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Facts
The assessee, a primary credit cooperative society, filed a return declaring Nil income after claiming deduction u/s 80P. The PCIT initiated revision proceedings u/s 263, holding that interest income from investments in cooperative banks was not eligible for deduction under Section 80P(2)(a)(i) and that an NPA provision was disallowable u/s 37(1).
Held
The Tribunal held that the issue of deduction for interest income earned from cooperative banks by a cooperative society is well settled, and numerous decisions, including Supreme Court judgments, support such deductions. Regarding the NPA provision, the Tribunal found that if disallowed, it would increase business income eligible for Section 80P deduction, making the revision an academic exercise.
Key Issues
Whether interest income earned by a cooperative society from investments in cooperative banks is eligible for deduction under Section 80P, and whether an NPA provision, if disallowed, would lead to an academic revisionary exercise.
Sections Cited
263, 80P, 80P(4), 80P(2)(a)(i), 37(1), 56, 143(1), 143(3)
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Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE
Before: SHRI MANISH BORAD & SHRI VINAY BHAMORE
Assessment Year : 2020-21 Shrisant Savtamali Gramin Vs. Pr.CIT, Pune-1. Bigarsheti Sahakari Patsanstha Maryadit, At Post Pimpalgaon Malvi, Dist. Ahilyanagar- 414601. PAN : AALAS2170D Appellant Respondent Assessee by : CA Payal R. Rathi & Shri Prasad Bhandari Revenue by : Shri Amit Bobde Date of hearing : 15.07.2025 Date of pronouncement : 31.07.2025 आदेश / ORDER
PER VINAY BHAMORE, JM:
1. This appeal filed by the assessee is directed against the order dated 27.03.2025 passed by Ld. Pr. CIT, Pune-1 [‘Ld. PCIT’] passed u/s 263 of the IT Act for the assessment year 2020-21.
2. The appellant 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-operative Bank is eligible for deduction under section 80P of 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 fact that Chapter VI-A Deductions are allowed if Profit enhanced due to disallowances. Hence, the impugned order under section 263 may please be squashed.
3. 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 judgements of Hon'ble Jurisdictional Pune ITAT. Hence, the impugned order under section 263 may please be squashed.
4. 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.”
Facts of the case, in brief, are that the assessee is a primary credit cooperative society engaged in providing credit facility & accepting deposits from its members. The assessee society has filed return of income declaring Nil income after claiming deduction of Rs.27,70,716/- u/s 80P of the IT Act. The return was processed u/s 143(1) of the IT Act. Subsequently, the case was selected for complete scrutiny and the assessment was completed u/s 143(3) of the IT Act vide order dated 02.08.2022 accepting the income returned by the assessee. Subsequently, upon examining the assessment records, Ld. PCIT, Pune-1 found that the assessee has earned interest income of Rs.69,95,237/- on investments made with 80P(4) of the IT Act the cooperative banks are not cooperative societies and therefore the interest income earned by the assessee from above cooperative banks does not qualify for deduction u/s 80P(2)(a)(i) of the IT Act. Therefore, Ld. PCIT was of the view that the above interest income of Rs.69,95,237/- is required to be taxed under the head “Income from other sources” i.e. u/s 56 of the IT Act.
It was also found by Ld. PCIT that the assessee has debited an amount of Rs.26,30,000/- towards outstanding interest NPA provision & according to Ld. PCIT neither the assessee has provided any explanation in this regard nor the Faceless Assessing Officer has confronted upon the assessee on this issue. Therefore, according to Ld. PCIT, Pune-1 the amount of Rs.26,30,000/- requires to be disallowed and brought to tax as per section 37(1) of the IT Act.
With regard to above points, the assessee furnished his response before Ld. PCIT, Pune-1. After considering the reply furnished by the assessee, Ld. PCIT, Pune-1 was of the view that the assessment order dated 02.08.2022 is erroneous and prejudicial Revenue and accordingly exercising his powers u/s 263 of the IT Act he set-aside the assessment order dated 02.08.2022 to the file of the Assessing Officer for proper verification of the fact in the light of above discussion and decide the issue afresh after providing reasonable opportunity of hearing to the assessee.
6. It is this order against which the assessee is in appeal before this Tribunal.
Ld. AR appearing from side of the assessee submitted before us that the order passed by Ld. PCIT, Pune-1 u/s 263 of the IT Act is unjustified. Ld. AR submitted that the issue of deduction u/s 80P(2)(a)(i)/ 80P(2)(d) of the IT Act with regard to interest income earned on investments with other cooperative banks is no more res integra in the light of various decisions passed by coordinate benches of this Tribunal. In this regard, Ld. AR placed reliance on following decisions :- (i) Shree Vishweshwar Nagri Sahakari, order dated 23-06-2025. (ii) Pune Zilha Madhyawarti Sahakari Bank Sevakanchi Sahakari Patsanstha Maryadit, order dated 23- 06-2025. (iii) Kundalika Nagari Sahakari Patsanstha, ITA No.790/PUN/2025 order dated 22-05-2025.
(iv) Sharadchandra Nagari Sahakari Patsanstha Maryadit, order dated 05-06-2025 8. Ld. AR submitted that in all the above decisions it has been categorically held that the cooperative banks are also cooperative societies and therefore the assessee credit cooperative society who earned interest income from their investments made in the cooperative banks does qualifies for deduction u/s 80P(2)(a)(i)/ 80P(2)(d) of the IT Act.
With regard to NPA provision of Rs.26,30,000/- which was made towards outstanding interest, Ld. AR submitted that the NPA provision was made as per the by-laws of the society and it was compulsory as per the Cooperative Societies Act. Ld. AR further explained that if the NPA provision of Rs.26,30,000/- is disallowed u/s 37(1) of the IT Act, it will only increase the business income of the assessee cooperative society which is eligible for deduction u/s 80P(2)(a)(i) of the IT Act, and in the light of CBDT Circular No.37/2016 dated 02-11-2016, the Assessing Officer is bound to allow Chapter VI-A deduction u/s 80P(2)(a)(i) of the IT Act on such enhanced business profit and accordingly it was submitted by Ld. AR that it will be only an academic/ futile exercise if the issue is set-aside to the Assessing Officer in the light of provisions of 263 of the IT Act. In support of above contention, Ld. AR relied on the order passed by a coordinate bench of this Tribunal in the case of Shri Dhokeshwar Gramin Bigarsheti Sahakari Patsanstha Maryadit, order dated 12-08-2024, wherein under identical facts the appeal of the assessee was allowed & order passed u/s 263 of the IT Act was set-aside.
In view of the above submission, Ld. AR requested before the Bench to set-aside the order passed by Ld. PCIT, Pune-1 u/s 263 of the IT Act.
Ld. DR appearing from side of the Revenue relied on the order passed by Ld. PCIT, Pune-1 and requested to confirm the same.
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.
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 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 : 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 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.
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 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”.
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 judgements 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 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 Act directing to revise the assessment order. Thus, the ground no.2 raised in the appeal is also allowed.
5. In the result, the appeal filed by the assessee is allowed.”
16. 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