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Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI R.K. PANDA & MS. ASTHA CHANDRA
ORDER \nPER ASTHA CHANDRA, JM :\nTwo appeals filed by the assessee are directed against the two\nseparate order(s) dated 02.07.2024 and 09.07.2024 of the Ld.\nCommissioner of Income Tax (Appeals)/NFAC, Delhi [“CIT(A)"] pertaining\nto Assessment Years (“AYs”) 2018-19 and 2020-21. For the sake of\nconvenience both the appeals were heard together and are being disposed\nof by this common order.\nITA No. 1842/PUN/2024, AY 2020-21\n2. Briefly stated the facts are that the assessee is Co-operative Credit\nSociety registered under the Maharashtra Co-operative Societies Act, 1960\nhaving registration certificate dated 03.12.1991. The business of the\nassessee is to make the credits to the members of the society by raising the\ndeposits from them. All the transactions of the society are restricted to\nmembers of society only. For AY 2020-21, the assessee filed its return of\nincome on 08.12.2020 claiming deduction u/s 80P of the Income Tax Act,\n1961 (the “Act”) in respect of interest income received on its investments\nin the form of term deposits with banks. The case of the assessee was\nselected for complete scrutiny. Accordingly, statutory notice(s) u/s\n143(2)/142(1) of the Act along with questionnaire were issued and served\nupon the assessee asking the assessee to furnish certain information in\nrespect of the deduction claimed by the assessee, in response to which the\nassessee filed its detailed submissions before the Ld. Assessing Officer\n(“AO”). Before the Ld. AO, taking support from the catena of decisions\npronounced by various judicial forums on the impugned issue, the\nassessee contended that the interest income earned by the assessee during\nthe relevant AY from deposits with Co-operative Banks tantamount to\nbusiness income of the assessee and is an allowable deduction u/s\n80P(2)(a)(i) of the Act. Alternatively, the said income is also an allowable\ndeduction u/s 80P(2)(d) of the Act. The details of the bank interest\namounting to Rs.84,44,562/- earned by the assessee during the relevant\nAY under consideration are as under:\nParticulars\nInterest Received From Co-operative Banks\nInterest Received From other than Co-operative Banks\nAmt. Rs.\n83,35,063/-\n1,09,499/-\nTotal Rs.84,44,562/-\n2.1 The Ld. AO, however found the contentions of the assessee as\nwithout there being any merit in them and disallowed the deduction\nclaimed by the assessee u/s 80P(2)(a)(i)/80P(2)(d) of the Act amounting to\nRs.84,44,562/- treating the same as “other income” taxable under the\nprovisions of section 56 of the Act. Accordingly, the Ld. AO completed the\nassessment on 07.09.2022 u/s 143(3) r.w.s.144B of the Act disallowing\nthe claim of deduction u/s 80P(2) amounting to Rs.84,44,562/- in respect\nof interest income earned by the assessee from Co-operative Banks/\nCommercial Banks /Financial Institutions during the relevant AY 2020-21.\n3. Aggrieved, the assessee filed an appeal before the Ld. CIT(A). Before\nthe Ld. CIT(A), the assessee contended that the interest income received\nfrom Co-operative Banks is a part of its business income and therefore its\nclaim for deduction u/s 80P(2)(a)(i) of the Act ought to have been allowed.\nIt was also submitted that in case of denial of deduction u/s 80P(2)(a)(i) of\nthe Act, an alternate claim u/s 80P(2)(d) of the Act should be allowed to the\nassessee in view of the various decisions on the impugned issue rendered\nby the Tribunal which are favourable to the assessee. The assessee also\ncontended that if deduction u/s 80P is not considered then the deduction\nu/s 57 ought to be allowed in respect of interest paid by netting it off\nagainst the interest income.\n3.1 The Ld. CIT(A) relying on the decision of the Hon'ble Supreme Court\nin the case of Mavilayi Service Co-operative Bank Ltd. Vs. Commissioner of\nIncome Tax, Calicut (2021) 123 taxmann.com 161 (SC) rejected the\nassessee's claim of deduction u/s 80P(2)(a)(i) of the Act. The Ld. CIT(A)\nalso rejected the assessee's alternate claim of deduction u/s 80P(2)(d) of\nthe Act placing reliance on the decision(s) of the Hon'ble Kerala High Court\nin the case of PCIT Vs. Peroorkada Service Co-operative Bank Ltd. and the\nHon'ble Madras High Court in the case of Thorapadi Urban Co-op Credit\nSociety Ltd. Vs. Income Tax Officer and the decision of the Jurisdictional\nITAT Mumbai in the case of Reserve Bank Staff and Officers Vs. ITO in ITA\nNo. 3114/Mum/2023, dated 22.01.2024. The Ld. CIT(A) restricted the\ndeduction u/s 80P(2)(d) of the Act to the extent of net interest earned from\ninvestments with Co-operative Banks only which are registered under the\nCo-operative Societies Act and not from other Commercial Banks and\nFinancial Institutions which were to be assessed under the head \"Income\nfrom other sources” thereby partially allowing the assessee's claim for\ndeduction u/s 80P(2)(d) of the Act and accordingly holding that the\nalternate claim of deduction u/s 80P(2)(c) and u/s 57 of the Act are\nrendered infructuous. The relevant findings and observations of the Ld.\nCIT(A) are reproduced below :\n“4.5 The facts in present appeal, are that the appellant is registered as a\nCooperative Society under and further does not have any banking license\nissued by RBI to carry on the business of a banker. Thus, the appellant is\nout of the harm's way and is not hit by the provisions of Section 80P (4) of\nthe Act. Once it is established that the appellant is out of the purview of\nSection 80P (4), then it becomes eligible for deduction u/s.80P of the Act\nsubject to the fulfilment of other conditions stipulated in Section 80P of the\nAct.\n4.
However, it is also held by the Hon'ble Supreme Court in the case of\nMavilayi (supra) the AO is well within the ambit of law to examine the\nactivities which fall within or outside the ambit of Section 80P(2)(a)(i) of the\nAct and determine the eligible profits ad gains of business from such\nactivities that can be allowed as a deduction. Since the Hon'ble Supreme\nCourt has also held in Mavilayi (supra) that in case it is found that there\nare instances of loans being given to non-members, profits attributable to such\nloans obviously cannot be deducted\", the disallowance of deduction u/s.\n80P(2)(a)(i) ought to be restricted to only those profits and gains from\nappellant's transactions with such non-members if any. These are not in\ndispute in present appeal.\n4.
As far as the claim of deduction u/ 80P(2)(a) on the interest income of\nfrom the investments held with cooperative banks, commercial bank and\nother financial institutions are concerned, it may be noted that the income in\nthe form of interest is clearly not earned from the eligible activity of giving\ncredit facility to its members but only from its investment held with outsider\nbanks and institutions who are not its members. Thus, at the threshold, the\nclaim of the appellant for deduction u/s.80P(2)(a) in respect of such income\nfails the test laid down by the Hon'ble Supreme Court in the case of Mavilayi\n(supra).\n4.
Further, without prejudice to the above finding, even if the argument of\nthe appellant that the source of funds for investments were from out of its\nsurplus funds and hence the interest income therefrom ought to be treated as\nbusiness income is weighed in, then also, it would not per se lead to the\ninference that all business incomes of the appellant are automatically\nentitled to deduction u/s.80P(2)(a) of the Act.\n4.
As specifically held by the Hon'ble Supreme Court in the case of\nMavilayi (supra), it is only the income from eligible activities as mentioned\nu/s.80P(2) if carried on with its members, would be eligible for deduction\nu/s.80P(2)(a) of the Act. It is categorically held therein that even if the\nactivity is one of the eligible activities listed out in Sub section (2) of Section\n80P, then also if the same is carried on with a non-member, it would not be\neligible for deduction u/s.80P(2)(a) of the Act.\n4.
In appellant's case, the impugned interest income has been earned not\nfrom its activity of any eligible business operation with members but only by\nway of an investment with non-member banks, who are rank outsider\ninstitutions that are not even nominal members of the appellant. The\ndecisions relied on by the appellant do not over rule this binging\ninterpretation of law laid down by the Hon'ble Supreme Court in the case of\nMavilayi (supra).\n4.
Thus, the appellant's case is squarely hit by the specific directions of\nthe Hon'ble Supreme Court in Mavilayi (supra) that \"in case it is found that\nthere are instances of loans being given to non-members, profits attributable\nto such loans obviously cannot be deducted\".\n4.
Respectfully following the decision of the Hon'ble Supreme Court the\nimpugned interest income has been rightly held as taxable under the head\n\"Income from other sources\" by the AO and hence the denial of deduction\nu/s.80P(2)(a) does not warrant any interference.\n4.
However, regarding the alternate claim of the appellant that the\ninterest income from its investments may be allowed as a deduction\nu/s.80P(2)(d), it is seen that the jurisdictional ITAT, Mumbai in the case of\nReserve Bank Staff and Officers Vs ITO in vide\norder dated 22.01.2024 has held that interest on investments held with\ncooperative banks which by themselves are registered as cooperative\nsocieties is eligible for deduction u/s.80P(2)(d) of the Act. Similar decisions\nhave been rendered by the Hon'ble Kerala High Court in the case of PCIT vs\nPeroorkada Service Co-operative Bank Ltd and the Hon'ble Madras High\nCourt in the case of Thorapadi Urban Co-op Credit Society Ltd Vs Income\nTax Officer, after the decision by the Hon'ble Supreme Court in the case of\nMavilayi (supra).\n4.
In view of the above judicial pronouncements, it is held that the\nimpugned interest income from investments held with Cooperative Banks\nwhich by themselves are registered as Cooperative Societies under the\nrespective State Act alone are to be allowed as deduction under Section\n80P(2)(d) of the Act.\n4.
For sake of clarity, it is also made clear that deduction u/s.80P(2)(d)\nshall be restricted to the extent of net interest income earned from\ninvestments with co-operative banks only which are registered under\nCooperative Societies Act and other interest income from commercial banks\nand other institutions if any shall not be allowed as deduction u/s.80P(2)(d)\nwhich shall be assessed under the head \"Income from Other Sources\".\nAccordingly and deduction u/s.80P(2)(d) shall be allowed thereon.\nAppellant's Ground on the issue is allowed partly.\n4.
Since appellant's claim for deduction u/s.80P(2)(d) has been allowed\npartially, the alternate claims of deduction u/s.80P(2)(c) and u/s.57 are\nrendered infructuous.\n4. Dissatisfied, the assessee is in appeal before the Tribunal raising the\nfollowing solitary ground of appeal :-
\n\
1. On the facts and in the circumstances of the case and in law, the\nappellant submits that Ld. CIT(A) erred by making disallowance of our\nclaim for deduction u/s.80P(2) of the Act. The appellant, therefore,\nprays that deduction u/s.80P(2)(a)(i) and 80P(2)(c)(ii) be allowed to us\nas claimed in ITR.\"\n5. At the outset, the Ld. AR submitted that in the assessee's own cases\nthe Ld. CIT(A)-6, Pune has allowed deduction u/s 80P(2)(a)(i) of the Act for\nAY 2011-12 and AY 2015-16 vide order(s) dated 09.01.2020 (Pages 102 to\n111 refers). Similarly, the CPC, Bangalore has also allowed deduction u/s\n80P(2)(a)(i) of the Act for AY 2021-22, AY 2022-23 and 2023-24 to the\nassessee society, as well as many other Co-operative Credit Societies\n(Pages 163 to 167, 168 to 171 & 172 to 175 respectively refers). He further\nsubmitted that the impugned issue is squarely covered in favour of the\nassessee by catena of decisions pronounced by various Benches of the\nTribunal including the Pune Tribunal. He further referred to the\ndecision(s) of the Hon'ble Supreme Court and Jurisdictional High Court\nwherein the Hon'ble Courts have allowed the claim of deduction u/s\n80P(2)(a)(i) of the Act under the similar set of facts as that of the assessee\n(Pages 112 to 133 of the paper book refers). He submitted that the\nJurisdictional Tribunal has consistently allowed the claim of deduction in\nrespect of interest income earned by the assessee from the Co-operative\nBanks/Co-operative Society u/s 80P(2)(a)(i)/80P(2)(d) of the Act (Pages 134\nto 157 of the paper book refers). In support thereof, the Ld. AR submitted\nthe compilation of the following cases :\n\"I) The deduction u/s.80P is allowed to total income including Interest\nreceived on Bank Investments to the following Co-operative Credit Societies\nwherein the facts and circumstances of these cases are similar to the cases\nof the Appellant.\nA. The Hon'ble Supreme Court in case of-The PCIT-17, Mumbai vs M/s.\nAnnasaheb Patil Mathadi Kamgar Sahakari Patpedhi Ltd., Civil Appeal No.\n8719/2022 dt. 20/04/2023.\nB. The Hon'ble High Courts:\na. The CIT(Central), Nagpur VS Buldhana Urban Co-op. Credit Society Ltd.,\nBuldhana, in the High Court of Judicature at Bombay Nagpur Bench Nagpur,\nTax Appeals No.28 of 2013, Dt. 20th June, 2013.\nb. The Quepem Urban Co-op. Credit Society Ltd., Goa vs. ACIT, Circle-1,\nMargao in High Court of Bombay at Goa, Tax Appeals No.22, 23 & 24 of\n2015, Dt. 17th April, 2015.\nc. The CIT-22, Mumbai VS Shri Kulswami Co-op. Credit Society Ltd., Navi\nMumbai, in the High Court of Judicature at Bombay Ordinary Original Civil\nJurisdiction, Tax Appeals No.1682 & 1873 of 2014, Dt. 20th March, 2017.\nC. Hon'ble ITAT, Pune & Mumbai:\na. M/s. New Satara Zilla Nagrik Sahakari Patsastha Maryadit, Mumbai-12\nvs NFAC Delhi-110041, ITAT Mumbai, \"B\" Bench, 210 &\n211/M/2023 dt.27/04/2023.\nb. The ITO, Pune V/s Vishwakarma Sarakshan Kamgar Sahakari\nPatsanstha Maryadit, Shaniwar Peth, Pune-411 030, ITA Nos.450 &\n451/PUN/2024, ITAT, Pune: \"B\" Bench, Pune; dated 09/08/2024.\nD. The credit Societies are also eligible for deduction u/s.80 P(2) (c) (ii) of the\nAct.\na) Rashtriya Chemical and Fertilizers Employees Co-op. Credit Society Ltd.\nV/s The ITO, 27(3)(1) Navi Mumbai;, ITAT Mumbai, \"D\" Bench, M.A. Nos.201,\n202 & ITA Nos.2283 & 2284/Mum/2022 dt. 24/05/2023.\n6. The Ld. DR fairly conceded with the above submission of the Ld. AR\nthat the impugned issue is covered in favour of the assessee by catena of\ndecisions of various judicial forums as cited by the Ld. AR.\n7. We have heard the Ld. Representatives of the parties and perused\nthe material on record and various judicial precedents cited by the Ld. AR\nas well as the paper book filed by the Ld. AR on behalf of the assessee.\nThe facts of the case are not in dispute. During the relevant AY 2018-19,\nthe assessee has received interest from Co-operative banks amounting to\nRs.83,35,063/- and Rs.1,09,499/- from other than Co-operative banks;\ntotaling to Rs.84,44,562/- and claimed deduction u/s 80P(2)(a)(i)/\n80P(2)(c)/80P(2)(d) of the Act, which has been disallowed by the Ld. AO in\nentirety and allowed in part by the Ld. CIT(A) for the reasons reproduced\nabove. We find that the issue is squarely covered in favour of the assessee\nby catena of decisions of various judicial forums including Jurisdictional\nPune and Mumbai Tribunal wherein it has been consistently held that\ninterest income earned from Co-operative banks as well as non-Co-\noperative banks are eligible for deduction u/s 80P(2) of the Act as the same\nis attributable to the business of the assessee society. Respectfully\nfollowing the decision(s) (supra) and in the absence of any contrary\nmaterial brought on record by the Ld. DR, we hereby set aside the\nimpugned order of the Ld. CIT(A) and allow the deduction claimed by the\nassessee u/s 80P(2)(a)/80P(2)(c)/80P(2)(d) of the Act. The solitary ground\nof appeal raised by the assessee is accordingly allowed.\n8. In the result, the appeal of the assessee is allowed.\n \n9. Both the sides are unanimous in stating that the facts and the\nsolitary ground of appeal in ITA No. 1841/PUN/2024 for AY 2018-19 is\nidentical to the ground raised in ITA No. 1842/PUN/2024 for AY 2020-21\nexcept for the variance in amounts. Thus, in view of the fact that the issue\nraised in both the appeals are identical and are arising from same set of\nfacts, the finding given by us while adjudicating the appeal in ITA No.\n1842/PUN/2024 would mutatis mutandis apply to the appeal in ITA No.\n1841/PUN/2024 as well. Accordingly, the ground of appeal raised by the\nassessee in ITA No. 1841/PUN/2024 is hereby allowed in the same terms.\n10. To sum up, both the appeals of the assessee for AYs 2018-19 (ITA\nNo. 1841/PUN/2024) and 2020-21 (ITA No. 1842/PUN/2024) are allowed.\nOrder pronounced in the open court on 30th April, 2025.\nSd/-\n(R.K. Panda)\nVICE PRESIDENT\nSd/-\n(Astha Chandra)\nJUDICIAL MEMBER\nपुणे / Pune; दिनांक / Dated : 30th April, 2025.\nरवि\nआदेश की प्रतिलिपि अग्रेषित /