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Facts
The assessee, a co-operative society, did not file a return for AY 2010-11. The AO subsequently completed the assessment under Section 144 read with Section 147, disallowing deduction under Section 80P and raising a substantial demand. The CIT(A) partly allowed the appeal, leading to the assessee's appeal before the ITAT.
Held
Relying on the Jurisdictional High Court decision in CIT vs. Sahyadri Co-operative Credit Society Ltd., the Tribunal held that interest earned by a cooperative society on surplus funds deposited in a bank forms part of its business profits and is eligible for deduction under Section 80P. Consequently, the matter was remanded to the CIT(A) for re-examination consistent with this precedent.
Key Issues
Eligibility of interest income earned by a co-operative society from deposits for deduction under Section 80P of the Income Tax Act.
Sections Cited
148, 143(2), 142(1), 144, 147, 80P
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri Inturi Rama Rao & Shri Sonjoy Sarma
6/247, the Muthalamada Service Co-operative Bank/Society Ltd., Pollachi Road, Muthalamada, Kerala- 678507. PAN : AAAAT4212C. (Appellant) (Respondent) Appellant by : None Respondent by : Smt. Leena Lal, Snr AR Date of Hearing : 03.06.2025 Date of Pronouncement : 11.06.2025 O R D E R Per Sonjoy Sarma: All the captioned appeals have been preferred by the assessee against separate orders by the National Faceless Appeal Centre [hereinafter referred to as ‘CIT(A)’] dated 05.12.24, 04.12.2024, 04.12.2024 & 05.12.2024 respectively. Since the issue involved in these appeals are interlinked and are arising from the same set of facts, therefore, these appeals were heard together and are being disposed of by this common order. For the sake of convenience, is taken as lead case. to 55/Coch/2025 The Muthalamada Service Co-operative Bank Ltd.
ITA No.52/Coch/2025 – Brief facts of the case are that the assessee is a co-operative society and has not filed return of income for the assessment year under consideration i.e. A.Y 2010- 11. Thereafter, a notice u/s 148 of the Act was issued on 27.03.2015 and the assessee filed return for assessment year 2010-11 on 07.07.2015. Later on, notices u/s 143(2) and 142(1) were duly issued. The Assessing Officer completed the assessment of the assessee on 22.03.2016 u/s 144 r.ws. 147 of the Act after disallowing deduction u/s 80P of Rs.42,11,084/-, rebate on interest and depreciation and demanding a tax and interest of Rs.157,80,080/-.
Aggrieved by the above order, the assessee preferred an appeal before the ld. CIT(A). The ld. CIT(A) vide its order dated 05.12.2024 has partly allowed the appeal of the assessee.
Dissatisfied with the above order, the assessee has come in appeal before us. At the time of hearing, no one appeared on behalf of the assessee, although notices were served from the registry to the assessee.
The ld. DR has submitted that despite availing many opportunities before the lower authorities, the assessee has failed to file details or explanations to substantiate the claim before the ld. CIT(A). She therefore relied on the decisions of the lower authorities and stated that the appeal of the assessee may be dismissed.
We, after hearing the submission of the ld. DR and perusing the materials available on record, find that Hon'ble Jurisdictional High court in the case of CIT vs. Sahyadri Co-operative Credit Society Ltd. in of 2019, wherein it was held as under: - to 55/Coch/2025 The Muthalamada Service Co-operative Bank Ltd. “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 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.”
In the light of the above discussion, we deem it fit to remand the whole issue to the file of the ld. CIT(E) to re-examine the issue of claim of deduction u/s 80P keeping in view the decision in CIT vs. Sahyadri Co-operative Credit Society Ltd. (supra). Hence, is allowed for statistical purposes.
Since, the facts and issues are similar in all the appeals, therefore, our decision in will mutatis mutandis apply to all the remaining appeals. Hence, ITA Nos.53 to 55/Coch/2025 are allowed for statistical purposes.
Order pronounced on 11.06.2025.