INCOME TAX OFFICER, WARD 2, AHMEDNAGAR vs. KANIFNATH GRMAIN BIGAR SHETI SAHAKARI PATSANSTHA MARYADIT, MALAD

2. We have heard both the parties and perused the records. In this case, Assessee is a Co-operative Credit Society registered under Maharashtra Co-operative Societies Act, engaged in the business of providing credit facilities to its members. The Assessee’s case was selected for scrutiny. Assessment Order was passed after considering the assessee’s submission on 22.09.2022 for A.Y.2020-

21. The Assessing Officer in para 4.6.22 held that Assessee is not eligible for deduction u/s.80P(2)(d) of the Act, and made an addition of Rs.2,19,34,691/- as income from other sources. The relevant 2 paragraph of the assessment order are reproduced here as under :

4. Aggrieved by the order of ld.CIT(A), Revenue has filed appeal before this Tribunal.

6.1 Thus, it is a fact that Assessee has not claimed deduction u/s.80P(2)(d) of the Act. Therefore, Assessing Officer has blatantly erred in disallowing the deduction which was never claimed.

6.2 The worst irony is that Pr.CIT who has approved the appeal has also not read the facts.

“On the facts and in the circumstances of the case and in law, the Ld. CIT Appeal erred in allowing the deduction of us 80P(2)(d) of the assessee claimed deduction us 80P(2)(d) in respect of the interest income received from its investments with other than co-operative societies.

8.1 The Assessee had not claimed any deduction u/s.80P(2)(d) of the Act, hence, Assessing Office has erred in disallowing deduction u/s.80P(2)(d) which was never claimed. Therefore, Ground No.1 raised by the Revenue is dismissed. Ground No.2 & 3 : On the facts and the circumstances of the case and in law, the Ld. CIT Appeal erred in deduction us 80P(2)(d) of the Income Tax Act of Rs.2,19,34,691 without considering the decision of Honble High Court of Karnataka in the case of Principal commissioner of Income Tax, Huballi vs. Totgars co-operative Sale society 395 ITR 611, dated 16.06.2017.

On the facts and the circumstances of the case and in law, the Ld. CIT Appeal erred in allowing the deduction us 80P2d of the LT.Act without proper verification of the facts as to how the investments made by the assessee with other co operative banks generated the operational income of the assessee, considering the facts that the business operations of the assessee is to provide credit facilities to its members and accepts deposits from them.

8.2 The Assessee had never claimed deduction u/s.80P(2)(d) of the Act. Assessee had claimed deduction mainly u/s.80P(2)(a)(i) of the 6 Act. The Hon’ble Andhra Pradesh High Court in the case of Vavveru Co-operative Rural Bank Ltd. [2017] 396 ITR 371 has held that co-operative credit Society is eligible for deduction u/s.80P(2)(a)(i) on the interest earned. The Hon’ble Andhra Pradesh High Court has distinguished the decision of Hon’ble Supreme Court in the case of Principal commissioner of Income Tax, Huballi vs. Totgars co-operative Sale society 395 ITR 611, dated 16.06.2017.

8.3 The Hon’ble Kerala High Court in the case of Pr.CIT Vs. Sahyadri Co-operative Credit Society Ltd., [2024] 301 Taxman 36 (Kerala) vide order dated 04.09.2024, has held as under : Quote “7. 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 provision. The question that arises therefore is whether, merely because the assessee chooses 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 7 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 earned 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.” Unquote 8.4 Thus, even Hon’ble Kerala High Court has held that the character of income does not change. The Hon’ble Kerala High Court held that interest earned from deposits in permitted banks will be eligible for deduction u/s.80P of the Act. The Hon’ble Kerala High Court’s decision is dated 04.09.2024 means, after the decision 8 of Hon’ble Supreme Court in the case of Totagar’s Co.operative Sales Society Ltd.

9. In these facts and circumstances of the case, the Grounds No.2 and 3 raised by the Revenue are dismissed.