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Facts
The assessee, Calicut City Service Co-op. Bank Ltd., a primary agricultural credit co-operative society, filed a nil return claiming deduction under Section 80P(2)(i)(a). The AO disallowed deduction under Section 80P(2)(d) for interest income from Kerala Bank and excess gratuity contribution, assessing a total income of Rs. 3,88,81,488/-. The CIT(A) allowed the Section 80P(2)(d) deduction for interest income but confirmed the gratuity disallowance, leading the assessee to appeal to the ITAT.
Held
The Tribunal ruled that any disallowances made by the AO that increase the business income of a co-operative society, which is eligible for Section 80P deduction, would still qualify for deduction under Section 80P(2)(i)(a) of the Act. This position was reinforced by CBDT Circular No. 31/16 dated 02.11.2016. Accordingly, the AO was directed to allow the deduction under Section 80P.
Key Issues
Whether disallowances made by the Assessing Officer while computing the business income of a co-operative society, otherwise eligible for deduction under Section 80P, should also qualify for deduction under Section 80P, or if such disallowances would inflate the taxable profits.
Sections Cited
80P, 80P(2)(i)(a), 80P(2)(d), 143(3), 144B
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Income Tax Appellate Tribunal, COCHIN BENCH
Before: SHRI INTURI RAMA RAO, AM & SHRI MANU KUMAR GIRI, JM
O R D E R Per: Inturi Rama Rao, AM This appeal filed by the assessee is directed against the order of the National Faceless Appeal Centre, Delhi (NFAC) dated 20.08.2025 for Assessment Year (AY) 2023-24.
Brief facts of the case are that the appellant is a co-operative society registered under the Kerala State Co-operative Societies Act, 1969. It is engaged in the business of accepting deposits from members and providing credit facilities to members. It is classified as a primary agricultural credit co-operative society. The return of Calicut City Service Co-op. Bank Ltd. income for Y 2023-24 was filed on 19.12.2023 declaring Nil income after claiming deduction u/s. 80P(2)(i)(a) of the Act. Against the said return of income, the assessment was completed by the Assessment Unit, Income Tax Department (hereinafter called "the AO") vide order dated 17.02.2025 passed u/s. 143(3) r.w.s. 144B of the Income Tax Act, 1961 (the Act) at a total income of Rs. 3,88,81,488/-. While doing so, the AO made disallowance of claim made u/s. 80P(2)(d) in respect of interest income of Rs. 7,23,28,678/- received from Kerala Bank and also disallowed the excess contribution made to gratuity fund of Rs. 48,76,870/-.
Being aggrieved, an appeal was filed before the CIT(A), who vide impugned order directed the AO to allow the deduction u/s. 80(2)(d) in respect of interest income earned from Kerala Bank of Rs. 7,23,33,296/- following the decision of the Hon'ble Jurisdictional High Court in the case of Pr. CIT vs. Peroorkada Service Co-op. Bank Ltd. [2022] 442 ITR 141 (Ker). However, confirmed the disallowance of excess contribution made to gratuity fund.
Being aggrieved, the appellant is in appeal before this Tribunal in the present appeal.
The learned counsel for the assessee submits that the disallowance made while computing the business income of the co- operative society qualifies for deduction u/s. 80P(a)(i)(a) of the Act in view of the Board Circular No. 231/16 dated 02.11.2016.
We have heard the rival contentions and perused the material available on record. The only issue that arises for our consideration is whether the disallowance made by the AO while computing business income of the co-operative society, which is eligible to claim deduction u/s. 80P qualifies for deduction u/s. 80P of not. There is no doubt that the disallowances made by AO while computing the business income of the co-operative society would enhance the profits of the co-operative society, which are eligible for claiming deduction u/s. 80P(2)(i)(a) of the Act. This position of law was also clarified by the CBDT vide Circular No. 31/16 dated 02.11.2016. In view of this settled position of law, we are of the considered opinion that the disallowances would only inflate the profits which qualifies for deduction u/s. 80P(2)(i)(a) of the Act. Accordingly, we direct AO to allow deduction u/s. 80P of the Act.
In the result, the appeal filed by the assessee stands allowed.
Order pronounced in the open court on 19th November, 2025.