S S K PATTINA SAHAKARA SANGH NIYAMIT ,BAGALKOT vs. INCOME TAX OFFICER, WARD-1 & TPS, BAGALKOT
Income Tax Appellate Tribunal, ‘B’ BENCH, BANGALORE
Before: SHRI WASEEM AHMED & SHRI KESHAV DUBEYAssessment Year: 2020-21
PER WASEEM AHMED, ACCOUNTANT MEMBER:
This is an appeal filed by the assessee against the order passed by the NFAC, Delhi dated 16/09/2024 in DIN No. ITBA/NFAC/S/250/
2024-25/1068720031(1) for the assessment year 2020-21. 2. The only issue raised by the assessee is that the learned CIT(A) erred in confirming the disallowance made by the Assessing Officer (AO) with respect to the deduction claimed by the assessee amounting to Page 2 of 7
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₹75,82,807 under the provisions of section 80P(2)(a)(i) of the Income
Tax Act, 1961. 3. The assessee is a credit cooperative society and engaged in the business of providing credit facilities to its members. It filed its return of income declaring nil taxable income after claiming a deduction under section 80P(2)(a)(i) of the Act.
During the course of assessment, the AO noted that the assessee had earned interest income from deposits made with nationalized and cooperative banks. According to the AO, such interest income does not qualify for deduction under section 80P(2)(a)(i) of the Act and accordingly, he disallowed the claimed amount of ₹75,82,807 and added the same to the total income of the assessee.
The assessee preferred an appeal before the learned CIT(A), who upheld the disallowance made by the AO. Being aggrieved, the assessee has filed the present appeal before this Tribunal.
The learned Authorised Representative (AR) for the assessee submitted that the ITAT, Bangalore Bench, in the case of SRCC Society Ltd. v. Income Tax Officer (ITA Nos. 1986 & 1987/Bang/2024, order dated 07.03.2025), under identical facts and circumstances, had set aside the issue to the file of the AO for fresh adjudication in accordance with law. The ITAT had also issued detailed directions for computing the amount eligible for deduction under Section 80P(2)(a)(i) of the Act. Accordingly, the AR requested that the matter on hand being similar to Page 3 of 7
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the above, should also be remanded to the AO with appropriate/ similar directions.
The learned Departmental Representative (DR) did not object to the matter being remanded to the AO for fresh adjudication.
We have heard the rival submissions of both the parties and examined the materials available on record. Though multiple grounds have been raised, the learned AR restricted his arguments to the issue of allowability of interest income on deposits mandated under the Karnataka Cooperative Societies Act and the deduction under section 57 of the Act.
1 The AR contended that since the deposits were made in compliance with statutory requirements, the interest income earned thereon should be eligible for deduction under section 80P(2)(a)(i) of the Act. Furthermore, for any interest income not eligible under the said provision, the corresponding expenditure ought to be deductible under section 57 of the Act.
2 We find the argument of the learned AR is plausible and in line with the position taken by the Bangalore Bench of the ITAT in the case cited above, which was also not contested by the DR. The relevant finding of the ITAT in the case of SRCC Society Ltd. (Supra) is reproduced as under: 15. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding paragraphs, we note that the primary issue in dispute pertains to the eligibility of deduction under section 80P(2)(a)(i) of the Act in respect of interest income earned from deposits made with the District Co- Page 4 of 7
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operative Bank Ltd, Vijayapura. The crux of the matter is whether such interest income is to be considered as "business income" eligible for deduction under Section 80P(2)(a)(i) or to be classified as "Income from Other Sources" and taxed accordingly.
1 We note that the deposit in question was not voluntarily made by the assessee society for investment purposes but were instead mandated by the Karnataka State Co-operative Societies Act, 1959. As per section 57(2) of the said Act, every co-operative society is required to set aside at least 25% of its net profit each year as a reserve fund. Further, as per section 58 of said Act, such reserve funds must be mandatorily invested in specified institutions, including District Co- operative Banks. We find that this statutory requirement imposes a legal obligation on the assessee society to maintain such deposits, thereby restricting its ability to freely use or withdraw these funds for its business operations without prior approval from the