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

आयकर अपीलीय अधिकरण ”एस एम सी” न्यायपीठ पुणेमें।
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCHES “SMC” :: PUNE

BEFORE DR.DIPAK P. RIPOTE, ACCOUNTANT MEMBER
AND SHRI VINAY BHAMORE, JUDICIAL MEMBER

आयकर अपऩल सं. / ITA No.2272/PUN/2025
निर्धारण वषा / Assessment Year: 2020-21
The Income Tax Officer,
Ward-2, Ahmednagar.
V s
Kanifnath Gramin Bigar Sheti
Sahakari Patsanstha Maryadit,
At Post Maldad,
Taluka
Sangamner,
Ahmednagar – 422608. PAN: AABAK1395E
Appellant / Revenue

Respondent /Assessee

Assessee by Shri Pramod S Shingte
Revenue by Shri Arvind Renge –Addl.CIT(Virtual
Hearing)
Date of hearing
04/11/2025
Date of pronouncement 28/11/2025

आदेश/ ORDER

PER DR. DIPAK P. RIPOTE, AM:

This is an appeal filed by Revenue against the order of ld.Commissioner of Income Tax(Appeal)[NFAC], passed under section 250 of the Income Tax Act, 1961 for the A.Y.2020-21 dated
01.07.2025, emanating from order u/s.143(3) r.w.s144B of the Income Tax Act, 1961, dated 22.09.2022. The Revenue has raised the following concise grounds of appeal :

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“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.

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.

The appellant craves to add alter amend and modify any of the above or all grounds raised at time of proceedings before the Honble Tribunal which may please be granted.”

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Assessment Order. The first paragraph of the assessment order is reproduced here as under :

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Assessee u/s.80P(2)(d) of the Act. The relevant part of the Income
Tax Return filed by assessee is scanned and reproduced here as under :

Ground No.1 :

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“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.

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.

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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 ITA No.2272/PUN/2025 [D]

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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

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of Hon’ble Supreme Court in the case of Totagar’s Co.operative
Sales Society Ltd.

Dr.DIPAK P. RIPOTE
JUDICIAL MEMBER

ACCOUNTANT MEMBER
पपणे / Pune; ददिधंक / Dated : 28 Nov, 2025/ SGR
आदेशकीप्रनिनलनपअग्रेनषि / Copy of the Order forwarded to :
1. अपऩलधर्थी / The Appellant.
2. प्रत्यर्थी / The Respondent.
3. The CIT(A), concerned.
4. The Pr. CIT, concerned.
5. नवभधगऩयप्रनिनिनर्, आयकर अपऩलऩय अनर्करण, “एस एम सऩ” बेंच,
पपणे / DR, ITAT, “SMC” Bench, Pune.
6. गधर्ाफ़धइल / Guard File.
आदेशधिपसधर / BY ORDER,

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Senior Private Secretary

आयकर अपऩलऩय अनर्करण, पपणे/ITAT, Pune.