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Facts
The Assessee, a Co-operative Credit Society, filed an appeal against the order of the CIT(A) which confirmed the disallowance of deduction claimed under Section 80P on interest income earned from banks. The original assessment order was passed under Section 147, initiated due to alleged escapement of income from cash deposits.
Held
The Tribunal held that the interest income earned by the Assessee from deposits in nationalized banks and co-operative societies is attributable to its business and is eligible for deduction under Section 80P(2)(a)(i) of the Act. This decision followed various pronouncements of the Supreme Court and High Courts.
Key Issues
Whether the interest income earned by a co-operative society from deposits made in banks is eligible for deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961.
Sections Cited
147, 148, 148A, 149, 151, 142(1), 144B, 80P, 80P(2)(d), 80P(2)(a)(i), 250, 80P(4)
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Income Tax Appellate Tribunal, PUNE BENCHES “SMC” :: PUNE
Before: MS.ASTHA CHANDRA & DR.DIPAK P. RIPOTE
Assessment Year: 2015-16 Maratha Seva Sangh Sanchlit V Assessment Unit, Dhule Dist Nagari Sahakari s ITD. Patsanstha Ltd., Plot No.148, Chudamani, Jay Hind Colony, Deopur Dhule, Dhule – 424002. PAN: AACTM4087D Appellant/ Assessee Respondent / Revenue Assessee by Shri Sharad A Shah Revenue by Shri Pawan Bharti (Virtual Hearing) Date of hearing 13/11/2025 Date of pronouncement 14/11/2025 आदेश/ ORDER
PER DR. DIPAK P. RIPOTE, AM:
This is an appeal filed by the Assessee 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.2015-16 dated 23.07.2025 emanating from the Assessment Order passed under section 147 r.w.s 144B of the Act, dated 21.02.2024. The Assessee has raised the following grounds of appeal :
FACTS:-
1.1 Reassessment proceedings were initiated by issuing show cause notice u/s.148A(b) on 20/03/2022 by invoking provisions of section 149(1)(b) of I.T. Act, 1961 for escapement of income of Rs.56,75,130/- on account of deposits of cash of Rs.10,00,000/- or more in saving bank account with Union Bank of India.
1.2 The year under consideration is A.Y. 2015-16. Order u/s.148A(d) and notice u/s.148 were issued after obtaining prior approval of Prin. Chief Commissioner of Income Tax u/s.151 (ii) of LT. Act, 1961.
1.3 Return of income in response to notice u/s.148 was not filed.
1.4 During the course of assessment proceedings in response to notices u/s.142(1) explanation regarding cash deposit of Rs.56,75,130/- was furnished and the explanation so offered was accepted by the Assessment Unit vide Para No.3.4 of show cause notice dated 24/10/2024.
1.5 Assessment u/s.147 r.w.s. 144 r.w.s. 144B of L.T. Act, 1961 was passed on 21/02/2024 on the basis of notice u/s.148 dated 04/04/2022 which is after three years from end of A.Υ. 2015-16, which ended on 31/03/2019 assessing total income of Rs.2,09,173/-which is far less than Rs.50,00,000/-.
GROUND NO.2 :- On the facts, circumstances and position of law, the learned A.O. erred in making various additions of Rs.2,09,173/-on account of disallowance of interest from nationalized bank & co- operative bank which are other than the information on the basis of which notice u/s.148A(b) and order u/s.148A(d) and notice u/s.148 were issued i.e. cash deposited into the bank account, as he was satisfied with the explanation offered during the course reassessment proceedings, other additions are not permissible, as per provisions of section 147, in view of the decision of Hon. Jurisdictional High Court of Bombay in the case of CIT V/s. Jet Airways India Ltd. reported in 333 2 GROUND NO.3: On the facts, circumstances and position of law learned CIT (A), NFAC erred in setting aside the assessment order to the file of A.O. on wrong appreciation of facts i.e. to say appellant has complied with all notices issued u/s.142(1) and show cause notice during the course of reassessment proceedings.
GROUND NO.4: In the facts, circumstances and position of law, learned CIT (A), NFAC, erred in confirming the disallowance of deduction u/s.80P(2)(d) in respect of interest on fixed deposits kept with co-operative banks which is at Rs.2,01,747/-.
GROUND NO.5: In the facts, circumstances and position of law learned CIT (A), NFAC, erred in confirming the disallowance of deduction u/s.80P(2)(a)(i) in respect of interest on fixed deposits kept with State Bank of India which is at Rs.7,426/-.
GROUND NO.6: Appellant craves leave to add, alter, amend or substitute to the above grounds of appeal at the time of or before hearing.” Findings & Analysis :
2. We have heard both the parties and perused the records. The ld.AR has argued only Ground No.4 and 5. Ld.AR submitted that all other grounds are not pressed.
3. In this case, Assessee is a Co-operative Credit Society duly registered. Assessee’s business is to provide loans to its members and accepts deposits from members. During the assessment Assessing Officer noticed that Assessee has earned interest income from following banks : Sr.No. Name of the Bank Amount of interest received during the F.Y.2014-15 1 State Bank of India Rs.7426/- 2 Shirpur Peoples Co-op. Bank Rs.1,49,653/- 3 The Hasti Co-op Bank Rs.2,490/- 4 The Dhule Nandurbar Distt. Central Co- Rs.49,604/- op Bank Ltd. Total Rs.2,09,173/- 4. The Assessing Officer disallowed assessee’s claim for deduction u/s.80P on the interest of Rs.2,09,173/- following the decision of Hon’ble Karnataka High Court in the case of CIT Vs. Totagar’s Credit Sales Society Ltd. Aggrieved by the assessment order, Assessee filed appeal before the ld.CIT(A) who confirmed the assessment order.
5. Aggrieved by the order of the ld.CIT(A), Assessee filed appeal before this Tribunal. Ld.AR submitted that the issue is covered in favour of assessee by decision of ITAT Pune. Ld.DR for the Revenue relied on the order of Assessing Officer and ld.CIT(A).
Hence, the issue before us is whether the Interest earned from above mentioned Co-operative Society and State Bank of India is eligible for deduction u/s.80P of the Act or not ! 7. The Hon’ble High Court of Andhra Pradesh and Telangana in the case of Vavveru Co-operative Rural Bank Ltd. [2017] 396 ITR 371 analysed the provisions of Section 80P, succinctly distinguished the decision of Hon’ble Supreme Court in the case of Totagar’s Cooperative Sale Society, and held as under : Quote,“ 8. Therefore, the real controversy arising in these writ petitions is as to whether the income derived by the petitioners by way of interest on the fixed deposits made by them with the banks, is to be treated as profits and gains of business attributable to any one of the activities indicated in sub-clauses (i) to (vii) of clause (a) of sub-section (2) of section 80P or not.
While the petitioners place strong reliance upon a decision of the Division Bench of this court in CIT v. Andhra Pradesh State Co- operative Bank Ltd. [2011] 12 taxmann.com 66/200 Taxman 200/336 ITR 516, the Revenue places strong reliance upon the decision of the Supreme Court in Totgar's Co-operative Sale Society Ltd. v. ITO [2010] 188 Taxman 282/322 ITR 283. …………………… 34. The case before the Supreme Court in Totgar's Co-operative Sale Society Ltd.'s case (supra) was in respect of a co-operative credit society, which was also marketing the agricultural produce of its members. As seen from the facts disclosed in the decision of the Karnataka High Court in Totgars, from out of which the decision of the Supreme Court arose, the assessee was carrying on the business of marketing agricultural produce of the members of the society. It is also found from paragraph-3 of the decision of the Karnataka High Court in Totgar's Co-operative Sale Society Ltd.'s case (supra) that the business activity other than marketing of the agricultural produce actually resulted in net loss to the society. Therefore, it appears that the assessee in Totgars was carrying on some of the activities listed in clause (a) along with other activities. This is perhaps the reason that the assessee did not pay to its members the proceeds of the sale of their produce, but invested the same in banks. As a consequence, the investments were shown as liabilities, as they represented the money belonging to the members. The income derived from the investments made by retaining the monies belonging to the members cannot certainly be termed as profits and gains of business. This is why Totgar's struck a different note. 5
But, as rightly contended by the learned senior counsel for the petitioners, the investment made by the petitioners in fixed deposits in nationalised banks, were of their own monies. If the petitioners had invested those amounts in fixed deposits in other co-operative societies or in the construction of godowns and warehouses, the respondents would have granted the benefit of deduction under clause (d) or (e), as the case may be.
The original source of the investments made by the petitioners in nationalised banks is admittedly the income that the petitioners derived from the activities listed in sub-clauses (i) to (vii) of clause (a). The character of such income may not be lost, especially when the statute uses the expression "attributable to" and not any one of the two expressions, namely, "derived from" or "directly attributable to".
Therefore, we are of the considered view that the petitioners are entitled to succeed. Hence, the writ petitions are allowed, and the order of the Assessing Officer, in so far as it relates to treating the interest income as something not allowable as a deduction under section 80P(2)(a), is set aside.” Unquote. 7.1 Thus, Hon’ble High Court of AP &TS held that Interest Income earned by investing Income derived from Business and Profession by a Co-Operative Society was eligible for deduction u/s.80P(2)(a) of the Act.
The Hon’ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. Vs. CIT [2021] 431 ITR 1(SC) observed as under : Quote.“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.” Unquote.
9. The Hon’ble Supreme Court in the case of CIT Vs. Karnataka State Co-operative Apex Bank 251 ITR 194 (SC) vide order dated 22.08.2001 has held as under : Quote“6..…………………There is no doubt, and it is not disputed, that the assessee-co-operative bank is required to place a part of its funds with the State Bank or the Reserve Bank of India to enable it to carry on its banking business. This being so, any income derived from funds so placed arises from the business carried on by it and the assessee has not, by reason of section 80P(2)(a)(i), to pay income-tax thereon. The placement of such funds being imperative for the purposes of carrying on the banking business, the income derived therefrom would be income from the assessee's business.” Unquote.
In the case of Sahyadri Co-operative Credit Society Limited, the Sahyadri Co-operative Credit Society had deposited excess funds in the Banks or Institutions permitted by the Co-operative Societies Act. In that context, 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 7 gains of business attributable to any one or more of its activities. Thus, 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 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 11.1 Respectfully, following the decisions of Hon’ble Supreme Court and Hon’ble High Courts, we hold that Rs.2,09,173/- is eligible for deduction u/s.80P(2)(a)(i) of the Act. Accordingly, grounds of appeal raised by the Assessee are allowed.
In the result, appeal of the assessee is allowed. Order pronounced in the open Court on 14 November, 2025.