AHMEDNAGAR ZILLA GRAMSEVAKANCHI SAHAKAR PATSANSTHA MARYADIT,AHILYANAGAR vs. PCIT, PUNE-1, PUNE

आदेश / ORDER

PER ASTHA CHANDRA, JM :

2. The assessee has raised the following grounds of appeal :

1. On the facts and in the prevailing circumstances of the case, respected PCIT Pune -1 erred passing the impugned Revision Order under section 263 without appreciating the fact that interest on the deposits made by a co-operative society with the co-for operative Bank is eligible deduction under section 80P of the Act. Hence, the impugned order under section 263 may please be squashed.

2. On the facts and in the prevailing circumstances of the case, respected PCIT Pune 1 erred passing the impugned Revision Order under section 263 without appreciating the submission made by the assessee society and the judgments of Hon'ble Jurisdictional Pune ITAT. Hence, the impugned order under section 263 may please be squashed.

3. The Appellate craves the permission to add, amend, modify, alter, revise, substitute, delete any or all grounds of the appeal, if deemed necessary at the time of hearing of the appeal.”

5. Accordingly, the Ld. PCIT issued notice to the assessee involving the provisions of section 263 of the Act on 03.12.2024, followed by another notice issued on 17.02.2025. The assessee filed its reply to the said notice(s) on 22.02.2025 a copy of which is placed at pages 53 to 66 of the paper book. However, the Ld. PCIT not being satisfied with the reply/submission made by the assessee held the order passed by the Ld. AO as erroneous in so far as it is prejudicial to the interest of Revenue by observing as under: “5. I have carefully considered the entire written submission of the assessee. It is seen that the assessee has made following investments with other co- operative banks, as appearing in its balance sheet as on 31/03/2020. Sr. No. Name of the Bank Amount (Rs.) 1 Ahmednagar DCC Bank Ltd. (FD) 1,23,11,262/- 2 Ahmednagar DCC Bank Ltd. (Shares) 1,50,00,000/-

The assessee has earned interest income of Rs.8,58,563/- and dividend income of Rs.9,00,000/- during the year under consideration. The assessee has claimed total deduction of Rs. 17,58,563/- u/s. 80P(2)(d) on the said income which was prima facie found to be not verified by the FAO. The main contention of the assessee in this regard is that it had provided the relevant details to the FAO and the FAO has accepted the say of the assessee after considering those details and making proper inquiries / verification. To verify the authenticity of the assessee's plea, the contents of the assessment order are verified by the undersigned but there is no mention of any verification in the assessment order. The assessment order contains total 3 paras of 4-8 lines. The first para gives details about return of income and reasons for selection of the case for scrutiny. Second para gives details of notices issued and that the assessee had given reply to the notices from time to time and the last para mentions acceptance of returned income of the assessee based on the submission of the assessee. For the sake of clarity, the copy of order is reproduced below: ASSESSMENT ORDER

3. On the basis of Income tax return, information available with the department and submission made by the assessee during the course of assessment proceeding, income declared by the assessee in his ITR dated 22.01.2021 is being taken as assessed income u/s 143(3) r.w.s. 144B of the Income Tax Act 1961. Computation of the tax liability including interest is as per the system generated computation sheet made by the CPC and it is an integral part of this assessment order. The same is being attached with this order. Assessed u/s 143(3) read with Sec. 144B of I.T. Act, 1961 as above. Interest charged as per law. Credit of prepaid taxes allowed on verification. Computation of total income and tax thereon as per system generated sheets, Copy of order and Demand Notice issued to the assessee."

Even a cursory look on the assessment order shows that the FAO has not confirmed any verification or inquires made by him in respect of the assessee's submission. In para (3) of the order, the FAO has made only a general remark that the returned income is accepted based on the records available and submission of the assessee during the assessment proceedings. The FAO has not given any details as to what were the documents/evidences submitted by the assessee; what verifications were made; how they were related to the issues for which the case was selected for scrutiny, the reason and basis of the conclusion etc.. Considering the above facts revealed from the assessment order, the assessee's contention that the FAO had made proper inquiries and verification is totally ill-founded. The assessee has relied upon various decisions in support of its above contention, without giving any citation, in this regard viz. CIT vs. Smt. Sneh Lata (2015)-Delhi High Court, CIT vs. Haryana Acrylic Manufacturing Co. (2014)-Panjab & Haryana High Court, CIT vs. Jyoti Ltd. (2013)-Gujarat High Court. However, with due respect to the respective Courts of Law, since the FAO did not carry out any inquiries / verification in this case, the case-laws relied upon by the assessee are not applicable in this case.

7. Further, it is to note here that section 80P(2)(d) envisages that interest or dividend earned should be out of the investments with any other co-operative society. The words 'Co-operative Banks' are missing in clause (d) of sub section (2) of section 80P. Even though a cooperative bank may have the corporate body or skeleton of a co-operative society but its business is entirely different and that is the banking business, which is governed and regulated by the provisions of the Banking Regulation Act, 1949. Only the primary agricultural credit society with their limited work of providing credit facility to its members continued to be governed by the ambit and scope of deduction under section 80P of the Act. 7.1 The banking business, even though run by a Co-operative bank is sought to be excluded from the beneficial provisions of exemption or deduction under section 80P of the Act. The purpose of bringing on the statute book sub- section (4) in section 80P was to exclude the applicability of section 80P altogether to any co-operative bank and to exclude the normal banking business income from such exemption/deduction category. The words used in section 80P(4) are significant. They are: "The provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society. The words 'in relation to' can include within its ambit and scope even the interest or dividend income earned by the assessee, a co-operative society from a Co-operative Bank. This exclusion by section 80P(4) even though without any amendment in section 80P(2)(d) is sufficient to deny the claim of the assessee for deduction under section 80P(2)(d) of the Act. The only exception is that of a primary agricultural credit society. The provisions of section 80P (2)(d) state that "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 plain reading of the above provision, it is clear that the section refers to interest and dividends earned from investments in another co-operative society only. Thus, this deduction cannot be extended to the interest income earned from the investment in any co-operative bank. It is well-settled rule of interpretation that the Legislative mandate should be so read that no word used by the Parliament should be rendered nugatory. If the word "co operative society" is to read as "Co operative bank" the same would render the entire provision redundant, otiose and nugatory, an outcome which the Parliament could surely not have intended. It has also been further clarified in Oswal Agro Mills case reported in 1993 (66) ELT 37 (S.C.) that "where the words of the statute are plain and clear, there is no room for applying any of the principles of interpretation which are merely presumption in cases of ambiguity in the statute. The Court would interpret them as they stand. The object and purpose has to be gathered from such words themselves. Words should not be regarded as being surplus nor be rendered otiose". 7.2 As regards the question whether all the co-operative banks are primarily "co-operative societies" within the meaning of section 2(19) of the Income-tax Act to allow deduction u/s. 80P(2)(d) of the Act on the interest earned from such co-operative banks, it is to be first examined whether a 'co-operative bank' is akin to a 'co-operative society' mentioned in section 2(19) or section 80P(2)(d) of the Act. Hon'ble High Court of Karnataka has answered this issue against the assessee and in favour of revenue, at para 13 of its order in the case of PCIT. Hubballi vs. Totagars Co-operative Sale Society [(2017) 395 ITR 611 dated 16.06.2017] as under. "What Section 80P(2)(d) of the Act, which was though not specifically argued and canvassed before the Hon'ble Supreme Court, envisages is that such interest or dividend earned by an assessee co-operative society should be out of the investments with any other co-operative society. The words' Co- operative Banks' are missing in clause (d) of subsection (2) of Section 80P of the Act. Even though a co-operative bank may have the corporate body or skeleton of a co-operative society but its business is entirely different and that is the banking business, which is governed and regulated by the provisions of the Banking Regulation Act, 1949. Only the Primary Agricultural Credit Societies with their limited work of providing credit facility to its members continued to be governed by the ambit and scope of deduction under Section 80P of the Act." The Hon'ble High Court has held that though a co-operative bank may have the corporate body or skeleton of a co-operative society, its business is entirely different and that is the banking business. In effect, Hon'ble Karnataka High Court ruled that a co-operative bank was an entirely different species than that of a co-operative society. Hon'ble High Court strengthened this argument by pointing out that "the words' Co-operative Banks' are missing in clause (d) of subsection (2) of Section 80P of the Act. Once it is held that the co-operative banks are entirely different species than those of co-operative societies, the next question is whether, the interest earned from such co-operative banks is eligible for deduction u/s 80P(2)(d) of the Act. From a plain reading of section 80P(2)(d) of the I.T. Act it is apparent that to claim deduction under the said section, the income must have been earned by way of interest or dividends and the income must be derived from investment with any other co-operative society only. Hon'ble Karnataka High Court in the case of PCIT, Hubballi vs. Totagars Co-operative Sale Society [(2017) 395 ITR 611 dated 16.06.2017] (supra) held at para 23 as under: "The character of income depends upon the nature of activity for earning the income and though on the face of it, the same may appear to be falling in any of the specified clauses of section 80P(2) of the Act, but on a deeper analysis of the facts, it may become ineligible for deduction under section 80P(2) of the Act. Hence, the income by way of interest earned by deposit or investment of idle or surplus funds does not change its character irrespective of the fact whether such income of interest is earned from a scheduled bank or a co-operative bank and, thus, clause (d) of section 80P(2) of the Act would not apply in the facts and circumstances of the present case. The person or body corporate from which such interest income is received will not change its character, viz. interest income not arising from its business operations, which made it ineligible for deduction under section 80P of the Act." As can be seen from the above decision, Hon'ble High Court held that the person or body corporate (in this case, co-operative bank) from which such interest income is derived will not change the character of income, viz. the income from other sources, which is ineligible for deduction under section 80P(2)(d) of the Act. The definition of co-operative society as contained in Section 2(19) of I.T. Act speaks only of "Cooperative Society" and not a "co-operative bank". Similarly, the words 'Co-operative Banks' are missing in clause (d) of subsection (2) of Section 80P of the Act. It is well settled rule of the interpretation that the legislative mandate should be read in such a way that no word used by the Parliament should be rendered inoperative. If the word "Co-operative Society' is to be read as "Co-operative Bank", the same would render the entire provision redundant, the outcome of which the Parliament could sure not have intended. The Hon'ble Supreme Court in the case of Oswal Argo Mills (66 ELT 37) S.C. has clarified that where the words of the Statute are plain and clear, there is no room for applying any of the principles of interpretation. With the insertion of sub-section 80P(4) which is in the nature of a proviso, as held by Hon'ble Supreme Court in its latest decision in the case of The Mavilayi Service Coop. Bank Ltd. & Ors. vs. CIT. Civil Appeal Nos. 7343- 7350 of 2019 dtd. 12.01.2021, the co-operative banks are excluded from the ambit of section 80P of the Act. The relevant extract at para 21 is as under: "That section 80P(4) is in the nature of a proviso to the main provision contained in section 80P(1) and (2). This proviso specifically excludes only co- operative banks, which are co-operative societies who must possess a licence from the RBI to do banking business." Hon'ble Karnataka High Court in the case of PCIT, Hubballi vs. Totagars Co- operative Sale Society [(2017) 395 ITR 611 dated 16.06.2017] (supra) further held at para 14 as under: "The purpose of bringing on the statute book sub-section (4) in Section 80P of the Act was to exclude the applicability of Section 80P of the Act altogether to any co-operative bank and to exclude the normal business banking income from such exemption/deduction category. This exclusion by Section 80P(4) of the Act even though without any amendment in Section 80P(2)(d) of the Act is sufficient to deny the claim of the respondent assessee for deduction under Section 80P(2)(d) of the Act." Thus, the intention of Legislature is to keep the co-operative banks out of the scope of section 80P of the Income Tax Act, 1961. Once the provisions of section 80P are not applicable to Co-operative Banks, for all purposes they have to be kept out of the scope of the section. Wherever the word 'co- operative society' is used in section 80P, it will not be applicable for co- operative banks. This means that the interest income derived from deposits / investments in co-operative banks are not eligible for deduction u/s. 80(P)(2)(d) of Income Tax Act, 1961 1961. As held by Hon'ble Karnataka High Court in PCIT, Hubballi vs. Totagars Co- operative Sale Society [(2017) 395 ITR 611 dated 16.06.2017] (supra), the amendment of Section 194A(3)(v) of the Act excluding the Co-operative Banks from the definition of "Co-operative Society" by Finance Act, 2015 and requiring them to deduct income tax at source under Section 194A of the Act also makes the legislative intent clear that the Co-operative Banks are not that species of genus co-operative society, which would be entitled to exemption or deduction under the special provisions of Chapter VIA in the form of Section 80P of the Act. 7.3 In the light of above legal position, it is amply clear that interest earned by a co-operative society from investments made in a co-operative bank is not eligible for claim of deduction u/s 80P(2)(d) of the I.T. Act. 7.4. It is also to be considered here that the Hon'ble Apex Court in the case of Totagars co-operative Sale Society Ltd. Vs. ITO [(2010) 188 Taxmann 282 (SC)] has held that- "Interest on such investments, therefore, could not fall within the meaning of the expression 'profits and gains of business. Such interest income could not be said to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members or marketing of the agricultural produce of its members. Therefore, looking to the facts and circumstances of the case, the Assessing Officer was right in taxing the interest income under section 56[Para 10] To say that the source of income is not relevant for deciding the applicability of section 80P would not be correct because one needs to give weightage to the words 'the whole of the amount of profits and gains of business' attributable to one of the activities specified in section 80P(2)(a). The words 'the whole of the amounts of profits and gains of business' emphasizes that the income, in respect of which deduction is sought, must constitute the operational income and not the other income which accrues to the society. In the instant case, the evidence showed that the assessee-society earned interest on funds which were not required for business purposes at the given point of time. Therefore, on the facts and circumstances of the instant case, such interest income fell in the category of other income' which had rightly been taxed by the department under section 56. [Para 11]"

9. In the light of the facts discussed in the foregoing paragraphs, the order passed on 20/09/2022 under section under section 143(3) read with section 144B of the Act is erroneous and prejudicial to the interests of revenue. Thus, both the conditions specified under section 263 of the Act are satisfied in this case and it is a fit case to invoke provisions of the said section. In view of the above, the assessment order dated 20/09/2022 for the A.Y. 2020-21 is hereby set aside to the file of the Assessing Officer for proper verification of fact and to re-examine the issue considering the aspects discussed in the foregoing paragraphs and decide the issues afresh. However, before arriving at any conclusion, the Assessing Officer shall give reasonable opportunity to the assessee to adduce the evidence and information with regard to the issues involved. The Assessing Officer shall, accordingly, frame the assessment afresh.”

6. Aggrieved with such order of the Ld. PCIT, the assessee is in appeal before the Tribunal.

8. The Ld. AR further submitted that even otherwise also it is a highly debatable issue and the Ld. AO has taken a plausible view, therefore, the Ld. PCIT cannot invoke the jurisdiction u/s 263 of the Act on an issue which has already been examined by the Ld. AO and who has taken a plausible view.

9. The Ld. DR, on the other hand, strongly supported the order of the Ld. PCIT contending that the Ld. PCIT is completely justified in assuming the jurisdiction u/s 263 of the Act.

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 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 Cooperative 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 5.1 Thus, 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 of Hon’ble Supreme Court in the case of Totagar’s Co.operative Sales Society Ltd.

6. The Hon’ble Supreme Court in the case of Pr.CIT Vs. Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd., 454 ITR 117 (SC) has held as under : Quote. “5. There are concurrent findings recorded by CITA, ITAT and the High Court that the respondent/Assessee cannot be termed as Banks/Cooperative Banks and that being a credit society, they are entitled to exemption under section 80(P)(2) of the Income-tax Act. Such finding of fact is not required to be interfered with by this Court in exercise of powers under Article 136 of the Constitution of India. Even otherwise, on merits also and taking into consideration the CBDT Circulars and even the definition of Bank under the Banking Regulation Act, the respondent/Assessee cannot be said to be Co- operative Bank/Bank and, therefore, Section 80(P)(4)shall not be applicable and that the respondent/Assessee shall be entitled to exemption/benefit under section80(P)(2) of the Income-tax Act.

6. In view of the above and for the reasons stated hereinabove, the present appeal deserves to be dismissed and is accordingly dismissed, answering the question against the Revenue and in favour of the Assessee.” Unquote 6.1 The above order of Hon’ble Supreme Court was rendered in the context of the appeal filed by the Revenue against the order dated 14-10-2019 passed by the Hon’ble High Court of Judicature at Bombay in by which the High Court has dismissed the said appeal preferred by the Revenue.

7. The Hon’ble Bombay High Court’s order in dated 14.10.2019 in the case of Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd., emanates from the ITAT order in dated 20.05.2016. The facts recorded in the ITAT order in ITA No.2515/MUM/2014 are that Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd., is a Co-operative CreditSociety registered under the Maharashtra Co-operative Society Act, had claimed deduction under section 80P(2)(d) of the Income Tax Act, 1961 as well as Rs.5,85,57,676/- claimed under section 80P(2)(a)(i) of theAct. The Assessing Officer disallowed the claim of deduction u/s.80P(2) in the case of Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd. The Revenue in the appeal filed before ITAT in ITA No.2515/MUM/2014 has raised following questions: “(i) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition made by the AO amounting to Rs.5,85,57,676/- u/s.80P(2)(a)(i) and Rs.1,39,23,333/- u/s.80P(2)(d) of the I.T. Act even though assessee was carrying on banking business. (ii) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not considering the fact that amendment to Sec.80P(4) inserted w.e.f. 1.4.2007 by Finance Act, 2006 clearly bans all the co-operative banks other than primary agricultural credit society or a primary co-operative agricultural and rural development banks from claiming exemption under this section” 7.1 The appeal filed by Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd., travelled up to Hon’ble Supreme Court and the Hon’ble Supreme Court has decided the appeal in favour of Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd., regarding deduction u/s.80P(2) of the Act. Therefore, this issue has attained finality.

8. Respectfully following the judicial precedents, we direct the Assessing Officer to allow deduction u/sec.80P(2)(a)(i) of the Act, on the interest earned and delete the addition of Rs.9,17,453/-. Accordingly, Grounds of appeal raised by the assessee are allowed.”

Order pronounced in the open court on 25th November, 2025.