SHRI ARIHANT NAGARI SAHAKARI PATSANSTHA MARYADIT,PUNE vs. ITO WARD8(3), PUNE

Without prejudice to above ground, lower authorities have erred in not allowing consequential deduction of current year loss, which would have arisen after taking out the interest figure of Rs. 69,91,289 /- from the Profit and loss A/c which has resulted into excess tax liability.

On the facts and in the circumstances of the case and in law the lower authorities have erred in treating the interest received from investment a sum of Rs. 83,54,216/- as income from other sources by rejecting appellant’s contention that said interest income is integral part of business activity and your appellant prays for cancellation of Assessing officer’s action.

Without prejudice to above ground on the facts and circumstances of the case and in the law Lower authorities have erred in not allowing the deduction under section 80P(2)(d) for a sum of Rs.83,54,216/- on interest income received from co-operative banks. Your appellant prays for allowing of the same.

Without prejudice to above ground, On the facts and circumstances of the case and in the law Lower authorities have erred in treating entire interest income as interest income received from other co-operative banks without allowing deduction on account of interest expenses. Your appellant prays for such deduction.

On merits, ld.AR submitted that Assessee is a Society registered under Maharashtra Cooperative Societies Act, 1960. During the year, Assessee had earned interest income on short term deposit kept with Co-operative Society, Cooperative Bank and Scheduled Banks. The assessee has to maintain short term deposits as per the guidelines of the RBI. Therefore, assessee gets interest from these short-term deposits. Ld.Assessing Officer has disallowed assessee’s claim of deduction u/s.80P of the Act stating that Assessee is in the business of Banking, whereas Assessee do not have any Banking License issued by RBI. Assessee is Co-operative Credit Society. Ld.AR relied on the order of the ITAT Pune in ITA No.2809/PUN/2024. Ld.AR submitted that Assessee’s appeal may allowed.

Ld.DR for the Revenue relied on the order of AO and ld.CIT(A).

We have heard both the parties and perused the records. The assessee is Co-operative Credit Society registered under Maharashtra Cooperative Societies Act, 1960. Assessee had filed Return of Income for A.Y.2018-19 on 16.10.2018 claiming deduction u/s.80P of the Act, of Rs.72,79,999/-. The Assessing Officer noted in the assessment order that Assessee had invested Surplus Funds in PDCC Banks and Other Banks. The AO held that ultimate motive of the Assessee was to earn profit. Therefore, AO held that Assessee Society can be treated as Cooperative Bank. Therefore, AO disallowed assessee’s claim of deduction u/s.80P(2)(a)(i) of the Act and AO also held that since assessee has earned interest income from Scheduled Banks, Assessee is not eligible for deduction u/s.80P(2)(d) of the Act. Aggrieved by the assessment order, assessee filed appeal before the ld.CIT(A). Ld.CIT(A) upheld the assessment order.

1 Aggrieved by the order of the ld.CIT(A), assessee has filed appeal before this Tribunal.

3 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,“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

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.

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 No contrary decision of the Hon’ble juri ictional High Court has been brought to our notice. Therefore, as per rule of precedence,

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

7 The Hon’ble ITAT Pune Bench in the case of Yashwant No.644/PUN/2024 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

In the result, appeal of the assessee in ITA No.162/PUN/2025 is allowed. ITA No.163/PUN/2025 for A.Y.2020-21

In this case, the Assessing Officer noted that Assessee had claimed deduction u/s.80P(2)(a)(i) of Rs.69,91,289/-. Assessing Officer also observed that Assessee is a credit cooperative society registered under Maharashtra Cooperative Societies Act, 1960. Assessee’s activity is providing credit facilities to its members and accepting deposits from its members. The Assessing Officer(AO) noted that Assessee had earned interest income of Rs.69,91,289/- from the Short Term Fixed Deposits kept with following banks :  PDCC Bank  Rajgurunagar Co-op Bank Ltd.,  Lokseva Co-op Bank Ltd.,  Shivajirao Bhosale Co-op Bank Ltd.  Sharad Co-op Bank Ltd.,  Baramati Co-op Bank Ltd.,  Saraswati Co-Op Bank Ltd.,

Since the facts are identical to appeal in ITA No.162/PUN/2025, our decision in ITA No.162/PUN/2025 shall apply mutatis mutandis to this appeal i.e. ITA No.163/PUN/2025 also. Accordingly, grounds of appeal raised by the assessee are allowed.

In the result, appeal of the assessee in ITA No.163/PUN/2025 is allowed.

To sum up, both appeal of the assessee in i.e.ITA No.162/PUN/2025 and ITA No.163/PUN/2025 are allowed. Order pronounced in the open Court on 25th April, 2025. (VINAY BHAMORE) ACCOUNTANT MEMBER पुणे / Pune; ᳰदनांक / Dated : 25th April, 2025/ SGR

गाडᭅफ़ाइल / Guard File. आदेशानुसार / BY ORDER,