BHARAT AGARWAL NAGARI SAHAKARI PATSANSTHA MARYADIT LONAVALA,LONAVALA, PUNE vs. ASSESSING OFFICER, AKURDI, PUNE

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ITA 2181/PUN/2024Status: DisposedITAT Pune29 January 20255 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the solitary issue was whether the assessee is entitled to deduction under Section 80P(2)(d) on interest earned on deposits made with other Co-operative Banks. Section 80P(2)(d) of the Act provides that the whole of the income derived by a Co-operative Society by way of interest from its investment with any other Co-operative Society is eligible for deduction. The Tribunal observed that while the section refers to 'Co-operative Society', it has been consistently held by the Pune Benches of the Tribunal that Co-operative Banks are essentially Co-operative Societies licensed to do banking business. Following its own precedents in the cases of Kolhapur District Central Co-op. Bank Kanista Sevakanchi Sahakar Pat Sahakar Ltd. vs. ITO (ITA No. 1365/PUN/2023) and Ugar Sugar Works Kamgar & Dr. Shirgaokar Shaikshanik Trust Nokar Co-op Credit Society vs. ITO (ITA No. 84/PAN/2018), the Tribunal held that interest earned from deposits with Co-operative Banks is eligible for deduction under Section 80P(2)(d). Consequently, the findings of the CIT(A) were set aside, and the disallowances of Rs. 70,71,431 for AY 2018-19 and Rs. 11,54,341 for AY 2020-21 were deleted. The effective grounds of appeal were allowed.

What were the facts?

The assessee, Shri Bharat Agarwal Nagari Patsanstha Maryadit, filed appeals for Assessment Years (AY) 2018-2019 and 2020-2021 against the orders of the Commissioner of Income Tax (Appeals) [CIT(A)]. These orders arose from assessments framed under Section 143(3) of the Income Tax Act, 1961. The core dispute concerns the denial of deduction under Section 80P(2)(d) for interest earned on investments/deposits made with co-operative banks. For AY 2018-19, the disallowed amount was Rs. 70,71,431, and for AY 2020-21, it was Rs. 11,54,341. The Assessing Officer (AO) treated this interest income as income from other sources, rejecting the assessee's claim that it was an integral part of its business.

What were the issues?

1. Whether, on the facts and in the circumstances of the case and in law, the assessee is entitled to a deduction under Section 80P(2)(a)(i) for interest earned on investments, which was part of the book profit, as it is an integral part of the society's business? (Mixed law and fact, turns on Section 80P(2)(a)(i)) 2. Whether, on the facts and in the circumstances of the case and in law, the interest received from investments should be treated as income from other sources, or if it is an integral part of the assessee's business activity? (Mixed law and fact, turns on Section 80P) 3. Whether, on the facts and in the circumstances of the case and in law, the assessee is entitled to a deduction under Section 80P(2)(d) for interest income received from other co-operative societies? (Mixed law and fact, turns on Section 80P(2)(d)) 4. Whether, on the facts and in the circumstances of the case and in law, the entire interest income should be treated as interest income received from other co-operative societies or banks without allowing deduction on account of interest/administrative expenses? (Mixed law and fact, turns on Section 80P) Assessee's Contentions: The assessee argued that earning interest is an integral part of the society's business and should be eligible for deduction under Section 80P(2)(a)(i) and Section 80P(2)(d). They relied on various decisions of the Tribunal holding that interest earned from co-operative banks is eligible for deduction under Section 80P(2)(d). Revenue's Contentions: The Departmental Representative heavily supported the findings of the CIT(A) but failed to place any decision in favour of the revenue.

Which sections of the Income-tax Act were involved?

Section 80P(2)(a)(i),Section 80P(2)(d),Section 143(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, A BENCH, PUNE

Before: Dr. MANISH BORAD & SHRI VINAY BHAMORE

आदेश / ORDER PER Dr. Manish Borad, AM :- These appeals at the instance of the assessee for A.Y. 2018-19 and 2020-21 are directed against the order of the Ld. CIT(A) evenly dated 19/08/2024 which are arising out of order framed u/s 143(3) of the Income Tax Act, 1961 dated 02.03.2021 and 23.09.2022. 2. Since common issues have been raised in both these appeals, these have been heard together and are being disposed for by this consolidated order for the sake of convenience. 3. Assessee has raised following grounds of appeal for A.Y. 2018-2019 :-

1.

1. “1. On the facts and in the circumstances of the case and in law, the learned Assessing Officer erred in rejecting deduction u/s 80P (2)(a)(i) for a sum of Rs 70.71,431/- being part of the book profit of appellant society without appreciating the fact that earning of interest is an integral part of society's business and appellant prays for allowing such deduction.

2. On the facts and in the circumstances of the case and in law, the learned Assessing Officer erred in treating the interest received from investment a sum of Rs. 70,71,431/- as income from other sources by rejecting appellants contention that said interest income is integral part of business activity and your appellant prays for cancellation of Assessing officer's action.

3. Without prejudice to above ground on the facts and in the circumstances of the case and in law, the Learned Assessing Officer in not allowing the deduction under section 80P(2)(d) or interest income received from other co-operative society. Your appellants pray for allowing the same.

4. Without prejudice to above ground, on the facts and in the circumstances of the case and the law Learned Assessing Officer erred in treating entire interest income as interest incom received from other co-operative society or bank without allowing deduction on account interest/administrative expenses. Your appellant prays for such deduction,

Your appellant prays for deletion of entire addition. Your appellant craves for to add, alter amer modify, delete any or all grounds of appeal before or during the course of hearing in the intere of natural justice.”

4.

Assessee has raised following grounds of appeal for A.Y. 2020-2021:-

“1. On the facts and in the circumstances of the case and in law, the learned Assessing Officer erred in rejecting deduction u/s 80P (2)(a)(i) for a sum of Rs. 11,54,341/- being part of the book profit of appellant society without appreciating the fact that earning of interest is an integral part of society's business and appellant prays for allowing such deduction 2. On the facts and in the circumstances of the case and in law, the learned Assessing Officer erred in treating the interest received from investment a sum of Rs. 52,14,519/-, as income from other sources by rejecting appellants contention that said interest income is integral part of business activity and your appellant prays for cancellation of Assessing officer's action.

3.

Without prejudice to above ground on the facts and in the circumstances of the case and in law, the Learned Assessing Officer in not allowing the deduction under section 80P(2)(d) on interest income received from other co-operative society. Your appellants pray for allowing the same.

4. Without prejudice to above ground, on the facts and in the circumstances of the case and in the law Learned Assessing Officer erred in treating entire interest income as interest income received from other co-operative society or bank without allowing deduction on account of interest/administrative expenses. Your appellant prays for such deduction.

5.

Your appellant prays for deletion of entire addition. Your appellant craves for to add, alter amend odify, delete any or all grounds of appeal

before or during the course of hearing in the interest natural justice.”

5. From perusal of grounds we notice that the common issues in both these appeals are against the denial of claim of deduction u/s 80P(2)(d) of the Act for the interest earned on investments/deposits with Co-operative banks. For A.Y. 2018- 19 and A.Y. 2020-21 disallowances under section 80P(2)(d) is at a sum of Rs. 70,71,431/- and Rs. 11,54,341/- respectively.

6.

At the outset ld. Counsel for the assessee submitted that the issue raised in this appeal is squarely covered in the favour of the assessee by various decisions of this Hon’ble Tribunal, consistently holding that interest earned from co-operative banks are also eligible for deduction u/s 80P(2)(d) of the Act.

7.

On the other hand Ld. Departmental Representative heavily supported the findings of the ld. CIT(A) but failed to place any decision in favour of revenue on this issue.

8.

We have heard the ld. Departmental Representative and perused the record placed before us. The solitary issue in the instant appeal is whether the assessee is entitled for deduction u/s 80(P)(2)(d) of the Act on the interest earned on deposits made with other Co-operative Banks. We notice that the assessee which is a co-operative society has been subjected to the scrutiny proceedings and in the order framed u/s 143 r.w.s 147 of the Act dated 23.09.2022 various additions were made by the Assessing Officer (AO). The same were challenged by the assessee and substantial relief was granted by CIT(A). However, for the addition of of Rs. 70,71,431/- and Rs. 11,54,341/- for A.Y. 2018-19 and A.Y. 2020-21 respectively, ld. CIT(A) affirmed the action of the AO denying deduction u/s 80P(2)(d) of the Act, interest earned from deposits with Co-operative banks.

9.

Section 80P(2)(d) of the Act provides that the sum received in respect of any income by way of interest or dividend derived by Co-operative Society from its investment with any other Co- operative Society, the whole of such income is eligible for deduction u/s 80P of the Act. We observe that section 80P(d) of the Act refers to the interest from Co-operative Society but it has been consistently held by this Tribunal (Pune Benches) that Cooperative banks are basically Co-operative Societies except that they get license for doing the banking business. We find that this Tribunal in case of Kolhapur District Central Co-op. Bank Kanista Sevakanchi Sahakar Pat Sahakar Ltd., Vs. ITO in dated 01.01.2024 dealing with similar issue after placing reliance on another decision of this Tribunal in the case of the Ugar Sugar Works Kamgar & Dr. Shirgaokar Shaikshanik Trust Nokar Co-op Credit Society vs. ITO in dated 27.05.2022 has held that the interest earned from deposits with Co-operative Banks are also eligible for deduction u/s.80P(2)(d) of the Act. We therefore respectfully following the above referred decisions hold that the assessee is eligible for deduction u/s.80P(2)(d) of the Act for the alleged interest income earned from Co-operative Banks. Findings of the Id. CIT(A) is set-aside for both the years under appeal and the alleged disallowance of Rs. 70,71,431/- and Rs.11,54,341/- for the impugned Assessment Years stands deleted. Effective grounds of appeal raised by the assessee are allowed.

10.

In the result, both the appeals of the assessee for A.Y. 2018-19 and A.Y. 2020-21 are allowed.

Order pronounced in the open court on this 10th day of February, 2025

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