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Income Tax Appellate Tribunal, JAIPUR BENCHES,A-Bench JAIPUR
Before: SHRI GAGAN GOYAL, AM & SHRI NARINDER KUMAR, JM
vkns'k@ORDER PER: NARINDER KUMAR, JUDICIAL MEMBER .
Revenue has come up in appeal feeling aggrieved by order dated 20.08.2025, passed by Learned CIT(A), NFAC, Delhi, relating to the assessment year 2018-19, as thereby appeal filed by the assessee challenging assessment order dated 01.03.2021, pertaining to said assessment year, has been allowed, and the assessment order has been set aside.
Kota Karamachari Sahakari Samiti Ltd., Kota.
Arguments hard. File perused.
In the course of arguments, Ld. DR for the department-appellant has simply submitted that he relies on the reasons recorded by the Assessing Officer. On the other hand, Ld. AR for the assessee has submitted that he stands by the reasons recorded by Learned CIT(A) and the decision cited therein, and urged that the appeal filed by the department deserves to be dismissed, being without any merits. Case of the assessee society was selected under CASS 4. Case of the department is that the return of income of the assessee society was processed u/s 143(1) of the Income Tax Act (in short “the Act”). Subsequently, case of the assessee was selected under CASS for limited scrutiny. Thereupon, notices u/s 143(2) and 142(1) of the Act were served upon the assessee. The assessee responded to the notice u/s 143(2) of the Act and furnished various information/details. Ultimately, the Assessing Officer computed total income of the assessee at Rs. 10,31,70,261/- by making addition of said amount, treating the said income by way of interest as “income from other sources”, and disallowing the claim of the assessee for deduction as per provisions of section 80P(2)(d) of the Act.
Kota Karamachari Sahakari Samiti Ltd., Kota.
The Assessing Officer was of the view that in view of the decisions relied on (para 7 of the assessment order) and the provisions of section 80P(2)(d) of the Act, the assessee was not eligible for deductions either u/s 80P(2)(d) of the Act or u/s 80P(2)(a)(i) of the Act. For ready reference, observations made by the Assessing Officer are reproduced hereunder:- “6. From the above it is quite clear that the provisions of the section 80P are not applicable to the above mentioned banks as the status of the same is a co- operative Bank and not a co-operative society. Further, since the assessee has made investments in a co-operative Bank and has derived interest income from these investments, such income is not eligible for deduction u/s 80P(2(d) of the Income Tax Act. It is only the income derived from the another co-operative society, that is eligible for deduction u/s 80P(2)(d) of the Income Tax Act, 1961.
Further, the income is not eligible for deduction u/s 80P(2)(a)(i) also. The interest income was required to be taxed under the head "Income from Other Sources and not as "Business Income". Reliance is placed on the Hon'ble Supreme Court decision in the case of Totgars Co-operative Sale Society Limited vs. ITO, Karnataka [322 ITR, 283 (SC)] dated 8th February, 2010, wherein it was held that such interest income earned by the assessee was taxable under the head 'Income from Other Sources' under Section 56 of the Income Tax Act. 1961 and was not deductible from the gross total income under Section 80P(2)(a)(i) of the Income Tax Act, 1961. Further, Hon'ble High Court of Gujarat in the case of State Bank of India vs. CIT (72 Taxmann.com 64), Hon'ble High Court of Karnataka in the case of PCIT vs. Totagars (83 Taxmann.com 140) (Date of order 16.06.2017), Hon'ble High Court of Punjab and Haryana in the case of CIT vs. Punjab State Co-op Agricultural Development Bank Ltd. (76 Taxmann.com 307), Hon'ble High Court of Calcutta in the case of CIT vs. South Eastern Kota Karamachari Sahakari Samiti Ltd., Kota. Railway Employee's Co-op Credit Society (73) taxmann.com 123-Calcutta) has taken similar view. From the above, it is clear that the interest income from the investments in the Kola Central Cooperative Bank Ltd, The Kota Nagrik Sahakari Bank Limited, Kota and ICICI Bank is not eligible for deduction u/s 80P(2)(a)(i) or u/s 80P(2)(d) of the Income Tax Act, 1961.
In view of above, interest income from the above mentioned banks amounting to Rs. 10,31,70,261/- is hereby treated as 'Income from Other Sources and deduction u/s 80P(2(d) amounting to Rs.83.93,122/- is hereby disallowed. Further, penalty proceedings u/s 270A of the Income Tax Act, 1961 are hereby initiated separately for under reporting of income in consequence of misreporting. [Addition: Rs. 10,31,70,261/-]”
When the assessment order was challenged, Learned CIT(A) relied on decision in Mavilayi Service Co-operative Bank Ltd. vs. CIT, (2021) by Hon’ble Apex Court and observed therein that it stood clarified that deduction claimed u/s 80P(2)(a)(i) of the Act is to be determined in view of actual activities of the society. Learned CIT(A) went on to observe that admittedly the assessee- appellant was engaged in providing credit facility to its members, and accordingly, its income was eligible for deductions.
7. At page 10 of the impugned order, Learned CIT(A) reproduced following observations made by Hon’ble Apex Court in the above decision:_ “45. To sum up, therefore, the ratio decidendi of Citizen Cooperative Society Ltd. (supra), must be given effect to. Section 80P of the IT Act, being a benevolent Kota Karamachari Sahakari Samiti Ltd., Kota. provision enacted by Parliament to encourage and promote the credit of the co- operative sector in general must be read liberally and reasonably, and if there is ambiguity, in favour of the assessee. A deduction that is given without any reference to any restriction or limitation cannot be restricted or limited by implication, as is sought to be done by the Revenue in the present case by adding the word "agriculture" into Section 80P(2)(a)(i) when it is not there. Further, section 80P(4) is to be read as a proviso, which proviso now specifically excludes co-operative banks which are co-operative societies engaged in banking business e. engaged in lending money to members of the public, which have a licence in this behalf from the RBI Judged by this touchstone, it is clear that the impugned Full Banch judgment is wholly incorrect in its reading of Citizen Cooperative Society Ltd. (supra). Clearly, therefore, once section 80P(4) is out of harm's way, all the assessees in the present case are entitled to the benefit of the deduction contained in section 80P(2)(a)(i), notwithstanding that they may also be giving loans to their members which are not related to agriculture. Also, in case it is found that there are instances of loans being given to non-members, profits attributable to such loans obviously cannot be deducted.
It must also be mentioned here that unlike the Andhra Act that Citizen Cooperative Society Ltd. (supra) considered, nominal members are 'members as defined under the Kerala Act. This Court in U.P. Cooperative Cane Unions' Federation Ltd., Lucknow v. Commissioner of Income Tax, Lucknow-1 (1997) 11 SCC 287 referred to section 80P of the IT Act and then held: "8. The expression 'members" is not defined in the Act. Since a cooperative society has to be established under the provisions of the low made by the State Legislature in that regard, the expression "members" in Section 80-P(2)(a)(i) must, therefore, be construed in the context of the provisions of the law enacted by the State Legislature under which the cooperative society claiming exemption has been formed It is, therefore, necessary to construe the expression "members" in Section 80-P(2)(a)(i) of the Act in the light of the definition of that expression as contained in Section 2(n) of the Cooperative Societies Act.”
8. Learned CIT(A) held that the interest income earned by the assessee from the subject deposits was eligible for deduction u/s 80P(2)(d) of the Act. Accordingly, addition made by the Assessing Officer was deleted. As regards a small amount of Rs. 826/- i.e. interest income from ICICI Bank, Learned CIT(A) observed that the same did not qualify for deduction u/s 80P(2)(d) of the Act, and further that as regards said minor income taxable surplus stood wiped out, in view of the proportionate expenses.
In the course of argument, Ld. DR for the Revenue has not made any attempt to distinguish decision in Mavilayi Service Co-operative Bank Ltd. (supra), relied on by Learned CIT(A) or referred to any material suggesting that the 2 co-operative banks are engaged in lending money to general public as their banking business. Notably, said decision was not before the Assessing Officer and as such its non-applicability to facts of this matter, was not discussed in the assessment order. Even otherwise, the issue involved is if the 2 Co- operative banks are co-operative societies or not. Keeping in view said decision by Hon’ble Apex Court in Mavilayi Service Co-operative Bank Ltd. (supra), Learned CIT(A) rightly observed that the interest income earned by the assessee from deposits with the two Kota Karamachari Sahakari Samiti Ltd., Kota. banks, namely, Kota Central Co-operative Bank Ltd. and Kota Nagrik Sahakari Bank Ltd. was eligible for deductions u/s 80P(2)(d) of the Act. In view of the settled law, and in absence of any decision to the contrary from the side of the department-appellant, we uphold the decision by Learned CIT(A) whereby he deleted the addition made by the Assessing Officer for the reasons recorded therein. Result 10. In view of the above discussion and findings, this appeal is allowed. File be consigned to the record room after the needful is done by the office. Order pronounced in the open court on 20/11/2025.