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Facts
The appeals involved the reopening of assessment and denial of deduction under Section 80P concerning interest income from nationalized banks and overdue interest from non-standard debts. Multiple assessment years were under consideration, with the assessee being a cooperative society.
Held
The Tribunal held that the reopening of assessment for AY 2014-15 was valid. It also held that interest earned from nationalized banks is eligible for deduction under Section 80P, as it is attributable to the society's operations. The issue of overdue interest was also decided in favor of the assessee based on previous rulings and NABARD norms.
Key Issues
Whether the reopening of assessment was valid and whether interest earned from nationalized banks and overdue interest on non-standard debts are eligible for deduction under Section 80P.
Sections Cited
147, 148, 143(3), 144, 80P, 80P(2)(a)(i), 80P(2)(d), 14A, Rule 8D
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The Haryana State Co-operative बनाम The DCIT, Agriculture and Rural Development Circle, Panchkula Bay No. 31-34, Sector 2 , Panchkula �थायी लेखा सं./PAN NO: AAATT3989M अपीलाथ�/Appellant ��यथ�/Respondent आयकर अपील सं./ िनधा�रण वष� / Assessment Year : 2016-17 The Asst. CIT बनाम The Haryana State Co-operative Panchkula Circle, Agriculture and Rural Development Panchkula Bay No. 31-34, Sector 2 , Panchkula �थायी लेखा सं./PAN NO: AAATT3989M अपीलाथ�/Appellant ��यथ�/Respondent आयकर अपील सं./ िनधा�रण वष� / Assessment Year : 2017-18 The Haryana State Co-operative बनाम The DCIT, Agriculture and Rural Development Circle, Panchkula Bay No. 31-34, Sector 2 , Panchkula �थायी लेखा सं./PAN NO: AAATT3989M अपीलाथ�/Appellant ��यथ�/Respondent आयकर अपील सं./ ITA No. 596/Chd/2024 िनधा�रण वष� / Assessment Year : 2017-18 The Asst. CIT The Haryana State Co-operative बनाम Panchkula Circle, Agriculture and Rural Development Panchkula Bay No. 31-34, Sector 2 , Panchkula �थायी लेखा सं./PAN NO: AAATT3989M अपीलाथ�/Appellant ��यथ�/Respondent िनधा�रती क� ओर से/Assessee by : Shri Parikshit Aggarwal, C.A. & Ms. Shruti Khandelwal, Advocate राज�व क� ओर से/ Revenue by : Shri Manav Bansal, CIT DR & Shri Vivek Vardhan, Addl. CIT, Sr. DR सुनवाई क� तारीख/Date of Hearing : 06/05/2025 उदघोषणा क� तारीख/Date of Pronouncement : 30/05/2025 आदेश/Order PER KRINWANT SAHAY, A.M: All the above appeals have been filed by the Assessee and Cross Appeals filed by the Revenue against the separate orders of Ld. CIT(A)/NFAC, Delhi as per following details.
Sr. Appeal Number and Party Appeal by Order by Order Dt. No. Name 1 588/Chandi/2024 Assessee CIT / NFAC, Delhi 21/03/2024 Haryana State Co- operative Agriculture and Rural Development 2. 590/Chandi/2024 Assessee CIT / NFAC, Delhi 21/03/2024 Haryana State Co- operative Agriculture and Rural Development 3. 591/Chandi/2024 Department CIT / NFAC, Delhi 21/03/2024 Haryana State Co- operative Agriculture and Rural Development 4. 589/Chandi/2024 Assessee CIT / NFAC, Delhi 21/03/2024 Haryana State Co- operative Agriculture and Rural Development 5. 592/Chandi/2024 Assessee CIT / NFAC, Delhi 21/03/2024 Haryana State Co- operative Agriculture and Rural Development 6. 593/Chandi/2024 Assessee CIT / NFAC, Delhi 21/03/2024 Haryana State Co- operative Agriculture and Rural Development 7. 594/Chandi/2024 Department CIT / NFAC, Delhi 21/03/2024 Haryana State Co- operative Agriculture and Rural Development 8. 595/Chandi/2024 Assessee CIT / NFAC, Delhi 21/03/2024 Haryana State Co- operative Agriculture and Rural Development 9. 596/Chandi/2024 Department CIT / NFAC, Delhi 21/03/2024 Haryana State Co- operative Agriculture and Rural Development for A.Y. 2014-15 (Assessee Appeal) 2. In this appeal, the grounds raised by the assessee at Serial Nos. 1, 5, 6, and 7 are general in nature and do not require specific adjudication. Accordingly, these grounds are dismissed.
Ground No. 2 :
In this ground the assessee challenged the initiation, continuation, and conclusion of the reassessment proceedings under Sections 148 r.w.s. 147/144 as invalid, arguing that the reopening was based on a change of opinion, lacked fresh tangible information, was beyond the four-year limit, initiated due to impermissible audit objections, and lacked proper application of mind, relying on various judicial precedents which are as follows: (i) Anil Nagpal (2017) 291 CTR 272/ 145 DTR 209 (P&H HC) (ii) Agya Ram (2016) 96 CCH 103 (Del HC) dtd. 01.08.2016 (iii) Orient Craft Ltd. (2013) 354 ITR 536 (Delhi HC) (iv) Kelvinator of India Ltd. (320 ITR 561) (2010) (SC) (v) Asian Paints Ltd. (308 ITR 195) (2009) (Bom. HC) (vi) Asteroids Trading & Investments Pvt. Ltd. (308 ITR 190) (2009) (Bom. HC) (vii) GKN Sinter Metals Ltd. (371 ITR 225) (2015) (Bom. HC) (viii) Appellant’s own case in AY 2012-13 and AY 2013-14 by Hon’ble ITAT (ix) Indo Arab Air Services (2016) 130 DTR 78/ 283 CTR 92 (Del. HC) (x) Sutra Ventures Pvt Ltd (2019) 111 Taxmann.com 442 (Bom. HC) (xi) Arjun Singh & ANR (2000) 246 ITR 363 (MP HC).
(xii) Indian And Eastern Newspaper (SC) 119 ITR 0996 dtd. 31.08.1979 4. The Ld. AO issued a notice under Section 148 on 30/03/2021 with the approval of the Ld. Pr. CIT, Panchkula, citing reason to believe that income had escaped assessment; however, the assessee's return filed on 29/04/2021 was not e-verified and hence invalid. Despite repeated notices, the assessee failed to provide substantial details until 23/03/2022, leading the AO to complete the reassessment under Section 144, asserting that the reopening was valid, based on recorded reasons, Pr. CIT’s approval, and within the six-year limitation for AY 2014-15.
The CIT(A) upheld the validity of the reopening, emphasizing that the assessee failed to demonstrate that the issue—particularly the NPA provisions amounting to Rs. 27,66,41,513/-was examined in the original assessment under Section 143(3) dated 15/11/2016, which only considered NPA provisions related to staff loans of Rs. 28,854/-. Relying on the decision in Chetan Sabharwal v. Assistant Commissioner of Income-tax [2019] 110 taxmann.com 57 (Delhi), the CIT(A) held that the reopening did not amount to a change of opinion, as the original assessment order was silent on the specific issue. The CIT(A) also supported the validity of reopening based on audit objections, provided the Assessing Officer (AO) had exercised independent judgment, citing P.V.S. Beedies Pvt. Ltd. v. Assistant Commissioner of Income-tax [1999] 103 Taxman 294 (SC) / [1999] 237 ITR 13 (SC) and Larsen & Toubro Ltd. v. State of Jharkhand & Ors.
[2017] 82 taxmann.com 220 (SC) / [2017] 10 SCC 225. Further, the CIT(A) rejected the assessee’s contention that non-furnishing of reasons invalidated the reassessment, treating it as a procedural lapse as per Home Finders Housing Ltd. v. Income-tax Officer [2018] 94 taxmann.com 84 (Madras HC) / [2018] 405 ITR 611 (Mad). Accordingly, Ground No. 2 was dismissed.
In this regard, the Ld. Counsel for the Assessee has relied upon the written submissions filed before the Ld. CIT(A), appearing at pages 1-42 of the assessee's paper book, which are already on record. For the sake of brevity and as the same is part of the record, it is not being reproduced herein.
Per contra, the Ld. DR relied on the orders of the lower authorities.
We have carefully considered the rival submissions and perused the material available on record, including the detailed written submissions filed by the assessee before the Ld. CIT(A) at pages 1–42 of the assessee’s paper book, the assessment records, and the judicial precedents cited by both parties. 8.1 The reassessment was initiated based on specific information regarding unexamined NPA provisions amounting to Rs. 27,66,41,513, which were not part of the original assessment under Section 143(3), wherein only a minor NPA provision of Rs. 28,854 was considered.
8.2 The assessee’s contention that the reassessment amounts to a mere change of opinion is misplaced, as the issue was not examined in the original assessment proceedings. Furthermore, even if the reassessment was triggered by audit objections, it remains valid so long as the Assessing Officer has applied his independent judgment. This legal position has been confirmed by the Hon’ble Supreme Court in P.V.S. Beedies Pvt. Ltd. v. ACIT [(1999) 237 ITR 13 (SC)] and reaffirmed in Larsen & Toubro Ltd. v. State of Jharkhand & Ors. [2017] 82 taxmann.com 220 (SC). 8.3 By respectfully following the above decisions of the Hon’ble Supreme Court, we hold that the Assessing Officer recorded valid reasons and obtained due approval from the competent authority. Accordingly, we uphold the finding of the Ld. CIT(A) and find no infirmity in the initiation and conclusion of the reassessment proceedings. Ground No. 2 is dismissed. Ground No. 3:Overdue Interest from non-standard debts amounting to Rs. 27,66,41,513/- 9. In this regard Ld. Counsel for the Assessee in its synopsis submitted as under: “Not Pressed. The CIT(A) had decided the allowability of this expenditure against us. However, he has further held that we are entitled to enhanced deduction u/s 80P on this issue also and the revenue has not preferred any appeal on that portion of decision of CIT(A). Hence, the ground of allowability of this expenditure having no impact on our taxable income, we do not inteGnd to press this issue.”
10. Ld. DR had no objection if this ground is dismissed as not pressed.
We have heard the rival contention and perused the material available on the record. Since the Assessee has chosen not to press this ground and the matter does not have any impact on the taxable income in view of the deduction allowed under section 80P, we find no merit in interfering with the impugned order of the CIT(A). Accordingly, this ground of appeal is dismissed as not pressed. Ground No. 4: Deduction u/s 80P on interest earned from nationalized banks of Rs. 47,178/-.
In this regard, it is noticed that during the year under consideration, the assesee earned interest income of Rs. 47,178/- from deposits maintained with nationalized banks.
The Ld. AO disallowed deduction claimed u/s 80P(2)(a)(i) in respect of the said interest, holding it to be “income from other sources” not eligible for deduction.
The Ld. CIT(A) confirmed the action of the ld. AO and held that:
“Punjab National Bank, State Bank of India & other nationalized/commercial banks are not members of appellant, they are not registered as a ‘cooperative society’ under any Central or State Act and hence, interest received from these banks is not eligible for deduction neither u/s 80P(2)(a)(i) nor u/s 80P(2)(d) of the Act. On specific query by this office notice dated 05/10/2023 & subsequent notices, the appellant has mentioned in submissions dated 19/01/2014 that Rs. 47,178/- was the amount of interest received from nationalized/commercial banks. Considering the above, except an amount of Rs. 47,178/-, the balance profit is held to be eligible for deduction u/s 80P(2)(a)(i) and 80P(2)(d) of the Act. This amount is to be taxed as income from other sources and no deduction u/s 80P is allowed on this amount.” 14.1 In regard to above, the Ld. Counsel for the assessee in its submission explained the issue to CIT(A) at Pages 221-227 of assessees paper book which are already on record. For the sake of brevity and as the same is part of the record, it is not being reproduced herein. However, the Ld. CIT(A) failed to appreciate and understand and then confirmed the addition.
14.2 It was further submitted by the Ld Counsel for the Assessee that the interest earned on accounts with Banks is part of normal banking activity since all operational funds are routed from these bank accounts. However, when these huge funds move in these accounts, some interest is credited by banks to these accounts. It is not a case of income earned on any investment made. It is not a case where some decision of investment has been taken and that decision has resulted in earning of interest income. Hence, this amount of interest earned being just Rs. 47,178/- only, the same is also part of regular activity and is also inextricably linked to operations of the appellant.
14.3 The above interest is also deductible u/s 80P(2)(a)(i). The relevant extract of this provision is as under :
“80P. (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub- section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely :— (i) carrying on the business of banking or providing credit facilities to its members, or (ii) a cottage industry, or (iii) the marketing of agricultural produce grown by its members, or (iv) the purchase of agricultural implements, seeds, livestock or other articles (v) intended for agriculture for the purpose of supplying them to its members, or (vi) the processing, without the aid of power, of the agricultural produce of its members, or (vii) the collective disposal of the labour of its members, or (viii) fishing or allied activities, that is to say, the catching, curing, processing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members, the whole of the amount of profits and gains of business attributable to any one or more of such activities” 14.4 It is evident from above that any income which is attributable to operations of society is deductible u/s 80P. The above interest from normal bank accounts is nothing but income attributable to operations of assessee. The issue of interest income being attributable to operations of assessee has been dealt by number of courts and they have held as under : i. Hon’ble ITAT in the case of GobindapurPanchpotaSamabay vs ITO, ITA 1102/Kol/2024, dtd. 26.02.2025, wherein it was held that: “9. In the instant case, the original source of investments made by the assessee in Nationalized Banks is admittedly the income of the assessee derived from the activities listed in sub-clauses (i) to (vii) of clause (a). The character of such income must be last, especially when the statute uses the expression “attributable to” and not any one of the expressions viz., “derived from” or “directly attributable to”. The Hon’ble High Court of Andhra Pradesh and Telangana in the case of Vavveru Cooperative Rural Bank Ltd vs. Chief Commissioner of Income Tax and Another [2017] 396 ITR 0371 (AP) in para 34 has discussed about the decision of the Hon’ble Supreme Court in the case of Totgar’s Cooperative Sale Society Ltd (supra) and distinguished the facts while deciding the case. For the sake of brevity, I extract the relevant para 34 of the judgment of the Hon’ble Andhra Pradesh and Telangana High Court herein below: “34. The case before the Supreme Court in Totgar's Cooperative 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.”
Further Hon’ble High Court of Andhra Pradesh and Telengana in the case of Vavveru Cooperative Rural Bank Limited -vs.- Chief Commissioner of Income Tax and Another [2017] 396 ITR 371 (AP), wherein it has been held that Cooperative Society is eligible for deduction under section 80P(2)(a)(i) of the Act on the interest income received from investment in Banks. The Hon’ble High Court of Andhra Pradesh has categorically held in its judgment in paras 35 to 37, which reads as under:- “35. But, as rightly contended by the learned senior counsel for the petitioners, the investment made by the petitioners in fixed deposits in nationalized 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 nationalized 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.’ 11. Therefore, considering the ratio laid down by the judgment of the Hon’ble High Court of Andhra Pradesh in the case of Vavveru Cooperative Rural Bank Limited and also the ratio laid down by the Coordinate Bench of Hyderabad in the case of Kakateeya Mutually Aided Thrift and Credit Cooperative Society in ITA No. 107/Viz./2022, CO No. 7/VIZ/2022 dated 30.08.2023, I have no hesitation to come to the conclusion that the facts in the case of Totgars Cooperative Sale Society Limited -vs.- ITO as the ratio laid down by the Hon’ble Supreme Court is not applicable to the present case in hand and, therefore, I am of the firm view that the ld. Assessing Officer as well as ld. CIT(Appeals) are not correct to disallow the amount of Rs.7,66,340/- on the ground that the assessee had earned interest income from savings bank accounts other than cooperative bank. Therefore, the grounds raised
by the assessee are allowed.
12. In the result, the appeal filed by the assessee is allowed.” ii. Hon’ble Jaipur ITAT, in the case of Royal Co-operative Society vs AO, 221/JP/2023 dtd. 20.06.2023. iii. Hon’ble Andra Pradesh High Court in the case of CIT vs Andra Pradesh State Co-operative Bank ltd., (2011) 336 ITR 516 (AP)
During hearing, the DR had argued that the interest income of Rs. 47,178/- having been earned from deposits with nationalized banks, which are neither members of the society nor cooperative entities registered under any State or Central Cooperative Societies Act, the funds so deposited represent surplus or idle funds which are not utilized in the course of the society’s regular credit operations. As such, the income cannot be regarded as arising from the business activity of the appellant. The said income, being from investment of surplus funds with nationalized banks, squarely falls within the ambit of “Income from Other Sources” as rightly held by the Ld. CIT(A) and hence not eligible for deduction under either section 80P. For this, he placed reliance on the decision of Hon’ble Kerala High Court in Peroorkada Service Co-op. Bank Ltd. [2022] 134 taxmann.com 380 (Ker.) which held that interest earned from deposits with nationalized banks or treasuries is not deductible u/s 80P unless the payer is a cooperative society. However, in this regard, it is most respectfully submitted that our case is not of claiming deduction u/s 80P on interest earned on investment of surplus funds but is rather interest on normal bank accounts and not even on deposits. Hence, this decision of Hon’ble Kerala HC is on different facts.
We have heard the rival contention and perused the material available on the record. We find that the Ld. AO disallowed a sum of Rs. 47,178/- deduction under section 80P(2)(a)(i) for interest income from nationalized bank deposits, deeming it "income from other sources" as the banks are not cooperative society members. The Ld. CIT(A) upheld the finding of the AO on this ground. The assessee argued the interest from funds in regular accounts, is tied to the society’s operations, not separate investments. Reliance was placed on the decision of the Coordinate Bench in the case of GobindapurPanchpotaSamabay vs. ITO (supra), as well as the judgment of the Hon’ble Andhra Pradesh High Court in Vavveru Cooperative Rural Bank Ltd. vs. Chief Commissioner of Income Tax and Another (supra). These decisions support the view that such income qualifies for deduction under Section 80P of the Income Tax Act. Unlike the case cited by the Revenue, the interest income in the present case arises from regular banking operations. Accordingly, the interest is eligible for deduction, and the orders passed by the Ld. AO and the Ld. CIT(A) are set aside. As a result, this ground of appeal
is allowed. for A.Y. 2015
16. (Assessee Appeal)
17. In this appeal Ground No. 1 and 3 are general in nature therefore need no adjudication on our part and the same are dismissed.
18. Ground No. 2: Deduction u/s 80P to the extent of interest earned from nationalized banks amounting to Rs. 1,48,093/-.
Since the issue raised in this ground of appeal is identical to the issue involved in Ground No. 4 of except for the difference in the quantum involved, the findings rendered in Ground No. 4 of shall apply mutatis mutandis to the present ground of appeal. Accordingly, this ground of appeal is allowed.
AY 2015-16, (Department Appeal 20. In this appeal Ground No. 4&5are General in nature, therefore need no adjudication on our part and same are dismissed as not pressed.
Ground No. 1, 2, 3: Overdue interest amount to Rs. 55,60,17,057/- accrued during the year though not received from DPCARDBs.
Ground No. 1: In this ground the AO disallowed the assesse’s claim of Rs. 55,60,17,057/- as overdue interest expense on loans to DPCARDBs, treating it as a mere provision, prior period expense, or contingent liability without proof of payment or loss.
The Ld. CIT(A) reversed this, relying on NABARD guidelines, audit evidence, ITAT’s earlier ruling, and Bombay High Court precedent, holding the amount as unrealized income, not an expense.
Ground No. 2: In this ground the AO denied deduction under Section 80P(2)(a)(i) for interest income, including Rs. 1,48,093/- earned from nationalized banks, citing it was not claimed originally and relying on Goetze (India) Ltd. (supra). The assessee claimed entitlement as a cooperative society providing credit to DPCARDBs, supported by Supreme Court and other precedents.
The Ld. CIT(A) partly allowed the claim but excluded the interest from nationalized banks, treating it as taxable under income from other sources per Peroorkada Service Co-operative Bank Ltd. (supra) 26. Ground No. 3: In this ground the AO did not address the assessee’s procedural ground on amending claims or adducing evidence.
CIT(A) held no separate adjudication was needed but allowed flexibility under Rule 46A, admitting relevant documents like audit reports and ledgers.
During the course of hearing, the Ld. AR submitted that this is a covered issue in assessee’s own case for AY 2013-14. The Ld. CIT(A) in assessee’s own case for AY 2013-14 held in favour of the assessee in appeal no. 139/PKL/15-16 dtd. 28.05.2018. The relevant extract from page no. 11 of this order is reproduced as under: “7.5 ………. The norms laid down by NABARD provide that even in the case credit facilities backed by the Government guarantees, overdue interest can be taken to P&L account only if matching provision is made. Thus the interest actually realized is correctly being taken to the P&L account by the appellant. I have also called for and examined the copy of voucher, list of members from whom overdue interest was recoverable and copies of correspondence between the appellant and member DPCARDBs wherein the members have been informed about the interest collection and interest
recoverable figures as on 31.03.2013 which tally with the total overdue interest as per the accounts. In view of the above discussion, the addition of Rs. 20,64,52,575/– on account of overdue interest is ordered to be deleted. This ground of appeal is allowed.”
29. Against above order of CIT(A), revenue preferred appeal before the Hon’ble ITAT who vide their order in dtd. 20.12.2019 has dismissed the appeal of the revenue by upholding the order of Hon’ble CIT(A). The relevant extract from page no. 4 of this judgement is reproduced as under: “5. After considering the rival submissions we do not find any infirmity in the order of the Ld. CIT(A). The ld CIT(A) has categorically held that in fact the impugned amount was unrealized interest on overdue loans which was part of the income which remained unrealized during the year and was not in the nature of expenditure and hence any addition on account of prior period expenditure was un-warranted under these circumstances. That the confusion has occurred due to change of method of presentation of accounts. There is no merit in this Ground of appeal
. The ground of appeal No.1 raised by the Revenue is, therefore, dismissed.
30. In above appeal before the Hon’ble ITAT, the revenue had raised number of issues which included this issue of overdue interest also. The Hon’ble ITAT dismissed all grounds of revenue. Against this order of Hon’ble ITAT, even when tax effect was much higher, the revenue raised all other issues before the Hon’ble P&H High Court but did not raise this issue which meant that even the revenue has accepted the decision of Hon’ble ITAT on this issue. In any case, the decision of Hon’ble ITAT dismissing the appeal of revenue has been upheld by the Hon’ble P&H High Court in of 2021 dtd.
07.04.2025. Hence, this issue has attained finality and has been decided in the favour of the assessee.
Per contra, the Ld. DR relied upon the order of the lower authorities.
We have heard the rival contention and perused the material available on the record. In the present case we find that the Ld. AR argued that this issue was already settled in the assessee’s favor for Assessment Year 2013-14 by the Ld. CIT(A) in appeal no. 139/PKL/15- 16 dated 28.05.2018, which deleted a similar addition of Rs. 20,64,52,575/-. The Ld. CIT(A) had found that, per NABARD norms, overdue interest can only be included in the Profit & Loss account if a matching provision is made, and the assessee correctly accounted for only the interest actually received. We also find that the CIT(A)’s decision was upheld by the Income Tax Appellate Tribunal (ITAT) in dated 20.12.2019, which dismissed the revenue’s appeal, confirming that the overdue interest was unrealized income and not subject to addition. The revenue did not challenge this specific issue before the Punjab & Haryana High Court in of 2021 dated 07.04.2025, accepting the ITAT’s ruling, and the High Court upheld the ITAT’s order. Based on these facts and precedents, we find that the addition of Rs. 55,60,17,057/- is not justified, as the assessee followed NABARD norms by not including unrealized interest in the Profit & Loss account. Therefore, we delete the addition and allow the assessee’s appeal on Grounds No. 1, 2, and 3. for AY 2015-16, (AssesseeAppeal )
In this appeal Ground Nos. 1, 4 & 5 are general in nature, therefore needs no adjudication on our part and the same are dismissed.
Ground No. 2: Reopening u/s 148 is bad in law; 35. In this ground the AO reopened the assessment based on audit objections regarding NPA provisions, penal interest, and TRI Scheme amounts, believing income had escaped assessment. The absence of prior inquiry or detailed disclosures in the financials justified the reopening, leading to an ex-parte order under Section 144. 36. The CIT(A) upheld the AO’s actions, ruling that the reopening was not a change of opinion, as no prior opinion was formed on the issues. Audit objections were valid tangible material, and the AO’s belief was supported by the appellant’s failure to clarify or substantiate the items. The reassessment was procedurally sound and legally valid. 37. In this regard, the Ld. Counsel for the Assessee has relied upon the written submissions filed before the Ld. CIT(A), appearing at pages 1-28of the assessee'spaper book, which are already on record. For the sake of brevity and as the same is part of the record, it is not being reproduced herein. 38. Per contra, the Ld. DR relied on the order of the lower authorities. 39. We have heard the rival contention of both the parties and perused the material available on the record. We find no reason to interfere with the finding of the Ld. CIT(A). Therefore this ground of appeal
is dismissed.
40. Ground No. 3: Overdue Interest from non-standard debts amounting to Rs. 42,53,36,816/-
41. Regarding this ground of appeal the Ld. AR submitted as under: “Not Pressed. The CIT(A) had decided the allowability of this expenditure against us. However he has further held that we are entitled to enhanced deduction u/s 80P on this issue also and the revenue has not preferred any appeal on that portion of decision of CIT(A). Hence, the ground of allowability of this expenditure having no impact on our taxable income, we do not intend to press this issue.”
42. Ld. DR had no objection if this ground is dismissed as not pressed.
We have heard the rival contention and perused the material available on the record. Since the Assessee has chosen not to press this ground and the matter does not have any impact on the taxable income in view of the deduction allowed under section 80P, we find no merit in interfering with the impugned order of the CIT(A). Accordingly, this ground of appeal
is dismissed as not pressed. for AY 2016
17. (AssesseeAppeal )
44. Ground No. 1, 5, 6 are general in nature, hence required no adjudication on our part and the same are dismissed.
45. Ground No. 2: Addition on account of excess interest amounting to Rs.1,44,06,000/- 46. In this regard Ld. AR submitted as under: “Not Pressed. The Ld. AO had disallowed this item of expenditure by holding it to be pertaining to AY 2015-16. In appeal before the CIT(A), he has allowed this as expenditure for AY 2015-16 and not allowed for AY 2016-17. Having got relief on the issue alternatively in other year, we do not want to press this issue in this appeal. “
47. Ld. DR had no objection if this ground is dismissed as not pressed.
We have heard the rival contentions and perused the material available on record. In respect of the present issue, the Ld. AR submitted that the assessee does not wish to press this ground, as relief for the same expenditure has already been obtained in the correct assessment year. Therefore, no grievance survives for the current year. Accordingly, this ground of appeal is dismissed.
49. Ground No. 3: Disallowance of Rs. 38,69,96,590/- made on account of Provision on advances created during the year. In this regard Ld. AR submitted as under: 50.
“Not pressed. The CIT(A) had decided the allowability of this expenditure against us. However, he has further held that we are entitled to enhanced deduction u/s 80P on this issue also and the revenue has not preferred any appeal on that portion of decision of CIT(A). Hence, the ground of allowability of this expenditure having no impact on our taxable income, we do not intend to press this issue.”
Ld. DR had no objection if this ground is dismissed as not pressed.
We have heard the rival contention and perused the material available on the record. Since the Assessee has chosen not to press this ground and the matter does not have any impact on the taxable income in view of the deduction allowed under section 80P, we find no merit in interfering with the impugned order of the CIT(A). Accordingly, this ground of appeal
is dismissed as not pressed.
53. Ground No. 4: Deduction u/s 80P to the extent of interest earned from nationalized banks.
54. Ld. AR in his synopsis submitted that this issue is identical to the one raised in ground no. 4 of for the A.Y 2014-15.
We have heard the rival contention of both the parties and perused the material available on the record. Since this issue is identical to the one involved in Ground No. 4 of our findings given in that appeal shall apply mutatis mutandis to this ground of appeal as well. Accordingly this ground of appeal is allowed. for AY 2016-17(Department Appeal)
56. Ground No. 4, 5are General in nature, therefore need no adjudication on our part and the same are dismissed.
57. Ground No. 1, 2, 3: Overdue interest amount to Rs. 68,17,96,002/- accrued during the year though not received from DPCARDBs.
Ld. AR in his synopsis submitted that this is a covered issue in assessee’s own case for AY 2013-14. The Worthy CIT(A) in assessee’s own case for AY 2013-14 held in favour of the assessee in appeal no. 139/PKL/15-16 dtd. 28.05.2018. The relevant extract from page no. 11 of this order is reproduced as under: “7.5 ………. The norms laid down by NABARD provide that even in the case credit facilities backed by the Government guarantees, overdue interest can be taken to P&L account only if matching provision is made. Thus the interest actually realized is correctly being taken to the P&L account by the appellant. I have also called for and examined the copy of voucher, list of members from whom overdue interest was recoverable and copies of correspondence between the appellant and member DPCARDBs wherein the members have been informed about the interest collection and interest recoverable figures as on 31.03.2013 which tally with the total overdue interest as per the accounts. In view of the above discussion, the addition of Rs. 20,64,52,575/- on account of overdue interest is ordered to be deleted. This ground of appeal
is allowed.”
59. Against above order of CIT(A), revenue preferred appeal before the Hon’ble ITAT who vide their order in dtd. 20.12.2019 has dismissed the appeal of the revenue by upholding the order of Hon’ble CIT(A). The relevant extract from page no. 4 of this judgement is reproduced as under: “5. After considering the rival submissions we do not find any infirmity in the order of the Ld. CIT(A). The ld CIT(A) has categorically held that in fact the impugned amount was unrealized interest on overdue loans which was part of the income which remained unrealized during the year and was not in the nature of expenditure and hence any addition on account of prior period expenditure was un-warranted under these circumstances. That the confusion has occurred due to change of method of presentation of accounts. There is no merit in this Ground of appeal
. The ground of appeal No.1 raised by the Revenue is, therefore, dismissed.
60. In above appeal before the Hon’ble ITAT, the revenue had raised number of issues which included this issue of overdue interest also. The Hon’ble ITAT dismissed all grounds of revenue. Against this order of Hon’ble ITAT, even when tax effect was much higher, the revenue raised all other issues before the Hon’ble P&H High Court but did not raise this issue which meant that even the revenue has accepted the decision of Hon’ble ITAT on this issue. In any case, the decision of Hon’ble ITAT dismissing the appeal of revenue has been upheld by the Hon’ble P&H High Court in of 2021 dtd. 07.04.2025. Hence, this issue has attained finality and has been decided in the favour of the assessee.
Per contra, the Ld. DR relied on the order of the lower authorities.
We have carefully considered the rival submissions and the material placed on record. The Ld. AR has submitted that the issue under consideration is a covered matter in the assessee’s own case for Assessment Year (AY) 2013–14. In that year, the CIT(A), vide order dated 28.05.2018 in Appeal No. 139/PKL/15-16, had held in favour of the assessee by deleting the addition made on account of overdue interest. The CIT(A) had rightly observed that, as per NABARD norms, overdue interest can be taken to the Profit & Loss account only when actually realized and with appropriate provisioning. It was found that the assessee had followed this principle correctly. 62.1 The said order of the CIT(A) was upheld by the Hon’ble ITAT in dated 20.12.2019, wherein the Coordinate Bench found no infirmity in the findings of the CIT(A) and categorically held that the impugned amount represented unrealized interest on overdue loans, and that no addition was warranted. 62.2 Furthermore, although the Revenue preferred an appeal before the Hon’ble Punjab & Haryana High Court in ITA No. 53 of 2021, it did not challenge the issue relating to overdue interest, indicating acceptance of the ITAT’s findings. The Hon’ble High Court has also upheld the order of the ITAT. 62.3 In view of the consistent decisions in favour of the assessee on this identical issue in earlier years, including affirmation by the Hon’ble Jurisdictional High Court, we hold that the issue has attained finality and respectfully follow the same. Therefore, we delete the addition and allow the assessee’s appeal on Grounds No. 1, 2, and 3.
AY 2016-17(Assessee Appeal) 63. Ground No. 1, 5, 6 of this appeal are general in nature, therefore no need of adjudication is required on our part and the same are dismissed. Ground No. 2: Reopening u/s 148 is bad in law 64. We noticed that since this issue is identical to the issue involved in for AY 2015-16, therefore,our findings given in that appeal shall apply mutatis mutandis to this ground of appeal as well. Ground No. 3: Overdue Interest from non-standard debts amounting to Rs. 38,69,96,590/-
65. Regarding this ground of appeal the Ld. AR submitted as under:
“Not pressed. The CIT(A) had decided the allowability of this expenditure against us. However, he has further held that we are entitled to enhanced deduction u/s 80P on this issue also and the revenue has not preferred any appeal on that portion of decision of CIT(A). Hence, the ground of allowability of this expenditure having no impact on our taxable income, we do not intend to press this issue.”
Ld. DR had no objection if this ground is dismissed as not pressed.
We have heard the rival contention and perused the material available on the record. Since the Assessee has chosen not to press this ground and the matter does not have any impact on the taxable income in view of the deduction allowed under section 80P, we find no merit in interfering with the impugned order of the CIT(A). Accordingly, this ground of appeal
is dismissed as not pressed. Ground No. 4: Deduction u/s 80P to the extent of interest earned from nationalized banks.
68. We noticed that since this issue is identical to the issue involved in for AY 2014-15 in respect of Ground No. 4, therefore,our findings given in that appeal shall apply mutatis mutandis to this ground of appeal as well. Accordingly, this ground of appeal is allowed. for AY 2017-18, (AssesseeAppeal )
In this appeal Ground No. 1, 4, 5 are general in nature, therefore no adjudication is required and the same are dismissed. Ground No. 2: Overdue Interest from non-standard debts amounting to Rs. 4,43,440/- 70. Regarding this ground of appeal Ld. AR submitted as under: Not Pressed. The CIT(A) had decided the allowability of this expenditure against us. However he has further held that we are entitled to enhanced deduction u/s 80P on this issue also and the revenue has not preferred any appeal on that portion of decision of CIT(A). Hence, the ground of allowability of this expenditure having no impact on our taxable income, we do not intend to press this issue.
71. Ld. DR had no objection if this ground is dismissed as not pressed.
We have heard the rival contention and perused the material available on the record. Since the Assessee has chosen not to press this ground and the matter does not have any impact on the taxable income in view of the deduction allowed under section 80P, we find no merit in interfering with the impugned order of the CIT(A). Accordingly, this ground of appeal
is dismissed as not pressed. Ground No. 4: Deduction u/s 80P to the extent of interest earned from nationalized banks.
73. We noticed that since this issue is identical to the issue involved in for AY 2014-15 in respect of Ground No.
4, therefore,our findings given in that appeal shall apply mutatis mutandis to this ground of appeal as well. Accordingly, this ground of appeal is allowed.
AY 2017-18 (Department Appeal) 74. In this appeal Ground No. 5 & 6 are general in nature therefore same are dismissed.
Ground No. 1, 2, 3:Overdue interest amount to Rs. 1,78,20,01,567/- accrued during the year though not received from DPCARDBs.
We noticed that since this issue is identical to the issue involved in AY 2015-16 in respect of Ground No. 1,2 and 3, therefore,our findings given in that appeal shall apply mutatis mutandis to this ground of appeal as well. Therefore, we delete the addition and allow the assessee’s appeal on Grounds No. 1, 2, and 3.
77. Ground No. 4: Disallowance of Rs. 1,19,67,681/- u/s 14A read with Rule 8D.
78. In regard to this ground, we have agitated before the CIT(A) that the investment on which s. 14A has been applied by the Ld. AO are in the nature of deposits with Co-operative Banks/Societies and also some shares of small amount of Rs. 12.84 lacs of other co- operative societies. We earned interest from deposits which was taxable and has been taken to P&L A/c. On shares of other co- operative societies, we earned dividend and the same being not exempt u/s 10 (only dividend from companies is exempt), this was also offered to tax. Further, in our ITR, we did not claim anything as exempt. Kindly refer ITR & Computation at APB pages Page 42-43 of APB. The CIT(A) appreciating these facts has allowed relief to the assessee on merits. For above, we rely upon the decisions in : a. HDFC Bank Ltd 366 ITR 505 (Bom HC) b. Lakhani Marketing Inc. (2014) 272 CTR 265 (P&H HC) c. Deepak Mittal (2014) 361 ITR 131 (P&H) d. Shivam Motors (P) Ltd. (2015) 230 Taxman 63 (All. HC) e. Vardhman Chemtech Private Ltd. dtd.22.04.2016 79. During hearing, the ld. DR argued that the assessee had made substantial investments and incurred significant interest expenditure of Rs. 156.71 crores during the year. Despite the assessee earning exempt dividend income of Rs. 2,50,000/-, it failed to demonstrate that no expenditure—direct or indirect—was incurred in relation to such exempt income. The reliance placed by the assessee and the CIT(A) on the proposition that no disallowance can be made in the absence of exempt income is misplaced, in light of CBDT Circular No. 5/2014, which clearly states that disallowance u/s 14A is applicable even if no exempt income is earned in a particular year, since the expenditure is incurred to earn such income over a period of time. “In this regard, it is most respectfully submitted that the arguments of Ld. DR were against the real facts of this case. It is not just a case of absence of exempt income only in this year but is a case of impossibility to earn any exempt income from these investments. These could only generate interest which is taxable and dividend from co-op society which is also taxable. Further, even otherwise, the assessee has enough own interest free surplus funds and therefore, s. 14A could not have been invoked. Further, when no exempt income has been earned during the year, s. 14A disallowance could not have been made.”
80. We have considered the rival contentions and perused the material on record. The disallowance of Rs. 1,19,67,681/- under Section 14A read with Rule 8D was made despite the assessee not earning any exempt income during the year. The investments comprised deposits with co-operative banks/societies yielding taxable interest, and shares of co-operative societies, whose dividend is also taxable. No income was claimed exempt in the return.
81. The CIT(A) rightly deleted the disallowance, noting that the nature of the investments made it impossible to earn exempt income. The assessee also had sufficient interest-free funds. The reliance on CBDT Circular No. 5/2014 by the Revenue is misplaced in this context.
The issue is squarely covered in favour of the assessee by various High Court decisions, including HDFC Bank Ltd (Bom HC), Lakhani Marketing and Deepak Mittal (P&H HC), which hold that no disallowance under Section 14A is warranted in the absence of exempt income.Accordingly this ground of appeal is allowed.
83 Since we have discussed and rendered our findings in all the aforementioned appeals, a summary of the results, appeal-wise, is as under:
Sr. Appeal Number and Party Name Appeal by Result No. 1 588/Chandi/2024 Assessee Partly Allowed Haryana State Co-operative Agriculture and Rural Development 2. 590/Chandi/2024 Assessee Dismissed Haryana State Co-operative Agriculture and Rural Development 3. 591/Chandi/2024 Department Partly Allowed Haryana State Co-operative Agriculture and Rural Development 4. 589/Chandi/2024 Assessee Partly Allowed Haryana State Co-operative Agriculture and Rural Development 5. 592/Chandi/2024 Assessee Partly Allowed Haryana State Co-operative Agriculture and Rural Development 6. 593/Chandi/2024 Assessee Partly Allowed Haryana State Co-operative Agriculture and Rural Development 7. 594/Chandi/2024 Department Partly Allowed Haryana State Co-operative Agriculture and Rural Development 8. 595/Chandi/2024 Assessee Partly Allowed Haryana State Co-operative
Agriculture and Rural Development 9. 596/Chandi/2024 Department Partly Allowed Haryana State Co-operative Agriculture and Rural Development Order pronounced in the open Court on 30/05/2025.