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Facts
The assessee, a primary agricultural credit cooperative society, claimed Section 80P deduction, which was partly disallowed by the AO on interest income from investments with cooperative banks. The CIT(A) partly allowed the deduction, confirming only a small portion of the addition relating to interest from a District Treasury Bank SB account.
Held
The Tribunal condoned a 672-day delay in filing the appeal due to non-service of the NFAC order. Following a jurisdictional High Court precedent, the Tribunal ruled that interest income earned by the assessee from investments with Treasury and Scheduled Commercial Banks is eligible for deduction under Section 80P(2)(i)(a) of the Act.
Key Issues
Whether interest income earned by a cooperative society from investments with Treasury and Scheduled Commercial Banks is eligible for deduction under Section 80P of the Income Tax Act. Also, whether the delay in filing the appeal should be condoned.
Sections Cited
80P, 143, 144B, 250, 270A, 80P(2)(d), 80P(2)(a)(i)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, COCHIN BENCH
Before: SHRI INTURI RAMA RAO, AM
This appeal filed by the assessee is directed against the order of the National Faceless Appeal Centre, Delhi [CIT(A)] dated 29.05.2023 for Assessment Year (AY) 2020-21. 2. Brief facts of the case are that the assessee is a cooperative society registered under the Kerala Cooperative Societies Act, 1969. It is classified as primary agricultural credit cooperative society. It is engaged in the business of accepting deposits from members and The Vazhakulam Service Co-op. Bank No.751 providing credit facilities to its members for agriculture and allied purpose. The return of income for AY 2020-21 was filed on 15/01/2021 disclosing nil income after claiming deduction of Rs. 2,84,46,460/- u/s. 80P of the Act. Against the said return of income, assessment was completed by the AO vide order dated 23/09/2022 passed u/s.143 r.w.s. 144B of the Income tax Act, 1961 (for short, ‘the Act’) at a total income of Rs. 2,28,52,683/-. While doing so, the AO disallowed the claim for deduction of income earned by the assessee society on the investments held with cooperative bank u/s. 80P(2)(d) of the Act. Accordingly, AO made the addition of Rs. 2,28,52,683/-.
Being aggrieved, an appeal was filed before the CIT(A), who vide the impugned order held that interest income earned with Ernakulam District Co-op. Bank of Rs. 2,20,25,827/- is eligible for deduction u/s. 80P(2)(d) of the Act, however, confirmed the addition of Rs. 8,26,856/- being interest income earned from district Treasury Bank SB account.
Being aggrieved, the assessee is in appeal before the Tribunal in the present appeal with delay of 672 days.
The assessee has filed a petition seeking condonation of delay on the ground the order passed by the NFAC u/s. 250 of the Act was not served on the assessee. It is only after a show-cause notice for The Vazhakulam Service Co-op. Bank No.751 levy of penalty u/s. 270A was served on 03/03/2025. The assessee has come to know when served the penalty order and immediately filed this appeal without any further delay. Since the averments made in the petition, not controverted by the Department, I am of the considered opinion, it is a fit case to condone the delay. Accordingly, the delay of 672 days is hereby condoned.
I have heard rival submissions and perused the material on record.
The issue in the present appeal relates to allowability of 7. interest income earned on the investment with Treasury and Scheduled Commercial Bank for deduction u/s. 80P(2)(a)(i) of the Act. The issue is no more res-integra as stand settled by the jurisdictional High Court in the case of CIT vs. Sahyadri Co-operative Credit Society Ltd. in of 2019, wherein it was held as under: - “The question that arises therefore is whether, merely because the assessee chooses to deposit its surplus profit in a permitted bank or financial institution, and earns interest on such deposits, such interest would cease to form part of its profits and gains attributable to its business of providing credit facilities to its members? In our view that question must be answered in the negative, since we cannot accept the contention of the Revenue that the interest earned on those deposits loses its character as profits/gains attributable to the main business of the assessee. It is not as though the assessee in the instant case had used the surplus amount (the profit earned by it] for an investment or activity that was unrelated to its main business, and earned additional income by way of interest or gain through such activity. The assessee had only deposited the profit earned by it in the manner mandated The Vazhakulam Service Co-op. Bank No.751 under Section 63 of the Multi-State Co-operative Societies Act, or permitted by Section 64 of the said Act. In other words, it dealt with the surplus profit in a manner envisaged under the regulatory Statute that regulated, and thereby legitimized, its business of providing credit facilities to its members. Under those circumstances, if the assessee managed to earn some additional income by way of interest on the deposits made, it could only be seen as an enhancement of the profits and gains that it made from its principal activity of providing credit facilities to its members. The nature and character of the principal income [profits earned by the assessee from its lending activity) does not change merely because the assessee acted in a prudent manner by depositing that income in a bank, instead of keeping it in hand. The provisions of the I.T. Act cannot be seen as intended to discourage prudent financial conduct on the part of an assessee.”
Respectfully following the above decision of the Hon'ble Jurisdictional High Court, I hold that the assessee is entitled for deduction under sections 80P(2)(i)(a) of the Act in respect of interest received from Treasury, Scheduled Banks, etc.
In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 31st July, 2025.
Sd/- (INTURI RAMA RAO) ACCOUNTANT MEMBER Cochin, Dated: 31st July, 2025 vr/-