SHRI SAIBABA BAHUUDDESHIYA NAGRIK CREDIT CO-OPERATIVE SOCIETY,NAGPUR vs. ITO WARD (3)(4), NAGPUR

This appeal has been preferred by the Assessee against the order dated 16/01/2022 impugned herein passed by the National Faceless Appeal Centre (NFAC)/Commissioner of Income Tax (Appeals), Delhi (in short, ‘Ld. Commissioner’) u/sec. 250 of the Income Tax Act, 1961 (in short, ‘Act’) for the A.Y. 2020-21.

2 ITA No.194/NAG/2025 (Shri Saibaba Bahuuddeshiya Nagrik Credit Co-op. Society) 2. In this case, the Assessing Officer (AO), vide assessment order dated 28/09/2022 u/sec. 143(3) r.w.s. 144B of the Act, has made the addition of Rs. 71,00,105/- being ‘disallowance on account of deduction’ claimed by the Assessee u/sec. 80P(2)(a)(i) of the Act and the addition of Rs. 37,77,768/- being ‘disallowance of deduction’ claimed u/sec. 80P(2)(d) of the Act.

S.No. Name of the bank Amount invested/deposited Term Deposit: 1 Abhyuday Co-op Bank 1140315 2 Arvind Sahakari 500235 3 Fincare Small Fiance Bank 16486 4 Jana Small Finance Bank 46357 5 Tirupati Urban Co-op Bank 579291

3 ITA No.194/NAG/2025 (Shri Saibaba Bahuuddeshiya Nagrik Credit Co-op. Society) 6 Ravi Commercial Urban Bank 453077 7 Nagpur Nagrik Sahakari Bank Ltd 2492590 8 Nirmal Urban Co-op Bank 196728 9 Punjab National Bank 3048 10 The Maharashtra State Co-op Bank 838535 11 Wainganga Krushna Gramin Bank 151705 Total from Co-op Banks/Banks 6419367 Interest from credit co-op societies 3322332 Total Interest 97413969

Though, the AO considered the claim of the Assessee, however, found the same not tenable and ultimately not only disallowed deduction claimed u/sec. 80P(2)(a)(i) of the Act to the tune of Rs. 71,00,105/- but also made the addition of Rs. 37,77,768/- being disallowance u/sec. 80P(2)(a)(i) of the Act.

4 ITA No.194/NAG/2025 (Shri Saibaba Bahuuddeshiya Nagrik Credit Co-op. Society) 7. The Assessee thus being aggrieved with the impugned order preferred this appeal and more or less has claimed as under: - “The assessee is CREDIT co-operative society and assessed to tax for past so many years. The nature of business of the assessee is itself very clear from its own name The assessee is doing the business of banking le. accepting the deposits from member and others and giving loan to its member on which the assessee earned the income duly registered under The Maharashtra Co-operative Society Act 1961 There is no change in nature of business of the assessee since inception. The assessee is eligible for deduction u/s 80P(2)(a). The assessee having fund during the course of business without diverting any fund of member is invest by the assessee in FDR with nationalize and well repudiated bank to earn some income to pay the dividend etc. to the member of the assessee. The assessee having net profit as per profit and loss account including the interest earned on FDR and saving accounts by the assessee amounting Rs. 3639161. The assessee was made investment in FDRs with different banks. Details of the same is provided by the assessee during the course of assessment proceedings and earned the interest amounting Rs 9741969/- During the assessment proceeding Learned Assessing Officer asked to the assessee as in the case of a co-operative society engaged in carrying on the business of banking or providing credit facilities to its members. The Hon’ble Supreme Court in Totgars Cooperative Sale Society Ltd. v ITO 322 ITR 283 held that interest on deposits were not business income but it is income from other sources and the society was not entitled to special deduction u/s 80P(2). Further Learned Assessing Officer added in the said show cause notice that in the Judgment of PCIT Hubball vis Totgars Cooperative sale society (2017)83 taxman.com140 (Karnataka) held that interest earned by the assessee Cooperative society marketing members agriculture produc from surplus deposits kept with a cooperative bank was not eligible for deduction under section 80P. The assessee file details reply by distinguishing the nature of business of the assessee and Tolgars Cooperative sale society but the same is rejected by the Learned Assessing Officer without assigning any reason and dis allow the claim of the assessee U/s. 80P(2)(a) and made the addition of Rs. 71,00,105/- (This income includes the FDR interest earned by the assessee) to the returned income. Further the Learned Assessing Officer made the addition again on account interest earned by assessee amounting Rs. 37,77,768/- after allowing the deduction u/s 80P(2)(d) amounting Rs. 33,22,332/- and some inter head adjustment. Also make the addition of an amount Rs. 72890/- which is computed while processing ITR u/s. 143(1)(a) by overlooking facts that any adjustment is made while processing ITR having no relevance if the assessment is made u/s 143(3) of The Income Tax Act 1961.

5 ITA No.194/NAG/2025 (Shri Saibaba Bahuuddeshiya Nagrik Credit Co-op. Society) Against such assessment the assessee preferred an appeal before The Commissioner of Income Tax (Appeal) NFAC The case is fixed for hearing and the assessee filed reply 29.11.2024 along with written submission and supporting documents and copy of judgement on which the assessee places the reliance. The Commissioner of Income Tax (Appeal), NFAC has passed ex-parte order on 16.01.2025 and upheld the assessment order on the both major issue on which addition was made in assessment is upheld in appeal, the said issue was settled in assessee own case. In appeal order, Learned Commissioner of Income Tax (Appeal) mention that the assesses made submission on 29.11.2024 with zero kb attachment and further he mentions that several opportunities are given after 29.11.2024. As per record available in PAN account of the assessee, notice on 04 12.2024 & 24.12.2024 was given to assessee after 29.11.2024, which the official of the assessee missed, which may be due to oversight business in official work and not intentionally. Hence the assessee preferred this appeal before your honour.”

6 ITA No.194/NAG/2025 (Shri Saibaba Bahuuddeshiya Nagrik Credit Co-op. Society) allowable as deduction u/s 80P(2)(d) of the Act or not, was considered and ultimately answered in affirmative by allowing the deduction claimed on account of interest/dividend income earned from co-operative bank u/s 80P(2)(d) of the Act by observing and holding as under:

“8. We have considered the submissions of both sides and perused the material available on record. The only dispute raised by the assessee is against the disallowance of deduction under section 80P(2)(d) of the Act in respect of interest income received from the Co-operative Banks. The assessee is a registered Co- operative Housing Society and during the assessment year 2018- 19 earned interest income of Rs. 50,39,861 from the investments made in various Co-operative Banks. 9. Before proceeding further, it is relevant to note the provisions of section 80P of the Act under which the assessee has claimed the deduction in the present case. As per the provisions of section 80P(1) of the Act, the income referred to in sub-section (2) to section 80P shall be allowed as a deduction to an assessee being a Co-operative Society. Further, section 80P(2)(d) of the Act, reads as under: “80P. Deduction in respect of income of co-operative societies. (1) ...... (2) The sums referred to in sub-section (1) shall be the following, namely:– (a) ..... (b) ..... (c) ..... (d) in respect of any income by way of interest or dividends derived by the cooperative society from its investments with any other co-operative society, the whole of such income;” 10. Thus, for the purpose of provisions of section 80P(2)(d) of the Act, two conditions are required to be cumulatively satisfied- (i) income by way of interest or dividend is earned by the Co- operative Society from the investments, and (ii) such investments should be with any other Co-operative Society. Further, the term „co-operative society‟ is defined under section 2(19) of the Act as under:

7 ITA No.194/NAG/2025 (Shri Saibaba Bahuuddeshiya Nagrik Credit Co-op. Society) “(19) "co-operative society" means a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies ; 11. In the present case, there is no dispute that the assessee is a CoOperative Housing Society. Thus, if any income as referred to in sub-section (2) to section 80P of the Act is included in the gross total income of the assessee, the same shall be allowed as a deduction. It is pertinent to note that since the assessee is registered under the Maharashtra Co-operative Societies Act, 1960, it is required to invest or deposit its funds in one of the modes provided in section 70 of the aforesaid Act, which includes investment or deposit of funds in the District Central Co-operative Bank or the State Cooperative Bank. Accordingly, the assessee kept the deposits in Co-operative Banks registered under the Maharashtra Co-operative Societies Act and earned interest, which was claimed as a deduction under section 80P(2)(d) of the Act. The AO denied the deduction under section 80P(2)(d) of the Act on the basis that the Co-operative Bank is covered under the provisions of section 80P(4) of the Act. We find that the Hon‟ble Supreme Court in Mavilayi Service Cooperative Bank Ltd. vs CIT, Calicut, [2021] 431 ITR 1 (SC) while analysing the provisions of section 80P(4) of the Act held that section 80P(4) is a proviso to the main provision contained in section 80P(1) and (2) and excludes only Cooperative Banks, which are Co-operative Societies and also possesses a licence from RBI to do banking business. The Hon’ble Supreme Court further held that the limited object of section 80P(4) is to exclude Co-operative Banks that function at par with other commercial banks i.e. which lend money to members of the public. Thus, we are of the considered view that section 80P(4) of the Act is of relevance only in a case where the assessee, who is a Co-operative Bank, claims a deduction under section 80P of the Act which is not the facts of the present case. Therefore, we find no merits in the aforesaid reasoning adopted by the AO and upheld by the learned CIT(A) in denying deduction under section 80P(2)(d) of the Act to the assessee. 12. As regards the claim of deduction under section 80P(2)(d) of the Act, it is also pertinent to note that all Co-operative Banks are Co-operative Societies but vice versa is not true. We find that the coordinate benches of the Tribunal have consistently taken a view in favour of the assessee and held that even the interest earned from the Co-operative Banks is allowable as a deduction under section 80P(2)(d) of the Act. In Kaliandas Udyog Bhavan Premises Coop Society Ltd vs ITO, in ITA No. 6547/ Mum./2017, vide order dated 25/04/2018, while dealing with the provisions

8 ITA No.194/NAG/2025 (Shri Saibaba Bahuuddeshiya Nagrik Credit Co-op. Society) of section 80P(2)(d) vis-à-vis section 80P(4) of the Act, the coordinate bench of the Tribunal observed as under: “7. ……Thus, from a perusal of the aforesaid Sec. 80P(2)(d) it can safely be gathered that income by way of interest income derived by an assessee cooperative society from its investments held with any other cooperative society, shall be deducted in computing the total income of the assessee. We may herein observe, that what is relevant for claim of deduction under Sec. 80P(2)(d) is that the interest income should have been derived from the investments made by the assessee co-operative society with any other cooperative society. We though are in agreement with the observations of the lower authorities that with the insertion of Sub-section (4) of Sec. 80P, vide the Finance Act, 2006, with effect from 01.04.2007, the provisions of Sec. 80P would no more be applicable in relation to any co-operative bank, other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank, but however, are unable to subscribe to their view that the same shall also jeopardise the claim of deduction of a cooperative society under Sec. 80P(2)(d) in respect of the interest income on their investments parked with a co- operative bank. We have given a thoughtful consideration to the issue before us and are of the considered view that as long as it is proved that the interest income is being derived by a cooperative society from its investments made with any other cooperative society, the claim of deduction under the aforesaid statutory provision, viz. Sec. 80P(2)(d) would be duly available. We may herein observe that the term 'co-operative society' had been defined under Sec. 2(19) of the Act, as under: '(19) "Co-operative society" means a cooperative society registered under the Cooperative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any state for the registration of co-operative societies;' We are of the considered view, that though the co-operative bank pursuant to the insertion of Sub-section (4) of Sec. 80P would no more be entitled for claim of deduction under Sec. 80P of the Act, but however, as a co-operative bank continues to be a co-operative society registered under the Cooperative Societies Act, 1912 (2 of 1912), or under any other law for the time being enforced in any state for the registration of co-operative societies, therefore, the interest income derived by a co-operative society from its

9 ITA No.194/NAG/2025 (Shri Saibaba Bahuuddeshiya Nagrik Credit Co-op. Society) investments held with a co-operative bank, would be entitled for claim of deduction under Sec.80P(2)(d) of the Act.” 13. We find that the learned CIT(A) has placed reliance upon the decision of the Hon’ble Karnataka High Court in Pr.CIT v/s Totagars Co-operative Sales Society, [2017] 395 ITR 611 (Karn.), wherein it was held that interest earned by the assessee, a Co-operative Society, from surplus deposits kept with a Cooperative Bank, was not eligible for deduction under section 80P(2)(d) of the Act. We find that in an earlier decision the Hon’ble Karnataka High Court in Pr.CIT v/s Totagars Co- operative Sales Society, [2017] 392 ITR 74 (Karn.) held that according to section 80P(2)(d) of the Act, the amount of interest earned from a Co-operative Society Bank would be deductable from the gross income of the Co-operative Society in order to assess its total income. Thus, there are divergent views of the same Hon‟ble High Court on the issue of eligibility of deduction under section 80P(2)(d) of the Act in respect of interest earned from Co-operative Bank. No decision of the Hon‟ble jurisdictional High Court was brought to our notice on this aspect. We have to, with our highest respect to both the views of the Hon'ble High Court, adopt an objective criterion for deciding as to which decision of the Hon'ble High Court should be followed by us. We find guidance from the judgment of the Hon'ble Supreme Court in CIT v. Vegetable Products Ltd., [1972] 88 ITR 192. In the aforesaid decision, the Hon'ble Supreme Court has laid down a principle that "if two reasonable constructions of a taxing provisions are possible, that construction which favours the assessee must be adopted". 14. Therefore, in view of the above, we uphold the plea of the assessee and direct the AO to grant the deduction under section 80P(2)(d) of the Act to the assessee in respect of interest income earned from investment with Cooperative Banks. Accordingly, we set aside the impugned order passed by the learned CIT(A) for the assessment year 2018-19. As a result, grounds raised by the assessee are allowed.” (Highlighted for clarity)

10 ITA No.194/NAG/2025 (Shri Saibaba Bahuuddeshiya Nagrik Credit Co-op. Society) 11. Coming to 2nd disallowance u/s 80P(2)(a)(i) of the Act, this Court observe that the co-ordinate Bench of this Tribunal in the cases titled as The Green City Nagri Sahakari Pat Vs ITO Ward 2(2), Nagpur {ITA no.124/Nag./2024 decided on 22 October, 2024} has also dealt with identical issue u/s 80P(2)(a)(i) of the Act and allowed the identical claim as involved in this case, by observing and holding as under:-

“ 5. We have heard the rival arguments, perused the material available on record and gone through the orders of the authorities below. It is an admitted fact that the assessee is a Credit Co-operative Society and has made some short term deposits with Nationalized Bank i.e, Union Bank of India and and has received interest income which was claimed the as deduction under section 80P(2)(a)(i) / 80P2(d) of the Act. The case of the Assessing Officer is that, interest income received by the assessee is from Nationalized Bank and hence it falls under the income from other sources not eligible for deduction under section 80P(2)(a)(i) / 80P2(d) of the Act. We find that similar issue came up for adjudication before the Tribunal, Nagpur Bench, wherein the very same Bench was a party to that order rendered in The Ismailia Urban Cooperative Society v/s ITO, ITA no.122/ Nag./2023, order dated 18/06/2024, wherein the Tribunal has considered this issue in detail and held that interest income earned by the Assessee trust is eligible for deduction under section 80P(2)(a)(i) / 80P2(d) of the Act. The relevant portion of the order reproduced below: - "9. Upon hearing both the counsel and perusing the record, we find that the issue involved is covered in favour of the assessee by a catena of decisions from ITAT as well as a decision of jurisdictional High Court. In this regard we may gainfully refer the Hon€ble Jurisdictional High Court decision in the case of CIT vs. Solapur Nagri Audyogik Sahakari Bank Ltd. 182 Taxman 231 wherein the following question was raised. "Whether the interest income received by a Co-operative Bank from investments made in Kisan Vikas Patra („KVP€ for short) and Indira Vikas Patra („IVP€ for short) out of voluntary reserves is income from banking business exempt under Section 80P(2)(a)(i) of the Income Tax Act, 1961?"

11 ITA No.194/NAG/2025 (Shri Saibaba Bahuuddeshiya Nagrik Credit Co-op. Society)

After considering the issue, the Hon€ble Jurisdictional High Court has concluded as under :

"12. Therefore, in all these cases, where the surplus funds not immediately required for day-to-day banking were kept in voluntary reserves and invested in KVP/IVP, the interest income received from KVP/IVP would be income from banking business eligible for deduction under section 80P(2)(i) of the Act. 13. In the result, there being no dispute that the funds in the voluntary reserves which were utilized for investment in KVP/IVP by the co-operative banks were the funds generated from the banking business, we hold that in all these cases the Tribunal was justified in holding that the interest income received by the co-operative banks from the investments in KVP/IVP made out of the funds in the voluntary reserves were eligible for deduction under section 80P(2)(a)(i) of the Act." The above case law fully supports the Assessee’s case. Here also surplus funds not immediately required for day to day banking were kept in Bank deposits. The income earned there from thus would be income from banking business eligible for deduction u/s 80P(2)(a)(i). 10. Similarly we find that similar issue was considered by this Tribunal on similar grounds raised by the Revenue in the case of MSEB Engineers Co-Op. Credit Society Ltd., wherein the ITAT, Nagpur Bench, vide order dated 05/05/2016 held as under : "Upon hearing both the counsel and perusing the records, we find that the above issue is covered in favour of the assessee by the decision of this ITA, referred by the Ld. CIT(A) in his appellate order. The distinction mentioned in the grounds of appeal is not at all sustainable. We further find that this Tribunal again in the case of Chattisgarh Urban Sahakari Sanstha Maryadit Vs. ITO in ITA No. 371/Nag/2012 vide order dated 27.05.2015 has adjudicated similar issue as under:- " 11. Upon careful consideration, we not that identical issue was the subject matter of consideration by ITAT, Ahmedabad Bench decision in the case of Dhanlaxmi Credit Cooperative Society Ltd (supra), in which one of us, learned Judicial Member, was a party. The concluding portion of the Tribunal€s decision is as under: "4. With this brief background, we have heard both the sides. It was explained that the Co-operative Society is

12 ITA No.194/NAG/2025 (Shri Saibaba Bahuuddeshiya Nagrik Credit Co-op. Society)

maintaining "operations funds" and to meet any eventuality towards repayment of deposit, the Co-operative society is maintaining some liquidated funds as a short term deposit with the banks. This issue was thoroughly discussed by the ITAT "B" Bench Ahmedabad in the case of The Income Tax Officer vs. M/s.Jafari Momin Vikas Co-op Credit Society Ltd., bearing ITA No. 1491/Ahd/2012 (for A.Y. 2009-10) and CO No. 138/Ahd/2012 (by Assessee) order dated 31/10/2012. The relevant portion is reproduced below :- "19. The issue dealt with by the Hon’ble Supreme Court in the case of Totgars (supra) is extracted, for appreciation of facts as under : What is sought to be taxed under section 56 of the Act is interest income arising on the surplus invested in short term deposits and securities, which surplus was not required for business purposes? The assesse(s) markets the produce of its members whose sale proceeds at times were retained by it. In this case, we are concerned with the tax treatment of such amount. Since the fund created by such retention was not required immediately for business purposes, it was invested in specified securities. The question before us, is whether interest on such deposits/securities, which strictly speaking accrues to the members€ account, could be taxed as business income under section 28 of the Act? In our view, such interest income would come in the category of „income from other sources€ hence, such interest income would be taxable under section 56 of the Act, as rightly held by the assessing officer....."

19.1 However, in the present case, on verification of the balance sheet of the assessee as on 31.3.2009, it was observed that the fixed deposits made were to maintain liquidity and that there were no surplus funds with the assessee as attributed by the Revenue. However, in regard to the case before the Hon’ble Supreme Court –

13 ITA No.194/NAG/2025 (Shri Saibaba Bahuuddeshiya Nagrik Credit Co-op. Society)

"(on page 286) 7 ........ Before the assessing officer, it was argued by the assesse(s) that it had invested the funds on short term basis as the funds were not required immediately for business purposes and consequently, such act of investment constituted a business activity by a prudent businessman; therefore, such interest income was liable to be taxed under section 28 and not under section 56 of the Act and, consequently, the assessee(s) was entitled to deduction under section 80P(2)(a)(i) of the Act. The argument was rejected by the assessing officer as also by the Tribunal and the High Court, hence these civil appeals have been filed by the assessee(s). 19.2 From the above, it emerges that (a) that assessee (issue before the Supreme Court) had admitted before the AO that it had invested surplus funds, which were not immediately required for the purpose of its business, in short term deposits; (b) that the surplus funds arose out of the amount retained from marketing the agricultural produce of the members; (c) that assessee carried on two activities, namely, (i) acceptance of deposit and lending by way of deposits to the members; and (ii)marketing the agricultural produce; and (d) that the surplus had arisen emphatically from marketing of agricultural produces.

19.3 In the present case under consideration, the entire funds were utilized for the purposes of business and there were no surplus funds. 19.4 While comparing the state of affairs of the present assessee with that assessee (before the Supreme Court), the following clinching dissimilarities emerge, namely:

14 ITA No.194/NAG/2025 (Shri Saibaba Bahuuddeshiya Nagrik Credit Co-op. Society)

(1) in the case of assessee, the entire funds were utilized for the purposes of business and that there were no surplus funds:- - in the case of Totgars, it had surplus funds, as admitted before the AO, out of retained amounts on marketing of agricultural produce of its members; (2) in the case of present assessee, it had not carry out any activity except in providing credit facilities to its members and that the funds were of operational funds. The only fund available with the assessee was deposits from its members and, thus, there was no surplus funds as such; - In the case of Totgars, the Hon’ble Supreme Court had not spelt out anything with regard to operational funds; 19.5 Considering the above facts, we find that there is force in the argument of the assessee that the assessee not a co- operative bank, but its nature of business was coupled with banking with its members, as it accepts deposits from and lends the same to its members. To meet any eventuality, the assessee was required to maintain some liquid funds. That was why, it was submitted by the assessee that it had invested in short-term deposits. Furthermore, the assessee had maintained overdraft facility with Dena Bank and the balance as at 31.3.2009 was Rs.13,69,955/- [source : Balance Sheet of the assessee available on record].

19.6 In overall consideration of all the aspects, we are of the considered view that the ratio laid down by the Hon€ble Supreme Court in the case of Totgars Co-op Sale Society Ltd (supra) cannot in any way come to the rescue of either the Ld. CIT (A) or the Revenue. In view of the above facts, we are of the firm view that the learned CIT (A) was not justified in coming to a conclusion that the sum of Rs.9,40,639/- was to be It is ordered accordingly."

15 ITA No.194/NAG/2025 (Shri Saibaba Bahuuddeshiya Nagrik Credit Co-op. Society) 80P(2)(a)(i) was rightly granted by ld. CIT(A), however, he has wrongly held that the interest income is taxable u/s 56 of the Act so do not fall under the category of exempted income u/s 80P of the Act. The adverse portion of the view, which is against the assessee, of ld. CIT(A) is hereby reversed following the decision of the Tribunal cited supra, resultantly ground is allowed.

16 ITA No.194/NAG/2025 (Shri Saibaba Bahuuddeshiya Nagrik Credit Co-op. Society) the aforesaid judgements and accordingly allow the deductions claimed u/sec. 80P(2)(d) of the Act and u/sec. 80P(2)(a)(i) of the Act respectively.

Order pronounced in the open court on 26.06.2025.

Sd/- (NARENDER KUMAR CHOUDHRY) JUDICIAL MEMBER

vr/-

Copy to: The Appellant The Respondent The CIT, Concerned, Nagpur The DR Concerned Bench

//True Copy//

By Order

Senior Private Secretary ITAT, Nagpur. Vr/-