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Facts
The assessee, a cooperative society, claimed deduction under Section 80P on interest earned from investments in other cooperative banks and also claimed deduction for NPA provision. The PCIT invoked Section 263, stating the AO's order was erroneous and prejudicial to revenue as these deductions were not properly examined.
Held
The Tribunal held that the AO had taken a plausible view in allowing the deduction u/s 80P(2)(a)(i) based on the assessee's submissions and existing case law, and the NPA provision was also allowed without proper verification by the AO. Therefore, the order u/s 263 was not maintainable.
Key Issues
1. Whether interest income earned from investments in cooperative banks is eligible for deduction under Section 80P(2)(a)(i) of the Income Tax Act. 2. Whether the NPA provision is an allowable deduction under Section 37(1) of the Income Tax Act.
Sections Cited
263, 143(3), 144B, 143(2), 142(1), 80P, 80P(2)(a)(i), 80P(4), 36(1)(vii), 37(1), 56
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, PUNE “A” BENCH : PUNE
Before: SHRI RAMA KANTA PANDA, VICE- & Ms. ASTHA CHANDRA
ORDER PER : R.K. PANDA, V.P.
This appeal filed by the assessee is directed against the order dated 19th March, 2025 of the Ld. Principal Commissioner of Income Tax, Pune-1 [“PCIT”] passed under section 263 of the Income Tax Act, 1961 (“Act”) for the Assessment Year (AY) 2020-21.
2 ITA.No.1024/PUN/2025 (Dhanalaxmi Mahila Gramin Bigarsheti Sahakari Patsanstha Ltd.) 2. Although, a number of grounds have been raised by the assessee, however, these all relate to the validity of the order passed u/s. 263 of the Income Tax Act, 1961 by the Ld.PCIT.
Facts of the case, in brief, are that the assessee is an Association of Persons (AOP) and filed its return of income on 15/10/2020 declaring total income at Rs. NIL. The case of the assessee was selected for limited scrutiny through CASS to verify the following items:-
“a) Assessee has disclosed substantial amount of investments/advances /loans in the asset side of Balance Sheet as per the Income Tax Return whereas the Total Income (including exempt income) as per the Income Tax Return is significantly low. There is a possibility that assessee has not shown its correct income. Further, it needs to be examined whether interest free advances have been given and whether disallowance of corresponding interest is warranted b) Assessee has shown high liabilities in balance sheet as compared to low income/receipt declared in ITR Genuineness of liabilities declared may be verified c) The assessee has claimed large deduction under chapter VI-A (excluding deduction claimed u/s 80-IA/ 80-IAB/80-IAC/80-IB/80-IBA/80-IC/80-IE/80-ID. Here whether the assessee has claimed deduction u/c VIA correctly may be verified.”
3.1 Accordingly, statutory notices u/s. 143(2) and 142(1) of the Act were issued and served on the assessee in response to which, the assessee filed the requisite details. The Assessing Officer (AO), after considering the reply of the assessee filed from time to time, completed the assessment u/s. 143(3) r.w.s
3 ITA.No.1024/PUN/2025 (Dhanalaxmi Mahila Gramin Bigarsheti Sahakari Patsanstha Ltd.) 144B of the Act on 20/09/2022 determining the total income at Rs. NIL.
4. Subsequently, Ld. PCIT examined the record and noted that the order passed by the AO is erroneous and prejudicial to the interest of the Revenue within the meaning of Explanation 2 of sub-section (1) of section 263 of the Act. He, therefore, issued a show-cause notice asking the assessee to explain as to why the order passed by the AO should not be set aside u/s. 263 of the Income Tax Act, 1961. The contents of the notice issued u/s. 263 read as under:-
Sub.: Notice u/s.263 of the Income Tax Act, 1961 in your case for Assessment Year 2020-21 - reg.
Please refer to the order passed u/s 143(3) r.w.s. 144B of the IT Act for the A.Y.2020-21 dated 20/09/2022 in your case.
On subsequent review of the assessment and records, the following facts are observed : 3. It is seen that the assessee has offered gross total income of Rs. 26,02,451/-. On this income, the assessee has claimed deduction u/s 80P(2)(a)(i) at Rs.26,02,451/-, and arrived at NIL income. On perusal Balance Sheet as on 31.03.2020, it is noted that the assessee has made investments in other Co-operative banks as follow. Sr. No. Name of the Bank Amount (Rs.) 1 Ahmednagar District Central 60,07,396 Co-op Bank Ltd(ADCC) Deposit 2 Ahmednagar District Central 2,17,85,748 Co-op Bank Ltd(ADCC) FD 3 Swami Samarth Sah Bank 2.17,73,947 Ltd. FD
On perusal of Profit & Loss account, it is noted that the assessee has earned interest from other Co-operative bank as follows:
4 ITA.No.1024/PUN/2025 (Dhanalaxmi Mahila Gramin Bigarsheti Sahakari Patsanstha Ltd.) S.No Nature of Income Amount(Rs.) 1 ADCC Bank FD interest 13,95,396 2 ADCC Bank SB Interest 36,658 3 Nagar Urban Bank Ltd. 2,23,079 4 Swami Samarth Sah Bank Ltd. 17,34,053 After allowing interest component paid, the balance interest income totaling to Rs. 26,02,451/-(3389186-786735) earned on investments with other Co-operative Banks. The assessee has claimed the entire interest received Co-operative banks as deduction u/s 80P(2)(a). It is seen that interest income under question was not the interest received from the members of the assessee-society for providing credit facilities to them but it was earned from the investment of surplus funds. It is seen that the FAO did confront the assessee on this issue but accepted the submission of the assessee on this issue on its face value without considering facts of the case, the legal position on the issue and without application of mind. In the instant case, the assessee-society invested funds not immediately required for business purposes. Interest earned on such investments, therefore, will not fall within the meaning of the expression' profits and gains of business'. It is clear that the above interest income earned by the assessee is from Co-operative banks which are deemed not to be Co- operative societies as per provision of section 80P(4) of the I.T.Act 1961. Also the said Co-operative banks do not fall under the purview of a 'Co-operative Society' referred in Section 80P(2)(d) of the Act. Therefore, it is only the interest derived from the credit provided to its members which is deductible under section 80P(2)(a)(i) of the Act and the interest derived by depositing surplus funds with the Co- operative banks not being attributable to the business cannot be deducted under section 80P(2)(a) of the Act Such an interest income is not the 'operational income' of assessee society from providing credit facilities to its members. Consequently, the interest income of Rs. 26,02,451/- was required to be treated as 'income from other sources' not eligible for deduction u/s 80P(2)(a) of the Act. However the FAO has allowed such deduction without considering the factual matrix of the case.
Further, it is also seen that the assessee has inter alia debited an amount of Rs. 7,25,000/- towards NPA Provision which should be a part of Balance sheet liabilities. Income has to be computed only as per the provisions of the Income tax Act and the provision for NPA is neither an expenditure nor an allowance which are permitted deductions u/s 28 to 43B. Under the Income tax Act, as per section 36(1) (vii) only the bad debt or part thereof which is written off as irrecoverable in the books of accounts is allowable as 5 ITA.No.1024/PUN/2025 (Dhanalaxmi Mahila Gramin Bigarsheti Sahakari Patsanstha Ltd.) deduction. Explanation to section 36(1)(vii) provides that any bad debt or part thereof written off as irrecoverable shall not include any provision for bad and doubtful debts. Thus, the pre-condition is that the debt has turned into 'bad debt' and not anything else such as provisions. The FAO has not made any verification in the regard and allowed such amount of Rs. 7,25,000/- to the assessee.
5. In view of the above, the order dated 20/09/2022 passed by the Faceless Assessing Officer (FAO), NeAC, Delhi under section 143(3) r.w.s 144B of the Income-tax Act, 1961 for the A.Y 2020-21 is erroneous and prejudicial to the interest of revenue within the meaning of Explanation 2 of sub-section 1 of section 263 of the Income-tax Act, 1961 and is proposed to be revised.
6. In this connection, you are given opportunity of being heard by the undersigned. You may therefore attend this office in person or through authorized representative on 01/10/2024 at 12.30 P.M. on the above mentioned address alongwith the information/documents on which you may rely upon.”
5. The assessee, in response to the same, submitted that during the course of assessment proceedings, assessee has filed written submissions explaining the allowability of deduction u/s. 80P. The AO after verifying the submissions, has found that the assessee is eligible for claiming deduction u/s. 80P(2)(a)(i) of the Act of Rs. 25,80,961/-. Relying on various decisions, it was submitted that the interest income received by the assessee is business income and assessee is eligible for deduction u/s. 80P(2)(a)(i). It was argued that the order passed by the AO is in accordance with the various decisions of the coordinate benches of the Tribunal. Accordingly, the assessee requested to drop the proceedings initiated u/s. 263 of the Act.
6 ITA.No.1024/PUN/2025 (Dhanalaxmi Mahila Gramin Bigarsheti Sahakari Patsanstha Ltd.) 6. However, Ld. PCIT was not satisfied with the arguments advanced by the assessee and set aside the order passed by the AO with a direction to verify the facts properly and re-examine the issue after affording opportunity of being heard to the assessee. The relevant order passed by the Ld. PCIT reads as under:-
“7 I have carefully considered the entire written submission of the assessee. First of all, it is seen from the assessment order u/s. 143(3) read with section 144B of the Act dated 20/09/2022 that the FAO has mentioned that the case was selected for scrutiny under the 'Limited Scrutiny' category through CASS. Whereas it is clear from the notice under section 143(2) of the Act through which the case has been selected for scrutiny that the selection is under 'Complete Scrutiny' category. Since the FAO has mentioned the scrutiny category as 'Limited Scrutiny', naturally his scope of enquiry had remained limited and he has not verified the case in its entirety. This misconception of the FAO has led to an erroneous approach towards the assessment, especially in respect of adequacy of enquiries to be conducted.
8. As regards the issue of deduction u/s 80P(2)(a)(i) of the Act on the interest income earned by the assessee from deposits of surplus funds is concerned, it is seen from records that the assessee has claimed total deduction of Rs. 29,10,214/-under section 80P(2)(a) (i) of the Act. The gross receipts appearing in the Profit and Loss account of the assessee at Rs.1,90,40,482/- include interest income of Rs.33,89,186/- as detailed below:
S.No. Particulars Amount (Rs.) 1 ADCC Bank FD interest 13,95,396 2 ADCC Bank SB interest 36,658 3 Nagar Urban Bank Ltd. 2,23,079 4 Swami Samarth Sah Bank Ltd. 17,34,053
The year-wise balances of investment in FDRs, as furnished by the assessee during the course of assessment proceedings, are as under S.No. Particulars 31.03.2018 31.03.2019 31.03.2020 1 ADCC Bank FD 51,00,000 67,58,706 2,17,85,748 2 Nagar Urban 89,51,938 62,52,916 0 Bank FD
7 ITA.No.1024/PUN/2025 (Dhanalaxmi Mahila Gramin Bigarsheti Sahakari Patsanstha Ltd.) 3 Swami Samarth 1,48,40,614 2,13,40,614 2,17,73,947 Sah Bank Ltd. 4 Sainik Bank 42,22,083 0 0 Parner FD 3,31,14,635 3,43,52,236 4,35,59,695 The total investment in FDRs by the assessee is increasing year-to-year and it is clear that the interest earned by the assessee from the aforesaid investments has not organically emerged from assessee's business of providing credit facilities to its members but it is a result of investment of surplus funds / profits made primarily to earn interest. It is evident from the preliminary observation that it is not an activity of temporary parking of funds as a part and parcel of banking operations but an investment activity. Therefore, the AO ought to have taken clue from the prima facie evidence indicating that the interest earned from these deposits deserved to be taxed under the head 'income from other sources and not as business income. The AO ought to have conducted necessary examinations and enquiries to find out the intent of the assessee in making these investments and also the correct nature of these activities.
9. Such examinations/ enquiries are essential to find out whether the interest income on the investments made with cooperative banks mentioned in detail in. earlier paragraph is attributable to the main activity of the assessee society, namely: carrying on the business of providing credit facilities to its members, or not. In case such interest income doesn't constitute the operational income of the assessee society then the ratio of the decision of the Apex Court, which is the law of land, becomes fully applicable to the case of the assessee and such income will fall in the category of 'other income' which needs to be taxed under section 56 of the Act. The case laws cited by the assessee will also not be applicable in the case of the assessee, if as a result of enquiries/examinations, it is found that the interest income earned by the assessee society from the deposits with the cooperative banks, mentioned earlier is not attributable to the main business activity. Therefore, the arguments, made by the assessee based on all of those case laws are not tenable.
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 8 ITA.No.1024/PUN/2025 (Dhanalaxmi Mahila Gramin Bigarsheti Sahakari Patsanstha Ltd.) 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]" In the instant case, as discussed in the earlier paragraph, the interest earned by the assessee co-operative society is from the surplus funds. The year-wise increase in such investments prima facie indicate that these are long term investments meant to earn interest and are not part of the operational activity. Thus, the decision of Hon'ble Apex Court in the case of Totagars co-operative Sale Society Ltd. (supra) is squarely applicable in this case.
It is seen that the FAO did call for the details of deduction claimed by the assessee u/s. 80P but has not verified the issue in its proper perspective as detailed above. Considering the above facts, the interest income earned by the assessee from investment of surplus funds was required to be taxed under the provisions of section 56 of the Act. However, the FAO has not verified this aspect while completing the assessment proceedings as not verified this aspect while completing the assessment proceedings.
Considering the above facts, it is noticed that the FAO has accepted the claim of the assessee of deduction u/s. 80P of the Act without considering the aspects discussed above; without making proper verification in this regard and without examining the facts of the case. Failure on the part of the FAO rendered the assessment order dated 20/09/2022 under section 143(3) read with section 144B of the Act as erroneous and also prejudicial to the interests of revenue.
13. It is seen from the profit and loss account of the assessee that it has debited amount of Rs.7,25,000/- under the head 'NPA provision'. Such a debit is neither an expenditure nor an allowance permitted under section 28 to 43B of the Act for a co- 9 ITA.No.1024/PUN/2025 (Dhanalaxmi Mahila Gramin Bigarsheti Sahakari Patsanstha Ltd.) operative society. The assessee's contention in this regard is that even if the NPA provision is disallowed, the enhanced profit after disallowance is eligible for deduction under section 80P of the Act and there would not be any change in the profit eligible for deduction. The assessee's say in this regard is considered. In fact, the assessee has accepted that such a provision debited to profit and loss account is not allowable to it. Here, the first and foremost issue to be considered is whether any provision for Non-performing Assets (NPA) is allowable to the assessee co-operative society. In this connection, the provisions of clause (vii) of sub-section (1) of section 36 are applicable to the assessee being a co-operative society. As per those provisions, only the bad debts which are written off as irrecoverable in the books of accounts are allowable as deduction. Explanation-1 to said clause specifically clarifies that any such bad debt shall not include any provision for bad and doubtful debts. Considering the above facts, the FAO ought to have verified the case in this aspect. However, it is seen that the FAO has not made any examination of facts in this respect and blanketly allowed the claim of the assessee. The non-examination of the issue by the FAO might be due to his misconception that the scrutiny category of the case is 'Limited Scrutiny'. The FAO has not verified the exact nature of the debit itself and without ascertaining the nature of such debit, disallowance out of the same, if any, cannot be considered to be an income eligible for deduction under section 80P of the Act. In absence of any examination of the exact nature of the debts, they cannot be considered to be related to the business of the assessee. In view of the above facts, the assessee's contention is not acceptable and the case-law relied upon by the assessee is not applicable. It is seen that the FAO has not conducted any enquiries on this issue and failure on the part of the FAO rendered the assessment order dated 20/09/2022 under section 143(3) read with section 144B of the Act as erroneous and also prejudicial to the interests of revenue.
In the light of the facts discussed in the foregoing paragraphs, the order passed on 20/09/2022under 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.”
10 ITA.No.1024/PUN/2025 (Dhanalaxmi Mahila Gramin Bigarsheti Sahakari Patsanstha Ltd.) 7. Aggrieved such order of the Ld. PCIT, the assessee is in appeal before this Tribunal.
Learned counsel for the assessee, at the outset, drew our attention to the notice dated 15/02/2022 issued by the AO, wherein at clause (f) of the questionnaire, he has asked the assessee to justify the claim u/s. 80P. Referring to page Nos. 48 & 49 of the paper book, learned counsel for the assessee drew the attention of the Bench to the reply given by the assessee vide letter dated 18/02/2022 wherein the assessee has given the submission justifying its claim u/s. 80P, which reads as under:-
“This Co-operative society is registered under Maharashtra Co- operative societies Act, 1961 and Co-operative society carrying on the business of banking or providing credit facilities to the members of the society. The prime objective of the society is to accept deposit from the members and grant loans to them. This activity is eligible for 100% deduction of profits and gains attributable to these activities under Section 80P(2)(a) (i) of income tax act 1961. The required copies of the byelaws and memorandum and certificate of registration approved by the competent authority is attached herewith.”
Referring to various decisions filed in the paper book including the decision of the Tribunal in the case of Shrisant Savtamali Gramin Bigarsheti Sahakari Patsanstha Maryadit vs. PCIT vide order dated 31/07/2025 for A.Y. 2020-21, he submitted that the assessee is entitled to claim deduction u/s. 80P on interest received from banks on 11 ITA.No.1024/PUN/2025 (Dhanalaxmi Mahila Gramin Bigarsheti Sahakari Patsanstha Ltd.) investments and provision for NPA. Referring to the assessment order for A.Y. 2018-19, copy of which is placed at page Nos. 37-39 of the paper book, learned counsel for the assessee drew the attention of the Bench to the order passed u/s. 143(3) wherein the AO has allowed the claim of deduction u/s. 80P(2)(a)(i) under similar circumstances. He, accordingly, submitted that the issue being covered one and since the AO while passing the order, has considered the submissions made by the assessee, therefore, Ld. PCIT is not justified in setting aside the assessment order passing 263 order.
10. Learned Departmental Representative (DR), on the other hand, heavily relied on the order of the Ld. PCIT.
11. We have heard the rival arguments made by both the sides, perused the orders of the lower authorities and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Ld. PCIT in the instant case, invoked the provisions of section 263 of the Act on the ground that AO has not properly examined the allowability of deduction u/s. 80P(2)(a)(i) on the interest income earned from deposits of surplus funds made with various banks. Similarly, he has also not properly examined the deduction of Rs. 7,25,000/- under the head „NPA Provision‟. It is the submission of the learned counsel for the assessee that the assessee is entitled to deduction u/s. 12 ITA.No.1024/PUN/2025 (Dhanalaxmi Mahila Gramin Bigarsheti Sahakari Patsanstha Ltd.) 80P(2)(a)(i) on the interest earned on fixed deposits made with cooperative banks. Further, even if, the NPA provision is disallowed, the enhanced profit, after disallowance, is eligible for deduction u/s. 80P of the Act and there would not be any change in the profit eligible for deduction.
12. We find some force in the above arguments of the learned counsel for the assessee. A perusal of the questionnaire issued by the AO shows that vide letter dated 15/02/2022, copy of which is placed at page Nos. 44 & 45 of the paper book, the AO at clause (f) has asked the assessee to justify its claim of deduction u/s. 80P. We find the assessee vide submissions dated 18/02/2022, copy of which is placed at page Nos. 48 to 49 of the paper book, has justified its claim of deduction u/s. 80P. We find, after considering the reply given by the assessee, the AO passed the order allowing deduction u/s. 80P. Further, a perusal of the assessment order for A.Y. 2018-19, copy of which is placed at page Nos. 37 to 39, shows that AO in the assessment order passed u/s. 143(3), dated 02/02/2021 has allowed the claim of deduction u/s. 80P. Under these circumstances, when the AO after considering the submissions made by the assessee has allowed the claim of deduction u/s. 80P(2)(a)(i) which is in line with the decisions of the coordinate Benches of the Tribunal, therefore, the order passed by the AO, in our opinion, cannot be held to be 13 ITA.No.1024/PUN/2025 (Dhanalaxmi Mahila Gramin Bigarsheti Sahakari Patsanstha Ltd.) erroneous. It has been held, in various decisions, that in order to invoke the provisions of section 263, the twin conditions namely; (i) the order is erroneous, and (ii) the order is prejudicial to the interests of the Revenue must be fulfilled. In the instant case, although the order may be prejudicial to the interest of the Revenue, however, it cannot be said that the order is erroneous, since the AO has taken a plausible view.
13. We further find that an identical issue had come up before the coordinate Bench of this Tribunal in the case of Shrisant Savtamali Gramin Bigarsheti Sahakari Patsanstha Maryadit vs. Ld. PCIT. We find the Tribunal vide order dated 31/07/2025 set aside the order passed u/s. 263 by the Ld. PCIT under identical circumstances by observing as under:-
“12. We have heard Ld. Counsels from both the sides and perused the material available on record including the paper book and case laws furnished by the assessee. In this regard, we find that Ld. PCIT, Pune-1 invoked provisions of section 263 of the IT Act on two grounds.
Interest earned from Cooperative banks is not allowable u/s 80P(2)(a)(i) of the IT Act.
2. NPA provision is not allowable u/s 37(1) of the IT Act.
With regard to Interest earned from Cooperative banks is not allowable u/s 80P(2)(a)(i) of the IT Act, we find that under identical facts a coordinate bench of this Tribunal in the case of Swami Vivekanand Nagari Sahakari Patpedhi Maryadit in order dated 18.06.2025 has allowed the appeal of the assessee by observing as under :- “11. 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 :
14 ITA.No.1024/PUN/2025 (Dhanalaxmi Mahila Gramin Bigarsheti Sahakari Patsanstha Ltd.) 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.
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 11.1 The above order of Hon’ble Supreme Court was rendered in the context of the appeal filed by the Revenue against the order dated 1410-2019 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.
6. The Hon’ble Bombay High Court’s order in vide order dated 14.10.2019 in the case of Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd., emanates from the ITAT order in ITA No.2515/MUM/2014 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 the Act. 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.
15 ITA.No.1024/PUN/2025 (Dhanalaxmi Mahila Gramin Bigarsheti Sahakari Patsanstha Ltd.) (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”.
12. 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.
13. In these facts and circumstances of the case, the order under section 263 passed by ld.Pr.CIT is not maintainable. Accordingly, we quash the order under section 263 of the Act. Accordingly, grounds of appeal
raised by the assessee are allowed.
14. In the result, appeal of the assessee is allowed.”
14. On perusal of the above order of the Tribunal (supra) we find that the Tribunal on similar issue i.e. Interest earned from Cooperative banks is not allowable u/s 80P(2)(a)(i) of the IT Act, following the judgments of Hon’ble Apex Court cited supra has quashed the proceedings u/s 263 of the IT Act and allowed the appeal in favour of the assessee. Therefore, respectfully following the above decision of the Tribunal (supra), we quash the proceedings u/s 263 of the IT Act and allow the ground of appeal raised in this regard.
15. With regard to NPA provision is not allowable u/s 37(1) of the IT Act, we find that under similar facts a coordinate bench of this Tribunal in the case of Shri Dhokeshwar Gramin Bigarsheti Sahakari Patsanstha Maryadit (supra) has allowed the appeal of the assessee and quashed the proceedings u/s 263 of the IT Act by observing as under :- “4. We have heard LD Counsels from both the sides & perused the material available on record. We find force in the arguments of the LD counsel that in the light of Circular No.37/2016 dated 02-11-2016, the assessee is entitled to claim chapter VIA deduction u/s 80P(2)(a)(i) of the IT Act on the addition of Rs.42,51,668/- which is going to increase its business income, which is deductible u/s 80P(2)(a)(i) of the IT Act. Therefore, we are of the considered opinion that the direction issued by LD PCIT in the order passed u/s 263 of the IT Act will only result in an academic exercise & hence the order cannot be said to be prejudicial to the interest of revenue. We therefore set-aside the order passed by LD PCIT u/s 263 of the IT 16 ITA.No.1024/PUN/2025 (Dhanalaxmi Mahila Gramin Bigarsheti Sahakari Patsanstha Ltd.) Act directing to revise the assessment order. Thus, the ground no.2 raised in the appeal is also allowed.
In the result, the appeal filed by the assessee is allowed.”
On perusal of the above order of the Tribunal (supra) on the issue of NPA provision is not allowable u/s 37(1) of the IT Act, we find that on identical issue the Tribunal has quashed the proceedings u/s 263 of the IT Act and allowed the appeal in favour of the assessee. Therefore, respectfully following the above decision of the Tribunal (supra), we quash the proceedings u/s 263 of the IT Act and allow the ground of appeal raised in this regard. Accordingly, the grounds raised by the assessee are allowed.”
14. Since, facts of the instant case are identical to the facts of the case decided by the Tribunal in the case of Shrisant Savtamali Gramin Bigarsheti Sahakari Patsanstha Maryadit (supra), therefore, respectfully following the same and in absence of any contrary material brought to our notice by the Ld.DR, we set aside the order passed by the Ld. Ld. PCIT u/s. 263 of the Income Tax Act, 1961. The grounds raised by the assessee are accordingly allowed.
In the result, the appeal filed by the Assessee is allowed.
Order pronounced in the open Court on 24.10.2025.