LANJA NAGARI SAHAKARI PATSANSTHA MARYADIT,RATNAGIRI vs. INCOME TAX OFFICER, RATNAGIRI

Submission of ld.AR : Written Submission filed by the ld. Authorised Representative(ld.AR) for the Assessee is as under : “Appellant is a credit co-operative society, it has filed its return of income for the A.Y 2018-19_on_22/09/2018 by disclosing income of Rs.NIL/- In the said computation, appellant society has claimed a deduction of Rs.33,65,691/- as a deduction u/s 80P which includes the interest and dividend received from Pune District Co-operative Bank. Learned AO has denied deduction u/s 80P for the reasons which are summarized in the assessment order wherein he has pointed out that: Provisions of section 80P(2) (d) of Income Tax Act, 1961 do not apply to co-operative banks but according to him it applies only to co- operative society and for this reason according to him all above referred entities are co-operative banks and therefore interest/dividend received is not eligible for deduction u/s 80P(2)(d). In support of this claim Learned assessing officer has relied on judgment of Hon'ble Karnataka High Court in case of PCIT Vs. The Totgars Co-operative sales society, 395 ITR 611(KAR). Appellant's contention: We wish to draw your kind attention towards para 5.10 of assessment order wherein, after considering the ratio laid down by Hon'ble Karnataka high court vs. The Totgars Co-operative Sale Society (395 ITR 611). Hon'ble Karnataka high court had analyzed provisions of section 80P(4) and conclude that assessee is not entitled for claiming deduction u/s 80P(2)(d) and therefore Learned AO comes to the conclusion that the interest income earned by the assessee from Ratnagiri District Co- operative Bank as well as dividend amount earned for shares held of Ratnagiri District Co-operative Bank is held to be not includable for deduction u/s 80P of the Act. In this regard, we wish to point out that the said ratio of Hon'ble Karnataka high court will not be applicable in the case of appellant society for the reason explained by Hon'ble Supreme Court Judgment in the case of Maviliya service Co-operative Bank Ltd. Vs Commissioner of Income Tax Calicut [2021] 123 Taxman.com 161(SC) wherein Hon'ble Supreme Court has held that, "Limited object of sec 80P(4) is to exclude co-operative banks that functions af parwith other commercial banks i.e. which lend money to members of the public; one section 80P(4) is out of harm's way, the Primary Agricultural Credit Societies are entitled to the benefit of the deduction contained in section 80P(2)(a)(i) notwithstanding that they may also be giving loans to their members which are notrelated to agriculture." After perusing this conclusion, it is strongly felt that in a very clear terms Hon'ble Supreme court has defined the scope of sec 80P (4) and has clarified that while understanding any restriction prescribed by legislator, it shall be read only for the purpose for which it is prescribed and therefore, it is most humbly submitted that the ratio should not extend while interpreting sec 80P(2)(d) provisions. We also bring to your attention the judgmentof Hon'ble Gujarat High commissioner of Income Tax [2010]72 Taxman.com 169 (Gujarat), wherein Hon'ble Gujarat High Court has held that Assessee Co- operative society was eligible for deduction u/s 80P(2)(d) in respect of gross interest received from Co-operative Bank without adjusting interest paid to said bank. Although Hon'ble Karnataka High Court has interpreted the application of sec 80P(2)(d) but various tribunals had occasion to distinguish the said ratio and we give here in belowthe list of cases where in the distinction has been specifically being carved out and we refer here in below the list of such cases and also attach the copy of relevant judgment for your kind perusal and since these cases have Sr.No. Name of the Case Ref/ITA No. 1 Gurudatta Gramin Bigarsheti ITA No.502/PUN/2025 sahakari Patsanstha Maryadit V/s. IOT 2 Ahmednagar Zilla ITA No.1592/PUN/2025 Gramsevakanchi Sahakari Patsanstha V v/s ITO Further we also wish to draw your kind attention to the fact that, society has claimed such deduction in Assessment year 2017-18 and same has been allowed, in the order passed u/s.143(3) dt. 30/09/2019, copy of the same is enclosed as Annexure no.

We also bring to your attention that recent judgment of Hon'ble Chennai High Court in case of Thorapadi Urban Co-operative Society Vs. IT in WP No. 11173 of 2023 dated 10/10/2023. Wherein after considering the judgment of Totgars Co-operative (Supra) Hon'ble Chennai High court has allowed deduction u/s 80P(2)(d). We pray before the appellant authority to allow the claim accordingly and oblige. Submission of ld.DR :

Ld.Departmental Representative(ld.DR) for the Revenue relied on the order of AO &ld.CIT(A). Findings & Analysis :

We have heard both the parties and perused the records. In this case, Assessee had filed Return of Income electronically on 22.09.2018 for A.Y.2018-19 disclosing NIL Income. It is mentioned in the assessment order in Para 5.1 that Assessee had claimed deduction u/s.80P(2)(a)(i) of the Act. It is also mentioned that Assessee is a Co-operative Credit Society and it provides credit facility to its members. Assessee had earned following interest income : On FD from RDCC Bank Rs.8,84,963/- On FD with Rajapur Urban Co-operative Bank Rs.37,34,447/- Interest on Reserve and other fund Rs.10,90,084/- Interest on Saving Account with Cooperative Bank Rs.10,588/-

1 The Assessing Officer disallowed assessee's claim following Hon'ble Karnataka High Court's decision in the case of CIT vs. Totagars Cooperative Sales Society. Assessing Officer made an addition of Rs.33,65,691/-. Aggrieved by the assessment order, Assessee filed appeal before the ld.CIT(A) with an elaborate explanation. Assessee also filed copies of decision of ITAT Pune and pleaded that jurisdictional ITAT has allowed identical claims in other cases. However, ld.CIT(A) upheld the assessment order.

2 In this case, as mentioned by the Assessing Officer in the assessment order, Assessee had made claim under section 80P(2)(a)(i) of the Act, therefore, there was no necessity for Assessing Officer and ld.CIT(A) to invoke Section 80P(2)(d) of the Act.

Now, the issue before us is whether assessee is eligible for deduction under section 80P(2)(a) of the Act or not!

1 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 Totagars Cooperative Sale Society, and held as under : Quote, "

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.

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.

2 Thus, the Hon'ble High Court of AP & TS held that Interest Income earned by investing Income derived from Business of providing credit facilities, Loans by a Co-Operative Society was eligible for deduction u/sec.80P(2)(a) of the Act.

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 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

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

2 Accordingly, we hold that assessee is eligible for deduction u/s.80P of the Act, on the interest income earned by the assessee from Co-operative Banks and Nationalized Banks.

3 Respectfully following the judicial precedent, we direct the Assessing Officer to allow deduction u/sec.80P(2)(a)(i) of the Act on the interest earned. Accordingly, Grounds of appeal raised by the assessee are allowed.

In this case Assessee has submitted ITAT Pune's Decision and various other decision before ld.CIT(A). However, inspite of submitting Jurisdictional ITAT's decision, ld.CIT(A) confirmed the assessment order. It is important to note here that in Assessee's own case for A.Y.2017-18 the Assessing Officer, Assistant Commissioner of Income Tax vide order under section 143(3) dated 30.09.2019 has accepted assessee's claim for deduction u/s.80P of the Act. Copy of the said order has been filed by ld.AR. In these facts, ld.CIT(A) has failed to follow the precedence and consistency.

1 The Hon'ble Supreme Court in the case of Radhasoami Satsang Vs. CIT 193 ITR 321(SC) observed as under : Quote, “13. We are aware of the fact that strictly speaking res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different

On these reasonings in the absence of any material change justifying the revenue to take a different view of the matter—and if there was no change it was in support of the assessee—we do not think the question should have been reopened and contrary to what had been decided by the Commissioner in the earlier proceedings, a different and contradictory stand should have been taken. We are, therefore, of the view that these appeals should be allowed and the question should be answered in the affirmative, namely, that the Tribunal was justified in holding that the income derived by the Radhasoami Satsang was entitled to exemption under sections 11 and 12. "Unquote.

The Hon'ble Supreme court in the case of Union of India Vs. Kamlakshi Finance Corporation AIR 1992 SC 711, dated 24.09.1991 observed as under : Quote ". .The order of the Appellate Collector is binding on the Assistant Collectors working within his jurisdiction and the order of the Tribunal is binding upon the Assistant Collectors and the Appellate Collectors who function under the jurisdiction of the Tribunal. The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not "acceptable" to the department in itself an objectionable phrase and is the subject matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent court. If this healthy rule is not followed, the result will only be undue harassment to assessees and chaos in administration of tax laws. "Unquote.

1 In this case, Assessee had mentioned ITAT Pune Bench's decision and other Bench's of Tribunal before the ld.CIT(A). Assessee had also relied on the decision of Hon'ble Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 and Hon'ble Supreme Court's decision in the case of Mavilayi Cooperative Society.

2 Inspite of referring all these decisions, ld.CIT(A) has confirmed the addition without distinguishing the decisions relied by Assessee. This is against the principal of judicial discipline, which has caused avoidable inconvenience to the Assessee.

For all the reasons discussed above, appeal of the assessee is allowed. Order pronounced in the open Court on 11 September, 2025. VINAY BHAMORE Dr.DIPAK P. RIPOTE JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; दिनांक / Dated: 11 Sep, 2025/ SGR आदेशकीप्रतिलिपिअग्रेषित /