Loading judgment…
Facts
The assessee, a Cooperative Society, claimed a deduction of Rs. 27,92,298/- under Section 80P of the Income Tax Act for Assessment Year 2018-19. The Assessing Officer and the Ld. CIT(A) disallowed this claim, primarily for interest income earned from various banks, relying on the Supreme Court's decision in Totagar's Co-operative Sale Society Ltd.
Held
The Tribunal held that interest income earned by the cooperative society from deposits in various banks is eligible for deduction under Section 80P(2)(a)(i) and Section 80P(2)(d) of the Income Tax Act. It distinguished the Supreme Court's Totagar's case and followed precedents from the Andhra Pradesh & Telangana High Court and ITAT Pune, directing the Assessing Officer to allow the claimed deduction.
Key Issues
The core issue was the eligibility of interest income earned by a cooperative society from bank deposits for deduction under Section 80P(2)(a)(i) of the Income Tax Act.
Sections Cited
250, 80P, 80P(2)(a)(i), 80P(2)(d)
AI-generated summary — verify with the full judgment below
Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.
Income Tax Appellate Tribunal, PUNE BENCHES “SMC” :: PUNE
Assessee by Shri Sharad A Shah – AR Revenue by Shri Sandeep Sathe – JCIT(DR) Date of hearing 16/04/2025 Date of pronouncement 28/04/2025 आदेश/ ORDER
PER DR. DIPAK P. RIPOTE, AM:
This appeal filed by the assessee is against the order of ld.Commissioner of Income Tax(Appeals)[NFAC], passed under section 250 of the Income Tax Act, 1961, dated 10.12.2024 for Assessment Year 2018-19. The assessee has raised the following grounds of appeal :
1. The Ld. AO erred in (CIT-A erred in confirming) making the disallowance of claim of Rs.22,31,914/- u/s 80P(2)(a)(i) of the IT Act.
The Ld. AO and CIT-A failed to appreciate that the appellant is a Cooperative Society and engaged in activities directly related to its objects, as defined under Section 80P of the Income Tax Act, 1961, and the interest income earned on bank deposits (including interest from nationalized banks) is incidental to the carrying on of its business activities.
On without prejudice basis, the Ld. AO and CIT-A ought to have appreciated the fact that interest income earned from Co-operative banks of Rs. 16,60,209/- may be allowed u/s 80P(2)(d).
The appellant craves for to leave, add, alter, modify, delete above grounds of appeal before or at the time hearing, in the interest of natural justice.”
Submission of ld.AR : 2. Ld.AR filed a paper book and relied on the order of ITAT Pune in the case of Sanchar Gramin Bigarsheti Sahakari Patsanstha Maryadit vs. ITO in & 2433/PUN/2024, dated 06.01.2025. Ld.AR submitted that in the case of Sanchar Gramin Bigarsheti Sahakari Patsanstha Maryadit(supra), the ITAT Pune held that interest earned by assessee from Banks is eligible for deduction u/s.80P of the Act. Therefore, Assessee’s case is fully covered.
Submission of ld.DR : 3. The ld.DR for the Revenue supported the order of the Assessing Officer and Ld.CIT(A).
Findings & Analysis : 4. We have heard both the parties and perused records. In this case, Return of Income for A.Y.2018-19 was filed on 16.08.2018 claiming deduction u/s 80P of the Act, of Rs.27,92,298/-.
Assessing Officer noted in the assessment order that assessee has earned interest income from Bank of Maharashtra, Dena Bank, IDBI Bank, The Hasti Co-op Bank, DDCC Bank and Dhule Nandurbar Co-operative Bank and disallowed assessee’s claim of deduction u/s.80P(2)(a)(i) of the Act, following the Hon’ble Supreme Court decision in Totagar’s Co-operative Sale Society Ltd. Aggrieved by the assessment order, assessee filed appeal before the ld.CIT(A). Ld.CIT(A) upheld the assessment order.
5.1 Aggrieved by the order of the ld.CIT(A), assessee has filed appeal before this Tribunal.
5.2 This issue has been decided by ITAT Pune in various cases in favour of assessee.
5.3 The Hon’ble High Court of Andhra Pradesh and Telangana in the case of Vavveru Co-operative Rural Bank Ltd. [2017] 396 ITR 371analysed 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,“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. ……………………
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.
5.4 Thus, the 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/sec.80P(2)(a) of the Act.
5.5 No contrary decision of the Hon’ble jurisdictional High Court has been brought to our notice. Therefore, as per rule of precedence, the proposition of law laid down by the Hon’ble High Court of AP & TS (supra) are binding precedents for us.
5.6 The Hon’ble ITAT Pune Bench in the case of Kolhapur District Central Co-op. Bank Kanista Sevakanchi Sahakar Pat Sanstha Ltd. Vs. Income-tax Officer 158 taxmann.com 322 (Pune Tribunal) has held as under : Quote “7………………………..I am of the considered opinion that even the interest income earned by cooperative society on deposits made out of surplus funds with cooperative banks as well as schedule bank qualifies for deduction both under the provisions of section 80P(2)(a)(i) and section 80P(2)(d) of the Act, therefore, the reasoning given by the lower authorities on this issue cannot be accepted. Therefore, I direct the Assessing Officer to allow deduction u/s 80P(2)(a)(i) and 80P(2)(d) in respect of interest income earned from cooperative bank/scheduled bank. Thus, the ground of appeal filed by the assessee stands allowed.”Unquote 5.7 The Hon’ble ITAT Pune Bench in the case of Yashwant Nagari Sahakari Patsanstha Maryadit Vs. ITO in dated 04.06.2024 held that the assessee was eligible for deduction u/sec.80P(2)(a) of the Act on the Interest earned by assessee.
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 amount of Rs.22,31,914/-. 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 28th April, 2025.