts and circumstances of the case and in law, the learned Commissioner of Income Tax(A) erred in confirming the same by rejecting written submissions and several judgments cited before him and also overlooking the fact that debatable addition cannot be sustained u/s 143[1] in case of deduction u/s 80P(2)(d). 4. In the facts and circumstances of the case and in law, the learned A.O. erred in wrong charging interest u/s 234A, B & C and levying penalty u/s 270A. 5. Facts of the case in brief are that the assessee is a Cooperative Credit Society registered under the Maharashtra Co- Operative Societies Act 1960, carrying on banking business and providing banking facilities to its members. It accepts deposits from its members and gives loan to its members. The assessee filed return of income for the AY 2018-19 disclosing gross total income of Rs.2,11,86,994/- and have claimed deduction under chapter VIA of Rs.2,11,08,184/-comprising of deductions u/s 80P(2)(a)(i) of Rs.1,67,43,337/- and 80P(2)(d) of Rs. 43,14,847/-respectively. The Ld. AO disallowed the deductions.

& 106/Mum/2025 A.Y. 2018-19& 2020-21 Ekta Sahakari Parpedhi Maryadit 6. In so far as the claim of deduction u/s 80P(2)(a)(i), the AO held that in view of the provisions of section 80P(4),the assessee being engaged in banking activity was not eligible for deduction although it was observed that there is no dispute about the fact that the assessee is carrying on the business of accepting deposits and advancing loans albeit from and to its members. The assessee society is doing the business of accepting deposits and giving credit facilities to its members like all other cooperative banks and credit societies. According to him, plain reading of the above provisions indicates that they are applicable to all co-operative banks except a primary agricultural credit society or a primary cooperative agricultural and rural development bank. The assessee society is neither a primary agricultural credit society nor a primary cooperative agricultural and rural development bank. He further relied on the Explanation to the section and also explanatory notes to the Finance Act,2006 which pertained to withdrawal of 80P deduction to certain co-operative banks. He thus held that the assessee is not a primary agricultural credit society or a primary co-operative agricultural and rural development bank. It is a urban co-operative society and engaged in banking business. Therefore, in view of the legal provisions mentioned above, the provisions of Section 80P(4) were clearly applicable to the assessee. The explanatory note and the new sub- & 106/Mum/2025 A.Y. 2018-19& 2020-21 Ekta Sahakari Parpedhi Maryadit clause (viia) quoted above also clearly indicates that a cooperative society providing credit facilities to its members is also covered by the amended provisions of the Act. Hence the activities of the assessee were akin to that of finance business rather than a cooperative society. Hence, it is held that the assessee not eligible for deduction u/s 80P.It was concluded that the assessee earned interest and dividend income on funds invested in Scheduled Banks /Financial Institute which were not required for business purposes at the given point of time. Therefore, could not be said to be attributable either to the activity mentioned in Section 80P(2)(a)(i) r.w.a 80P(4) of the Act or in Section 80P(2)(d) of the Act . Therefore, looking to the facts and circumstances of this case, the deduction claimed by the assessee u/s 80P(2) of the Act amounting to Rs.2,11,08,184 /- was disallowed.

7.1 It was further stated that it being the credit society, accepted money from Member only and as per our bye laws we are not allowed to deal with the non-members. This fact is also required to be confirmed by the Statutory Auditor appointed under Maharashtra Co-op Societies Act to Registrar of Societies. The copy of Statutory Audit Report was filed. As per the assessment order, it has been stated that we have admitted that we are carrying on business of banking facility to our members relating to acceptance of deposits & advancing loans. The functions of banks are not limited to these two items. Section 7(1) of the Banking Regulation Act 1949 provides that no one can act as a Bank unless the Word ‘Bank’, ‘Banker’ or ‘Banking Company’ are used in the name as well as a License & 106/Mum/2025 A.Y. 2018-19& 2020-21 Ekta Sahakari Parpedhi Maryadit has to be obtained from the Reserve Bank of India. Further, its source of business is limited to acceptance of deposits & advancing of Loans. Activities i.e. opening of current accounts, Issuing Bank guarantees, Bill Discounting, issuing cheque books, becoming member of Clearing house and participating in clearing of cheques, dealing in Foreign exchange etc. cannot be earned by us.

7.2 It was further submitted that Registrar of Society has the power to inspect accounts and overall functioning of the Society. Part V Part V of the Banking Regulation Act is applicable to Co-operative Banks. Part V of the Banking Regulation Act is not applicable to cooperative societies. Co-op Credit Society can deal only with members. This is the restriction to be adopted in bye laws strictly monitored by statutory auditor and Registrar. Banks can issuance of Cheque Books/Bank guarantees can issue the cheque books, participate in clearing house Transactions. Bank Guarantees can be issued but co- operative societies cannot issue cheque Books and not allowed to participate in clearing house transactions, cannot issue the guarantees. Hence conclusion drawn that we squarely fall within the definition of Co- operative bank provided in part V of the banking Regulation Act 1949 is wrong one. Reliance was also placed on many decisions given by the Hon'ble Supreme Court, High Courts and ITATs, holding a Credit & 106/Mum/2025 A.Y. 2018-19& 2020-21 Ekta Sahakari Parpedhi Maryadit Society cannot be treated as Co-operative Bank i.e Citizen Co-op Society Limited Vs ACIT Circle 9(1), Hyderabad dated 08/08/2017. (Supreme Court CIVIL APPEAL NO. 10245 OF 2017),Income Tax 0fficer-20(3)(4), Mumbai V/s The KEM Hospital & Sheth GSM College Employees Co- operative Credit Society Limited (ITAT Mumbai H bench etc.

7.3 It was further stated that sub-section(4) of section 80P will not apply to an assessee which is not a co-operative bank. CBDT Circular clarified that the said entity not being a co-operative bank, section 80P(4) of the Act would not apply to it. Further, for ready reference we are also submitting the recent few case laws of Tribunal, Hon'ble High courts & Supreme Court where it has been held that for augmenting the co-operative sector the deduction under section 80P has been prescribed by the Govt. The restriction provided for deductions under section 80P(4) applies to Co-operative banks & not co-operative societies. The Co-operative credit society can claim deduction u/s 80P(2)(a)(i) as well as 80P(2)(d) of the Act. Copies of all such decisions is enclosed herewith for your record their all the decisions are came after amendment of Section 80P & section 2(24)(viia) w.e.f. 2007.

& 106/Mum/2025 A.Y. 2018-19& 2020-21 Ekta Sahakari Parpedhi Maryadit 7.4 As regards deduction u/s 80P(2)(d) from Interest earned from other Co-operative banks, it was stated that Co-operative banks are also first register themselves under Cooperative Act may be central or State Act and thereafter obtain license from Reserve bank of India. Hence Co-Op banks are also primarily Co-op Societies. During the year the assessee earned interest from Thane District Central Co-op. bank Ltd., Bassein Catholic Co-op bank Ltd, Municipal Co-op bank Ltd. Hence Interest earned from the Co-op bank is qualify for deduction under section 80P(2)(d) of the Income Tax Act 1951. Reliance was also placed on the decision of ITAT Mumbai in case of PETIT TOWERS COOPHOUSING SOCIETY LIMITED Vs ITO 19(2)(5), MUMBAI A.Y 2015-16.The decision has clearly stated that Co- operative Banks being primarily Co-op Societies registered under Central or State and therefore the interest income derived by a co- operative society from its investments held with a cooperative bank would be entitled for claim of deduction u/s 80P(2)(d) of the Act.

& 106/Mum/2025 A.Y. 2018-19& 2020-21 Ekta Sahakari Parpedhi Maryadit 9. Before us, the ld.DR has relied on the orders of the lower authorities. Per contra, the ld.AR of the assessee has made the same contentions as made before them. It us further submitted that that assesses appeal on exactly similar facts has been allowed in its appeal for AY 2017-18 by the co-ordinate Bench of ITAT, Mumbai in dated 24.02.2025 (copy placed on record). The relevant portions of the order are reproduced below for the sake of ready reference:

“3. We find that while deciding a similar issue, the Coordinate Bench of ITAT, Mumbai in the case of Pathare Prabhu Co-operative Housing Society v/s ITO, (2023) 202 ITD 464 (Mum-Trib), held that interest income earned from investment with Co- operative Bank is eligible for deduction under section 80P(2)(d) of the Act. The relevant findings of the Coordinate Bench, in the aforesaid decision, are reproduced as follows: - “8. We have considered the submissions of both sides and perused the material available on record. The only dispute raised by the assessee is against the disallowance of deduction under section 80P(2)(d) of the Act in respect of interest income received from the Co-operative Banks. The assessee is a registered Co- operative Housing Society and during the assessment year 2018-19 earned interest income of Rs. 50,39,861 from the investments made in various Co-operative Banks.

(2) The sums referred to in sub-section (1) shall be the following, namely: (a) to (c) ** ** ** (d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such income;”

10. Thus, for the purpose of provisions of section 80P(2)(d) of the Act, two conditions are required to be cumulatively satisfied (i) income by way of interest or dividend is earned by the Co-operative Society from the investments, and (ii) such investments should be with any other Co-operative Society. Further, the term “co-operative society” is defined under section 2(19) of the Act as under. “(19) co-operative society means a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies ;”

11. In the present case, there is no dispute that the assessee is a Co-Operative Housing Society. Thus, if any income as referred to in sub-section (2) to section 80P of the Act is included in the gross total income of the assessee, the same shall be allowed as a deduction. It is pertinent to note that since the assessee is registered under the Maharashtra Co-operative Societies Act, 1960, it is required to invest or deposit its funds in one of the modes provided in section 70 of the aforesaid Act, which includes investment or deposit of funds in the District Central Co- operative Bank or the State Co-operative Bank Accordingly, the assessee kept the deposits in Co-operative Banks registered under the Maharashtra Co-operative Societies Act and earned interest, which was claimed as a deduction under section 80P(2)(d) of the Act. The AO denied the deduction under section 80P(2)(d) of the Act on the basis that the Co-operative Bank is covered under the provisions of section 80P(4) of the Act. We find that the Hon'ble Supreme Court in Mavilayi Service Co-operative Bank Ltd. v. CIT (2021] 123 taxmann.com 161/279 Taxman 75/431 ITR 1 while analysing the provisions of section 80P(4) of the Act held that section 80P(4) is a proviso to the main provision contained in section 80P(1) and (2) and excludes only Co- operative Banks, which are Co-operative Societies and also possesses a licence from RBI to do banking business. The Hon'ble Supreme Court further held that the limited object of section 80P(4) is to exclude Co-operative Banks that function at par with other commercial banks ie. which lend money to members of the public. Thus, we are of the considered view that section 80P(4) of the & 106/Mum/2025 A.Y. 2018-19& 2020-21 Ekta Sahakari Parpedhi Maryadit

Act is of relevance only in a case where the assessee, who is a Co-operative Bank, claims a deduction under section 80P of the Act which is not the facts of the present case. Therefore, we find no merits in the aforesaid reasoning adopted by the AO and upheld by the learned CIT(A) in denying deduction under section 80P(2)(d) of the Act to the assessee.

& 106/Mum/2025 A.Y. 2018-19& 2020-21 Ekta Sahakari Parpedhi Maryadit (19) “Co-operative society means a cooperative society registered under the Co- operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any state for the registration of co-operative societies; We are of the considered view, that though the co-operative bank pursuant to the insertion of Sub-section (4) of sec. 80P would no more be entitled for claim of deduction under sec. 80P of the Act, but however, as a co-operative bank continues to be a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being enforced in any state for the registration of co-operative societies, therefore, the interest income derived by a co-operative society from its investments held with a co-operative bank, would be entitled for claim of deduction under sec.80P(2)(d) of the Act.”

13. We find that the learned CIT(A) has placed reliance upon the decision of the Hon'ble Karnataka High Court in Pr. CIT v. Totagars Co-operative Sales Society (2017) 83 taxmann.com 140/395 ITR 611, wherein it was held that interest earned by the assessee, a Co-operative Society, from surplus deposits kept with a Co-operative Bank, was not eligible for deduction under section 80P(2)(d) of the Act. We find that in an earlier decision the Hon'ble Karnataka High Court in Pr. CIT v. Totagars Co-operative Sale Society (2017) 78 taxmann.com 169/392 ITR 74 held that according to section 80P(2)(d) of the Act, the amount of interest earned from a Co-operative Society Bank would be deductable from the gross income of the Co-operative Society in order to assess its total income. Thus, there are divergent views of the same Hon'ble High Court on the issue of eligibility of deduction under section 80P(2)(d) of the Act in respect of interest earned from Co-operative Bank. No decision of the Hon'ble jurisdictional High Court was brought to our notice on this aspect. We have to, with our highest respect to both the views of the Hon'ble High Court, adopt an objective criterion for deciding as to which decision of the Hon'ble High Court should be followed by us. We find guidance from the judgment of the Hon'ble Supreme Court in CIT v. Vegetable Products Ltd. [1973] 88 ITR 192. In the aforesaid decision, the Hon'ble Supreme Court has laid down a principle that "if two reasonable constructions of a taxing provisions are possible, that construction which favours the assessee must be adopted”.

by the assessee are allowed.”

6. Therefore, in the given set of facts, respectfully following the decision of the Coordinate Bench of ITAT cited supra, we allow the claim of the assessee for deduction u/s. 80P(2)(d) of Rs.46,13,533/- in respect of interest income earned from deposits made with Co- operative Banks. Accordingly, grounds raised by the assessee are allowed.”

12. Considering the detailed discussion in the preceding para, legal position emerging from the cited decisions of various courts of law, the decision of co-ordinate bench in assessee’s own case for AY 2017- 18(supra),we are of the considered view that the assessee is eligible for & 106/Mum/2025 A.Y. 2018-19& 2020-21 Ekta Sahakari Parpedhi Maryadit claim of deduction u/s.80P(2)(a)(i) and also u/s 80P(2)(d).Accordingly, we set aside the appellate order and direct the ld.AO to allow the deductions claimed by the assessee. Thus, ground no.1 to 3 are allowed. Ground no.4 is academic in view of our decision in the above para deleting the disallowance of deductions claimed u/s 80P.

(A.Y. 2020-21) 1. In the facts and circumstances of the case and in law, the learned A.O. erred in denying deduction w/s 80P(2)(a)(i) amounting to Rs. 1,20,19,822/- thereby wrongly treating the Appellant a Cooperative Bank instead of Cooperative Society and overlooking the fact that the deduction u/s 80P(2)(a)(i) was allowed in the previous years including AY 2017-18.

2. In the facts and circumstances of the case and in law, the learned A.O. erred in denying deduction u/s 80P(2)(d) amounting to Rs. 35,75,275/- a. by way of income from other sources in respect of interest earned on fixed deposit with Co-operative bank and b. also overlooking the fact that debatable addition cannot be sustained u/s 143[1].

3. In the facts and circumstances of the case and in law, the learned Commissioner of Income Tax(A) erred in confirming the same by rejecting written submissions and several judgments cited before him and also overlooking the fact that debatable addition cannot be sustained u/s 143[1] in case of deduction u/s 80P(2)(d).

13. In the result, both the above appeals are allowed.

Order pronounced in the open court on 10/03/2025.