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Income Tax Appellate Tribunal, “B” BENCH, PUNE
Before: SHRI R.K. PANDA & MS. ASTHA CHANDRA
PER ASTHA CHANDRA, JM : These two appeals filed by the Revenue are directed against the two separate orders both dated 19.05.2025 of the Ld. Commissioner of Income Tax (Appeals), NFAC, Delhi [“CIT(A)/NFAC"] pertaining to Assessment Year (“AY”) 2018-19 and 2020-21. Since the issue(s) involved are identical, these were heard together and are being disposed of by this common order. ITA No. 1800/PUN/2025, AY 2018-19
Briefly stated, the facts of the case are that the assessee is a Co-operative Society registered under the Maharashtra Co-operative Society Act, 1960. For the AY 2018-19, it e-filed its return of income on 16.10.2018 declaring total income of Rs.4,03,690/- and claiming deduction of Rs.5,15,931/- u/s 80P(2)(a)(i) of the Income Tax Act, 1961 (the “Act”). The case was selected for scrutiny under CASS on the following issues : (i) investments/advances/loans, (ii) expenses incurred for earning exempt income, and (iii) deduction from total income under Chapter VI-A. The Ld. Assessing Officer (“AO”) observed that the assessee trust has earned interest income of Rs.8,26,68,141/- from its investments with Co-operative Banks. In the computation of total income submitted during course of scrutiny, the assessee claimed that it is a Co- operative Society and as such income of Rs.5,15,78,931/- from above-stated interest receipts is deductible under section 80P of the Act. The Ld. AO held that section 80P(2)(a)(i) and 80P(2)(d) do not cover the interest income earned from Co-operative Banks and disallowed the assessee's claim for deduction u/s 80P by making addition of Rs.5,15,78,931/- to the income of Rs.4,03,690/- returned by the assessee, thereby assessing the total income at Rs.5,19,82,621/- vide his order dated 30.04.2021 passed u/s 143(3) r.w.s. 144B of the Act.
Aggrieved, the assessee filed appeal before the Ld. CIT(A)/NFAC challenging the above addition/disallowance made by the Ld. AO. The Ld. CIT(A)/NFAC allowed the appeal of the assessee holding that the assessee is eligible for the claim of deduction u/s 80P of the Act in respect of the interest income earned by it from the Co-operative Banks. The relevant observations and findings of the Ld. CIT(A)/NFAC are reproduced below : "I find that the Hon'ble Supreme Court of India in Mavilayi Service Co-operative 12.01.2021has held as follows:
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Interpretation of Section 80P of the IT Act. The marginal note to Section 80P which reads "Deduction in respect of income of co-operative societies" indicates the general "drift" of the provision. Secondly, for purposes of eligibility for deduction, the assessee must be a "co-operative society". A co-operative society is defined in Section 2(19) of the IT Act, as being a co-operative society registered either under the Co-operative Societies Act, 1912 or under any other law for the time being in force in any State for the registration of co-operative societies. This, therefore, refers only to the factum of a co-operative society being registered under the 1912 Act or under the State law. For purposes of eligibility, it is unnecessary to probe any further as to whether the co-operative society is classified as X or Y. Thirdly, the gross total income must include income that is referred to in sub-section (2). Fourthly, sub-clause (2)(a)(i) then speaks of a co-operative society being "engaged in carrying on the business of banking or providing credit facilities to its members. What is important qua sub-clause (2)(a)(i) is the fact that the co-operative society must be "engaged in the providing credit facilities to its members. Fifthly, the burden is on the assessee to show, by adducing facts, that it is entitled to claim the deduction under Section 80P. Therefore, the assessing officer under the IT Act cannot be said to be going behind any registration certificate when he engages in a fact-finding enquiry as to whether the co-operative society concerned is in fact providing credit facilities to its members. Such fact finding enquiry (see section 133(6) of the IT Act) would entail examining all relevant facts of the co-operative society in question to find out whether it is, as a matter of fact, providing credit facilities to its members, whatever be its nomenclature. Once this task is fulfilled by the assessee, by placing reliance on such facts as would show that it is engaged in providing credit facilities to its members, the assessing officer must then scrutinize the same, and arrive at a conclusion as to whether this is, in fact, so. Sixthly, the expression "providing credit facilities to its members" does not necessarily mean agricultural credit alone. Section 80P being a beneficial provision must be construed with the object of furthering the co-operative movement generally, and section 80P(2)(a)(i) must be contrasted with section 80P(2)(a) (iii) to (v), which expressly speaks of agriculture. It must also further be contrasted with sub- clause (b), which speaks only of a "primary" society engaged in supplying milk etc. thereby defining which kind of society is entitled to deduction, unlike the provisions contained in section 80P(2)(a)(i) Also, the proviso to section 80P(2), when it speaks of sub-clauses (vi) and (vii). further restricts the type of society which can avail of the deductions contained in those two sub-clauses, unlike any such restrictive language in Section 80P(2)(a)(i). Once it is clear that the co- operative society in question is providing credit facilities to its members, the fact that it is providing credit facilities to non-members does not disentitle the society in question from availing of the deduction. The distinction between eligibility for deduction and attributability of amount of profits and gains to an activity is a real one. Since profits and gains from credit facilities given to non-members cannot be said to be attributable to the activity of providing credit facilities to its members, such amount cannot be deducted. Seventhly, section 80P(2)(c) also makes it clear that section 80P is concerned with the co-operative movement generally and, therefore, the moment a co-operative society is registered under the 1912 Act, or a State Act, and is engaged in activities which may be termed as residuary activities i.e. activities not covered by sub-clauses (a) and (b), either independently of or in addition to those activities, then profits and gains attributable to such activity are also liable to be deducted, but subject to the cap specified in sub-clause (c). The reach of subclause (c) is extremely wide, and would include co-operative societies engaged in any activity, completely independent of the activities mentioned in sub-clauses (a) and (b), subject to the cap of INR 50,000/- to be found in sub-clause (c) (ii). This puts paid to any argument that in order to avail of a benefit under Section 80P, a co-operative society once classified as a particular type of society, must continue to fulfil those objects alone. If such objects are only partially carried out, and the society conducts any other legitimate type of activity, such co-operative society would only be entitled to a maximum deduction of Rs.50,000/-under sub-clause (c) Eighthly, subclause (d) also points in the same direction, in that interest or dividend income derived by a co-operative society from investments with other co- operative societies, are also entitled to deduct the whole of such income, the object of the provision being furtherance of the co-operative movement as a whole. [Paras 27, 28, 29, 30, 32-35]
The limited object of section 80P(4) is to exclude co-operative banks that function at par with other commercial banks i.e. which lend money to members of the public. Thus, if the Banking Regulation Act, 1949 is now to be seen, what is clear from section 3 read with section 56 is that a primary co-operative bank cannot be a primary agricultural credit society, as such co-operative bank must be engaged in the business of banking as defined by section 5(b) of the Banking Regulation Act, 1949, which means the accepting, for the purpose of lending or investment, of deposits of money from the public. Likewise, under section 22(1)(b) of the Banking Regulation Act, 1949 as applicable to co-operative societies, no co- operative society shall carry on banking business in India, unless it is a co- operative bank and holds a licence issued in that behalf by the RBI. As opposed to this, a primary agricultural credit society is a co-operative society, the primary object of which is to provide financial accommodation to its members for agricultural purposes or for purposes connected with agricultural activities. [Para 39]
Section 80P of the IT Act, being a benevolent provision enacted by Parliament to encourage and promote the credit of the co-operative sector in general must be read liberally and reasonably, and if there is ambiguity, in favour of the assessee. A deduction that is given without any reference to any restriction or limitation cannot be restricted or limited by implication, as is sought to be done by the Revenue in the present case by adding the word "agriculture" into Section 80P(2)(a) (i) when it is not there. Further, section 80P(4) is to be read as a proviso, which proviso now specifically excludes co-operative banks which are co- operative societies engaged in banking business i.e. engaged in lending money to members of the public, which have a licence in this behalf from the RBI. [Para 45]
Once section 80P(4) is out of harm's way, all the assessees in the present case are entitled to the benefit of the deduction contained in section 80P(2)(a)(i), notwithstanding that they may also be giving loans to their members which are not related to agriculture. Also, in case it is found that there are instances of loans being given to non-members, profits attributable to such loans obviously cannot be deducted. Considering the definition of 'member' under the Kerala Act, loans given to such nominal members would qualify for the purpose of deduction under section 80P(2)(a)(i). Thus, the giving of loans by a primary agricultural credit society to non-members is not illegal unlike the facts in Citizen Cooperative Society Ltd. (Paras 45-47] The relevant paras, para 45 and 46 of the said order is reproduced below:
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To sum up, therefore, the ratio decidendi of Citizen Co-operative Society Ltd. (supra), must be given effect to. Section 80P of the IT Act, being a benevolent provision enacted by Parliament to encourage and promote the credit of the co- operative sector in general must be read liberally and reasonably, and if there is ambiguity, in favour of the assessee. A deduction that is given without any reference to any restriction or limitation cannot be restricted or limited by implication, as is sought to be done by the Revenue in the present case by adding the word "agriculture" into Section 80P(2)(a)(1) when it is not there. Further, section 80P(4) is to be read as a proviso, which proviso now specifically excludes co-operative banks which are co-operative societies engaged in banking business i.e. engaged in lending money to members of the public, which have a licence in this behalf from the RBI. Judged by this touchstone, it is clear that the impugned Full Bench judgment is wholly incorrect in its reading of Citizen Cooperative Society Ltd. (supra). Clearly. therefore, once section 80P(4) is out of harm's way, all the assessees in the present case are entitled to the benefit of the deduction contained in section 80P(2)(a)(i). notwithstanding that they may also be giving loans to their members which are not related to agriculture. Also, in case it is found that there are instances of loans being given to non-members, profits attributable to such loans obviously cannot be deducted.
It must also be mentioned here that unlike the Andhra Act that Citizen Cooperative Society Ltd. (supra) considered, 'nominal members are members' as defined under the Kerala Act. This Court in U.P. Cooperative Cane Unions Federation Ltd., Lucknow v. Commissioner of Income Tax, Lucknow-I (1997) 11 SCC 287 referred to section 80P of the IT Act and then held:
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The expression "members" is not defined in the Act. Since a cooperative society has to be established under the provisions of the law made by the State Legislature in that regard, the expression "members" in Section 80-P(2)(a)(i) must, therefore, be construed in the context of the provisions of the law enacted by the State Legislature under which the cooperative society claiming exemption has been formed. It is, therefore, necessary to construe the Expression "members" in Section 80-P(2)(a) (i) of the Act in the light of the definition of that expression as contained in Section 2(n) of the Cooperative Societies Act. The said provision reads as under: "2.(n)'Member' means a person who joined in the application for registration of a society or a person admitted to membership after such registration in accordance with the provisions of this Act, the rules and the bye-laws for the time being in force but a reference to 'members' anywhere in this Act in connection with the possession-or exercise of any right or power or the existence or discharge of any liability or duty shall not include reference to any class of members who by reason of the provisions of this Act do not possess such right or power or have по such liability or duty; Considering the definition of 'member' under the Kerala Act, loans given to such nominal members would qualify for the purpose of deduction under section 80P(2)(a)(i)." D. The decision of Hon'ble Kerala High Court in The Principal Commissioner of Income Tax vs M/s Peroorkada Service Co-operative Bank Ltd. 134 taxmann.com 380 (Kerala) is also of prime importance. The following portion of the order is relevant to the facts of the case: "8.3 Further, clause (d) deals with interest in respect of any income by way of interest or dividends derived by the Co-operative Societies from its investments with any other Cooperative Society, the whole of such interest income is eligible for deduction. It is upon plain construction inferable that clauses (d) deals with income derived by a Co-operative Society, other than the income covered by clauses (a) to (c) of Section 80P(2). Clause (d) deals with yet another type of income earned by the Co-operative Society which is deducted while computing the total income of the assessee. However, to merit acceptance of deduction under clause (d) of Section 80P(2) of the Act, the clause referring to interest or dividend derived from investments with any other Co-operative Society is satisfied. In the case on hand, the argument of assessee is that the interest eamed by the assessee is from Co-operative Banks/Treasury. The Co-operative Banks are registered under the Kerala Cooperative Societies Act. Therefore, the interest earned could be treated as meriting consideration under clause (d) of Section 80P(2) of the Act. It is not in dispute that the District/State Cooperative Banks have licence from the Reserve Bank of India under the Banking Regulation Act and are registered Cooperative Societies under the Act. Suffice to observe that by being a Society doing banking business such society will stand on par with a Cooperative Society registered under the Kerala Cooperative Societies Act would come within the purview of clause (d) of Section 80P(2).
2 Section 80P deals with Cooperative Societies' computation of income. As already noted, it has four sections and several sub-sections and clauses. The Parliament has considered the various situations in which the exigible income and the deductible income of the assessee is considered while computing the income of the assessee. For getting deduction, in our considered view, the assessee must also establish that the interest income eamed by the assessee is from a Co-operative Society. As a matter of fact, in the case on hand, there is no dispute that it is not from a Co-operative Society registered under Kerala Cooperative Societies Act. The interest income eamed from District Cooperative Bank State Cooperative Bank, in the facts and circumstances of the case, do come within Section 80P(2)(d). Therefore, the income constitutes income from other sources and the only eligible deduction is covered by Section 80P(2)(d) viz. Interest or dividend derived by the assessee from its investments with any other Co-operative Society. The source of interest income is from Bank and Treasury, interest income received from Treasury be included in the computation of total income of the assessee. In other words, interest earned from Treasury is inadmissible for deduction and interest income from Co-operative Societies registered under the Kerala Co-operative Societies Act are eligible for deduction. The contra consideration of Commissioner of Income Tax (Appeals) and the Tribunal is incorrect and liable to be modified as stated above. Hence, it is held that the interest income earned by the assessee does not come within the ambit of Section 80P(2)(a)(i) and permissible deduction of interest income is limited to Cooperative Societies/Banks registered under Kerala Co-operative Societies Act under clause (d) of the Act and effect order on the above lines is made by the Assessing Officer." E. Reference may be drawn to the decision of Hon'ble Kerala High Court in The Principal Commissioner of Income Tax vs Mis Sahyadri Co-operative Credit Society Ltd. 166 taxmann.com 445 (Kerala). The following portion of the order is relevant to the facts of the case:
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 provisions. The question that arises therefore is whether, merely because the assessee choses 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 eamed 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." F. The Hon'ble Karnataka High court in the case of PCIT vs. Totagars Co- operative Sale Society 392 ITR 74 has held that for the purpose of section 80P(2)(d) of the Act, Co-operative Bank should be considered as cooperative society. Similar view was also taken by the Hon'ble Gujarat High court in the the same issue, Hon'ble Karnataka High court in the case of PCIT vs. Totagars Co-operative Sale Society 395 ITR 611 (Karnataka) has taken a contrary view holding that interest income earned from deposit with the cooperative bank does not qualify for deduction under section 80P(2)(d) of the Act. As held by the Hon'ble High Court of Bombay in the case of K. Subramanian v. Siemens India Ltd. [1983] 15 Тахтап 594/[1985] 156 ITR 11 (Bom). where there is a conflict between the decisions of non- juri ictional High Court's, then a view which is in favour of the assessee is to be preferred as against that taken against him. Thus, taking support from the aforesaid judicial pronouncement of the Hon'ble High Court of juri iction, the ITAT Pune Bench, in the case of the appellant for AY 2017-18, in ITA No. 180/PUN./2023 followed the view taken by the Hon'ble High Court of Kamataka in the case of Totagars Cooperative Sale Society (392 ITR 74) and Hon'ble High Court of Gujarat in the case of State Bank Of India (389 ITR 578), wherein it was observed that the interest income earned by a cooperative society on its investments held with a co-operative bank would be eligible for claim of deduction under section 80P(2)(d) of the Act. G. In this case, the appellant is itself a credit Co-operative Society registered under Maharashtra Co-operative Society Act, 1960. It has made investments with a Co-operative Bank. If investments are made by a Co-operative Society with a Scheduled Bank, section 80P(2)(d) comes to no relief and the interest/dividend earned is fully taxable. Section 80P(4) would have come to the picture if the appellant were a Co-operative Bank itself (other than a Primary Agricultural Credit Society or a primary Co-operative Agricultural and Rural Development Bank), registered under section 49 of the Banking Regulation Act, 1949. In that case, whether from a Co-operative Bank or from a Co-operative Society or from a Scheduled Bank, interest/dividend earned would have been fully taxable. Here, the appellant is a Co-operative Society without a banking license from RBI and has eamed interest from another Co-operative Society registered under the Co- operative Society Act which has a banking license simultaneously. Respectfully following the decisions as cited above, I hold that the appellant was eligible to get claim for deduction u/s 80P of the Act for the interest earned by it from Co- operative Bank of Rs.5,15,78,931/-. The grounds as raised in ground nos.1, 2, 4, 5, 6, 7, 8, and 9 are allowed. H. In the result, appeal is partly allowed." The Revenue is aggrieved by the impugned order of the Ld. CIT(A)/NFAC and is in appeal before the Tribunal raising the following grounds of appeal:
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On the facts and circumstances of the case and in law, the learned CIT(A) has erred in deleting the disallowance made by the Assessing Officer of the deduction of Rs.5,15,78,931/-claimed under section 80P of the Income-tax Act, 1961 being interest earned from the investments with co- operative banks, ignoring the decision of the Hon'ble Supreme Court in the case of Totgars Co-operative Sales Society Ltd. Vs. ITO, (SC) (322 ITR 283) (2010) wherein the Hon'ble Court clearly held that the interest income which has been earned by a co-operative society by investing surplus funds would come in the category of 'Income from other sources' taxable u/s 56 of the Act and would not qualify for deduction as business income u/s 80P(2)(a) (i) of the Act.
On the facts and circumstances of the case and in law, the learned CIT(A) erred in granting relief to the assessee Co-operative society without appreciating the fact that the above interest income does not satisfy the ingredients of mutuality having been earned by commercial activities carried out by the assessee with the non-member Co-operative banks and hence, such interest income needs to be charged as income from other sources under section 56 of the Income Tax Act, 1961. 3. On the facts and circumstances of the case and in law, the learned CIT(A) erred in holding that interest earned by the assessee on its surplus investments with co-operative banks is eligible for deduction u/s 80P(2) (d) of the Income Tax Act, 1961 despite the fact that the provisions of Sec. 80P(4) of the Act specifically provides that the provisions of Sec.80P shall not apply in relation to a cooperative bank and therefore, the benefit of deduction under the said provisions could not have been extended to interest received on deposits kept such cooperative banks.
On the facts and circumstances of the case and in law, the learned CIT(A) erred in not giving due consideration to the decision of the Hon'ble wherein, based on the decision of the Hon'ble Apex Court in the case of Totgars Co-operative Sales Society Ltd. Vs. ITO, (SC) (322 ITR 283) (2010), it was held that a co-operative society would not be eligible for deduction u/s 80P(2)(d) on the interest income earned by it on account of deposit of its surplus funds in a co-operative bank. The appellant craves leave to add to, amend, alter any of the above grounds of appeal.”
The Ld. DR supported the order the Ld. AO, however, he conceded that the impugned issue is covered in favour of the assessee.
The Ld. AR, on the other hand, strongly supported the order of the Ld. CIT(A)/NFAC. The Ld. AR submitted that the assessee society claimed deduction u/s 80P(2) of the Act in respect of interest/dividend income on investments made with Co-operative Banks which formed an integral part of its business income and being a credit co-operative society, the assessee is eligible for deduction u/s 80P(2) of the Act. He further submitted that the impugned issue is squarely covered in favour of the assessee by catena of decisions of various judicial forums including the decision of the Pune Bench of the Tribunal in assessee's own case for AY 2017-18 which has been followed by the Ld. CIT(A)/NFAC for allowing assessee's claim.
1 The Ld. AR further relied on the following cases : a. Rena Sahakari Sakhar Karkhana Ltd. v. Pr. Commissioner of Income-tax 2, Aurangabad ITA No. 1249/Pun/2018. b. Vita Urban Co-Operative Credit Society v. Income Tax Officer Ward 2, Sangli ITAT, Pune dated 16 December, 2022. c. Lands End Co-operative Housing Society Ltd v. LT.O. ward-16(1)(3) ITA No. 3566/Mum/2014. d. Sangram Nagari Sahakari Patsanstha Maryadit v. Income Tax Officer, Ward- 2, Ahmadnagar ITA No.261/PUN/2024. e. Kai Fakira Jairam Patil Sahakari Patsanstha Maryadit Shahada v. ITO, Ward-1, Dhule. ITA No.553/PUN/2023. f. Sonai Gramin Bigarsheti Sah Patsanstha Maryadit v. Pr.CIT (Central), Pune ITA No.203/PUN/2022. g. Sonai Gramin Bigarsheti Sah. Patsanstha Maryadit v. DCIT, Central Circle- 1(3), Pune ITA No. 638/PUN/2022. h. Income Tax Officer, Ward 10(5), Pune v. M/s. Shiroli Budruk Krishak Seva Sahakari Patsanstha Maryadit, ITAT, Pune.
2 In respect of ground No. 2 raised by the Revenue, the Ld. AR submitted that the principle of mutuality will not be applicable in case of the assessee earning interest income from deposits with co-operative bank considering the provisions of section 80P(2)(d) which specifically states that any interest or dividend earned from investment in another co-operative society shall be fully deductible.
3 In respect of ground No. 3 of the Revenue, the Ld. AR contended that the provisions of section 80P(4) are applicable to taxation of interest received by co- operative banks and not to interest and dividend paid by co-operative banks. He relied on the judgement of the Hon'ble Apex Court in case of Mavilayi Service Co-operative Bank Limited Vs. CIT (431 ITR 1), wherein it is held that section 80P(4) operates as a proviso to section 80P(2)(a), implying that 80P(4) would not affect operation of section 80P(2)(d) of the Act.
4 In respect of ground No. 4 of the Revenue, the Ld. AR submitted that so far as the judgement of the Hon'ble Apex Court in the case of Totgars Co- operative Sales Society Ltd. Vs. ITO (SC) [(2010) (322 ITR 283)] is concerned, same was rendered in connection with provisions of section 80P(2)(a) and is not applicable to the facts of the case. As regards, judgement of Hon'ble Karnataka High Court in the case of Pr. Commissioner of Income Tax vs Totagars Co- operative Sale Society [(2017) 395 ITR 611 (Kar.)] disallowing deduction u/s 80P(2)(d) is concerned, there are various other High Court judgements which have allowed the deduction under section 80P(2)(d) in respect of interest /dividend received by a co-operative society from its investments in another co- operative society. He relied on the following decisions : a. Hon'ble Gujarat High Court in case of Surat Vankar Sahakari Sangh Ltd. Vs ACIT (421 ITR 134). b. Hon'ble Karnataka High Court in case of PCIT vs Totagurs Cooperative Sale Society (392 ITR 74). c. Hon'ble Kerala High Court in case of PCIT vs Sahayadri Co-operative Credit Society Ltd. (166 taxmann.com 445). d. Hon'ble Kerala High Court in case of PCIT vs Peroorkada Service Co- operative Bank Ltd. (134 taxmann.com 380). e. Hon'ble High Court of Gujarat in the case of State Bank of India (SBI) vs. CIT (389 ITR 578).
We have heard the Ld. Representatives of the parties and perused the material on record. We have also perused the various judicial precedents cited before us. The facts of the case are not disputed. During the relevant AY 2018-19, the assessee has earned interest/dividend income from its investments with Co-operative Banks and being a Co-operative Society has claimed deduction in respect of such interest and dividend income u/s 80P(2) of the Act. The Ld. AO denied the said claim of the assessee, however, the Ld. CIT(A)/NFAC allowed it for the reason reproduced in the above paragraphs. We find that the impugned issue is no more res integra and is covered in favour of the assessee by various judicial precedents (supra) cited by the Ld. AR. The Revenue is aggrieved by the order of the Ld. CIT(A)/NFAC on the ground that the Ld. CIT(A)/NFAC has allowed the claim of the assessee u/s 80P(2)(a)(i)/ 80P(2)(d) of the Act in respect of interest/dividend income earned from Co- operative Banks during the relevant AY ignoring the decision of the Hon'ble Supreme Court in the case of Totagars Co-operative Sale Society Ltd. Vs. ITO (322 ITR 283) and Hon'ble Karnataka High Court in the case of Pr. Commissioner of Income Tax Vs. Totagars Co-operative Sale Society (supra). In our considered view, the case of Totagars Co-operative Sale Society Ltd. (supra) is distinguishable on facts and therefore not be applied in the instant case 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/dividend income earned by the assessee from its investments made with the Co-operative Banks form an integral part of its business. We therefore find some force in the arguments advanced by the Ld. AR and in our opinion, being a credit Co-operative Society, the assessee is eligible for deduction u/s 80P(2) of the Act.
We find that the Pune Bench of the Tribunal in assessee's own case for AY 2017-18 while deciding the impugned issue in appeal filed by the assessee against the revision order passed by the Ld. PCIT u/s 263 of the Act under the identical set of facts, has allowed the assessee's claim of deduction u/s 80P(2) of the Act. The relevant findings and observations of the Tribunal is reproduced below :
“3. We have given our thoughtful consideration to the instant sole issue of correctness of PCIT's revision directions vis-à-vis the assessee's sec.80P deduction claim regarding it's income derived from deposits made in various cooperative banks. It is noticed at this stage that this tribunal's recent order dated 13.01.2023 ITA.No.421/PUN./ 2022 for the preceding assessment year 2017-18 in Solapur Zilha Prathamik Shikshah Sahakari Sanstha Niyamit, Solapur vs. PCIT, Pune-4, Pune has rejected the Revenue's very stand as under :
“3. We have given our thoughtful consideration to the vehement rival stands against and in support of the correctness of the PCIT's foregoing revision directions and find no merit therein. We make it clear that the PCIT has quoted various judicial precedents to hold that the assessee's interest income derived from parking of surplus funds in fixed deposits does not qualify under sec.80P relief. That being the case, we note that this tribunal's recent coordinate bench's order in ITA.No. 1249/PUN./2018 in Rena Sahakari Sakhar Karkhana Ltd., vs. Pr. CIT-2, Aurangabad dated 07.01.2022 has declined the Revenue's identical stand as follows :
"
After culmination of the assessment proceedings, the Pr. CIT called for the assessment records of the assessee. It was observed by the Pr. CIT that the assessee had during the year shown interest income from FDs with Co-operative Banks amounting to Rs.75,38,534/-, against which it had claimed deduction under Sec.80P(2)(d) of the Act. It was observed by the Pr. CIT, that the A.O while framing the assessment had allowed the aforesaid claim of deduction raised by the assessee. Observing, that as co- operative banks were commercial banks and not a co-operative society, therefore, the Pr.CIT was of the view that the assessee was not eligible for claim of deduction under Sec.80P(2)(d). In the backdrop of his aforesaid conviction, the Pr. CIT was of the view that the assessment order passed by the A.O under Sec.143(3), dated 07.03.2016, therein allowing the assesses claim for deduction under Sec. 80P(2)(d), had therein rendered his order as erroneous, insofar it was prejudicial to the interest of the revenue. Accordingly, the Pr.CIT not finding favour with the reply of the assessee, wherein the latter had tried to impress upon him that it was duly eligible for claim of deduction under Sec.80P(2)(d) of the Act, therein "set aside” the order of the A.O with a direction to redecide the issue afresh and reframe the assessment.
The assessee being aggrieved with the order of the Pr.CIT has carried the matter in appeal before us. As the present appeal involved a delay of 52 days, therefore, the ld. A.R took us through the reasons leading to the same. It was submitted by the ld. A.R that as the then counsel of the assessee society who was looking after its tax matters, viz. Shr. Ravikiran Pandurang Todkar, Chartered Accountant was taken unwell due to kidney failure and had undergone kidney transplant, therefore, due to his unavailability the appeal could not be filed within the stipulated time period. Our attention was drawn towards the „affidavit" of the assessee society wherein the aforesaid facts were deposed. On the basis of the aforesaid facts, it was submitted by the ld. A.R that the delay involved in filing of the present appeal in all fairness may be condoned. Per contra, the ld. D.R did not object to the seeking of condonation of the delay in filing of the appeal by the assessee society. After giving a thoughtful consideration, we are of the considered view, that as there were justifiable reasons leading to delay on the part of the assessee in filing of the present appeal before us, therefore, the same merits to be condoned.
On merits, it was submitted by the ld. A.R, that as the A.O while framing the assessment had after making necessary verifications taken a plausible view, therefore, the Pr. CIT had exceeded his juri iction by seeking to review the order passed by him in the garb of the revisional powers vested with him under Sec.263 of the Act. It was submitted by the ld. A.R, that the issue as regards the eligibility of the assessee for claim of deduction under Sec.80P(2)(d) on interest income derived from investments/deposits lying with co-operative banks was squarely covered by the various orders of the coordinate benches of the Tribunal viz., (i). M/s Solitaire CHS Ltd. vs. Pr. CIT, ITA No. 3155/Mum/2019; dated 29.11.2019 ( ITAT “G” Bench, Mumbai); Kaliandas Udyog Bhavan Premises Co-op Society Ltd. Vs. ITO-21(2)(1), Mumbai, ITA No. 6547/Mum/2017 (ITAT Mumbai); and (iii). Majalgaon Sahakari Sakhar Karkhana Ltd. Vs. ACIT, Circle-3, Aurangabad, ITA No, 308/Pun/2018 (ITAT Pune). On the basis of his aforesaid contentions, it was averred by the ld. A.R that as the Pr. CIT had exceeded his juri iction and had not only sought to review the plausible view that was taken by the A.O after necessary deliberations which was in conformity with the order of the juri ictional bench of the Tribunal, therefore, his order may be vacated and that of the A.O be restored.
Per contra, the ld. Departmental Representative (for short „D.R") relied on the order passed by the Pr. CIT under Sec.263 of the Act. It was submitted by the ld. D.R, that as the assessee was not eligible for claim of deduction under Sec. 80P on the interest income received on the investments/deposits lying with the co-operative banks, therefore, the Pr. CIT finding the assessment order passed by the A.O under Sec.143(3), dated 07.03.2016 as erroneous, insofar it was prejudicial to the interest of the revenue, had rightly „set aside" his assessment with a direction to re- adjudicate the issue therein involved. Our attention was also drawn by the ld. D.R to his written submissions and certain judicial pronouncements in support of his aforesaid contention.
We have heard the ld. authorised representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them. Our indulgence in the present appeal has been sought, for adjudicating, as to whether or not the claim of the assessee for deduction under section 80P(2)(d) in respect of interest income earned from the investments/deposits made with the co-operative banks is in order. In our considered view, the issue involved in the present appeal hinges around the adjudication of the scope and gamut of sub-section (4) of Sec. 80P as had been made available on the statute, vide the Finance Act 2006, with effect from 01.04.2007. On a perusal of the order passed by the Pr. CIT under Sec. 263 of the Act, we find, that he was of the view that pursuant to insertion of subsection (4) of Sec. 80P, the assessee would no more be entitled for claim of deduction under Sec. 80P(2)(d) in respect of the interest income that was earned on the amounts which were parked as investments/deposits with the co-operative bank, other than a Primary Agricultural Credit Society or a Primary Co-operative Agricultural and Rural Development Bank. Observing, that the co-operative banks from where the assessee was in receipt of interest income were not cooperative societies, the Pr. CIT was of the view that the interest income earned on such investments/deposits would not be eligible for deduction under Sec. 80P(2)(d) of the Act.
After necessary deliberations, we are unable to persuade ourselves to concur with the view taken by the Pr. CIT. Before proceeding any further, we may herein cull out the relevant extract of the aforesaid statutory provision, viz. Sec. 80P(2)(d), as the same would have a strong bearing on the adjudication of the issue before us. "80P(2)(d) (1). Where in the case of an assessee being a cooperative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in subsection (2), in computing the total income of the assessee. 2). The sums referred to in sub-section (1) shall be the following, namely :- (α). (b). (c). (d) in respect of any income by way of interest or dividends derived by the cooperative society from its investments with any other co-operative society, the whole of such income;" On a perusal of Sec. 80P(2)(d), it can safely be gathered that interest income derived by an assessee co-operative society from its investments held with any other cooperative society shall be deducted in computing its total income. We may herein observe, that what is relevant for claim of deduction under Sec. 80P(2)(d) is that the interest income should have been derived from the investments made by the assessee co-operative society with any other co-operative society. We are in agreement with the view taken by the Pr. CIT, that with the insertion of sub-section (4) to Sec. 80P of the Act, vide the Finance Act, 2006 with effect from 01.04.2007, the provisions of Sec. 80P would no more be applicable in relation to any co- operative bank, other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. However, at the same time, we are unable to subscribe to his view that the aforesaid amendment would jeopardize the claim of deduction of a co-operative society under Sec. 80P(2)(d) in respect of its interest income on investments/deposits parked with a co-operative bank. In our considered view, as long as it is proved that the interest income is being derived by a co-operative society from its investments made with any other co-operative society, the claim of deduction under the aforesaid statutory provision, viz. Sec. 80P(2)(d) would be duly available. We find that the term „co-operative society" had been defined under Sec. 2(19) of the Act, as under:- “(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 cooperative banks pursuant to the insertion of sub-section (4) to Sec. 80P would no more be entitled for claim of deduction under Sec. 80P of the Act, but as a cooperative 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 in force 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.
In so far the judicial pronouncements that have been relied upon by the ld. A.R are concerned, we find that the issue that a co-operative society would be entitled for claim of deduction under Sec. 80P(2)(d) on the interest income derived from its investments held with a cooperative bank is covered in favour of the assessee in the following cases: (i). M/s Solitaire CHS Ltd. vs. Pr. CIT, ITA No. 3155/Mum/2019; dated 29.11.2019 ( ITAT “G” Bench, Mumbai); (ii). Majalgaon Sahakari Sakhar Karkhana Ltd. Vs. ACIT, Circle-3, Aurangabad, ITA No, 308/Pun/2018 (ITAT Pune) (iiii). Kaliandas Udyog Bhavan Pemises Co-op. Society Ltd. Vs. ITO, 21(2)(1), Mumbai We further find that the Hon'ble High Court of Karnataka in the case of Pr. Society (2017) 392 ITR 74 (Karn) and Hon'ble High Court of Gujarat in the co-operative bank would be eligible for claim of deduction under Sec. 80P(2)(d) of the Act. Still further, we find that the CBDT Circular No. 14, dated 28.12.2006 also makes it clear beyond any scope of doubt that the purpose behind enactment of sub-section (4) of Sec. 80P was that the co- operative banks which were functioning at par with other banks would no more be entitled for claim of deduction under Sec. 80P(4) of the Act. Although, in all fairness, we may herein observe that the Hon'ble High Court of Karnataka in the case of Pr. CIT Vs. Totagars co-operative Sale Society (2017) 395 ITR 611 (Karn), as had been relied upon by the ld. D.R before us, had held, that a co-operative society would not be entitled to claim deduction under Sec. 80P(2)(d); but then, the Hon'ble High Court in Cooperative Sale Society (2017) 392 ITR 74 (Karn) and Hon'ble High CourT (Guj), had observed, that the interest income earned by a co-operative society on its investments held with a co-operative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act. Backed by the aforesaid conflicting judicial pronouncements, we may herein observe, that as held by the Hon'ble High Court of Bombay in the case of K. from the aforesaid judicial pronouncement of the Hon'ble High Court of juri iction, we respectfully follow the view taken by the Hon'ble High the Hon'ble High Court of Gujarat in the case of State Bank Of India Vs. CIT (2016) 389 ITR 578 (Guj), wherein it was observed that the interest income earned by a co-operative society on its investments held with a cooperative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act.
Be that as it may, in our considered view, as the A.O while framing the assessment had taken a possible view, and allowed the assessee's claim for deduction under Sec. 80P(2)(d) on the interest income earned on its investments/deposits with co-operative banks, therefore, the Pr. CIT was in error in exercising his revisional juri iction u/s 263 of the Act for dislodging the same. Accordingly, finding no justification on the part of the Pr. CIT, who in exercise of his powers under Sec. 263 of the Act, had dislodged the view that was taken by the A.O as regards the eligibility of the assessee towards claim of deduction under Sec. 80P(2)(d), we set- aside his order and restore the order passed by the A.O under Sec. 143(3), dated 07.03.2016."
Faced with the situation, we adopt the learned coordinate bench's above extracted direction mutatis mutandis to reverse the PCIT's impugned revision directions. The Assessing Officer assessment herein stands restored as the necessary corollary. Ordered accordingly.”
We adopt the above detailed reasoning mutantis mutandis to reverse the learned PCIT's revision directions under challenge in very terms. The Assessing Officer's corresponding assessment order dated 31.12.2019 stands restored as the necessary corollary. Ordered accordingly. Similar view has been taken in catena of decisions (supra) by the Juri ictional Bench of the Tribunal cited by the Ld. AR.
Based on the facts and in the circumstances of the case and the legal position enumerated above, we do not find any reason to interfere with the order of the Ld. CIT(A)/NFAC which we hereby uphold. Accordingly, the grounds raised by the Revenue are dismissed.
In the result, the appeal of the Revenue in ITA No. 1800/PUN/2025 for AY 2018-19 is dismissed. ITA No. 1801/PUN/2025, AY 2020-21
Both the Ld. Representatives of the parties have unanimously conceded that the facts of the present appeal for AY 2020-21 are exactly similar to the facts in appeal for AY 2018-19 except the variance in the amount of claim and the Ld. CIT(A)/NFAC has allowed the appeal of the assessee for AY 2020-21 as well for the same reasons as reproduced above for AY 2018-19. The grounds of appeal raised by the Revenue are also exactly the same for both the AYs involved. Hence, the findings given by us while adjudicating the appeal in ITA No. 1800/PUN/2025 vide our above order of even date would mutatis mutandis apply to the appeal in ITA No. 1801/PUN/2025. Accordingly, the appeal of the Revenue is dismissed in the same terms.
In the result, the appeal of the Revenue in ITA No. 1801/PUN/2025 for AY 2020-21 is dismissed.
To sum up, the appeals of the Revenue for AY 2018-19 in ITA No. 1800/PUN/2025 and AY 2020-21 in ITA No. 1801/PUN/2025 are dismissed. Order pronounced in the open court on 18th December, 2025. (R.K. Panda) VICE PRESIDENT (Astha Chandra) JUDICIAL MEMBER पुणे / Pune; दिनांक / Dated : 18th December, 2025. रवि आदेश की प्रतिलिपि अग्रेषित /