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Facts
The assessee, a Co-operative Credit society, claimed a deduction of Rs. 73,14,914/- under Section 80P(2) for AY 2018-19. Initially accepted, the PCIT invoked Section 263, relying on the Totgars Co-operative Sales Society case, directing reassessment. The AO subsequently disallowed the deduction, and the CIT(A) upheld this disallowance, stating that interest income from investments with other cooperative societies was non-operational income.
Held
The Tribunal, noting the Ld. DR's concession that the issue was covered by previous decisions, held that interest income earned by a Co-operative Credit society from investments in Co-operative banks is eligible for deduction under Section 80P(2)(a)(i)/80P(2)(d). It ruled that such income is attributable to the society's business and that co-operative credit societies are distinct from co-operative banks, hence not hit by Section 80P(4) or the Totgars decision. The impugned order of the Ld. CIT(A)/NFAC was set aside.
Key Issues
Whether a Co-operative Credit Society is eligible for deduction under Section 80P(2)(d) on interest income from deposits in Co-operative Banks, and the applicability of the Totgars Co-operative Sales Society Ltd. Supreme Court decision to such societies.
Sections Cited
Section 80P(2), Section 80P(2)(a)(i), Section 80P(2)(d), Section 263, Section 142(1), Section 143(3), Section 80P(4), Section 56
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Income Tax Appellate Tribunal, “B” BENCH, PUNE
Before: SHRI MANISH BORAD & MS. ASTHA CHANDRA
आदेश / ORDER
PER ASTHA CHANDRA, JM :
The appeal filed by the assessee is directed against the order dated 02.09.2025 of the Ld. Commissioner of Income Tax (Appeals)/NFAC, Delhi [“CIT(A)/NFAC”] pertaining to Assessment Year (“AY”) 2018-19.
Briefly stated, the facts of the case are that the assessee is a Co- operative Credit society registered under the Maharashtra Co-operative Society Act, 1960. It is engaged in the activities of providing credit facilities to its members and accepting deposits from its members. For AY 2018-19, the assessee filed its return of income on 18.08.2018 declaring total income at Rs.1,60,740/- after claiming deduction u/s 80P(2) of the Income Tax Act, 1961 (the “Act”) to the tune of Rs.73,14,914/-. The case of the assessee was selected for scrutiny under CASS and the assessment was completed by the Ld. Assessing Officer (“AO”) determining assessed income at Rs.1,60,740/- thereby accepting the income returned by the assessee. Subsequently, the Ld. PCIT, Pune-3 invoked the provisions of section 263 of the Act and relying on the decision of the Hon’ble Karnataka High Court and the Hon’ble Supreme Court in the case of Totgars Co- operative Sales Society, he directed the Ld. AO to reassess the income of the assessee. Consequent thereto, the Ld. AO issued notice u/s 142(1) of the Act to the assessee in response to which the assessee made due submissions. However, the submissions of the assessee were not found to be acceptable by the Ld. AO and he proceeded to complete the assessment u/s 143(3) r.s.s. 263 of the Act vide his order dated 31.03.2024 disallowing the claim of deduction u/s 80P(2) of the Act amounting to Rs.73,14,914/-.
Aggrieved, the assessee filed an appeal before the Ld. CIT(A)/NFAC which was dismissed. The Ld. CIT(A)/NFAC sustained the addition of Rs.73,14,914/- made by the Ld. AO by observing as under :
“5.4 The undersigned has pondered over the subject matter and issues identified in the grounds of appeal, the impugned assessment order and the arguments submitted by the appellant. The main argument of the appellant is that the decision of the Hon'ble Supreme Court in case of Totgars Co- operative Sales Society Ltd. Vs. ITO, (SC) (322 ITR 283)(2010) is not applicable to the case of the appellant because the appellant has not invested any surplus fund and, therefore, its facts are different from the facts of the Totgars Co-operative Sales Society Ltd. case. However, this argument of the appellant is also not acceptable. The appellant has argued that the money invested in banks is not the surplus money with it but rather represents money attributable to the business activities. However, from the facts of the case, it is clear that the appellant is a cooperative credit society and is engaged in the business of accepting deposits from its members and providing credit facilities to its members and has invested surplus money with the institutions to earn income from other sources which is non- operational in nature and is squarely hit by the decision of the Hon'ble Supreme Court in Totgars Co-operative Sales Society Ltd. Vs. ITO, (SC) (322 ITR 283)(2010). The judgment of the Hon'ble Supreme Court in Totgars Co- operative Sales Society Ltd. Vs. ITO, (SC) (322 ITR 283) (2010) is, therefore, squarely applicable to the appellant. The Hon'ble Supreme Court in the case of Totgars Co-operative Sales Society Ltd. has stated inter-alia that: "The words "the whole of the amount of profits and gains of business" emphasise that the income in respect of which deduction is sought must constitute the operational income and not the other income which accrues to the Society. In this particular case, the evidence shows that the appellant -Society earns interest on funds which are not required for business purposes at the given point of time. Therefore, on the facts and circumstances of this case, in our view, such interest falls in the category of "other Income" which has been rightly taxed by the Department under section 56 of the Act." 5.5 Further reliance is placed on the decision of Hon'ble ITAT Mumbai K Bench (ITA No. 1824/M/2025, AY 2021-22) in the case of Saidas Coop. Housing Society Limited vs. ITO ВКС, Bandra East wherein it has been ruled that where the appellant has received non-operational income on surplus money invested with other cooperative societies, deduction u/s 80P cannot be allowed. The facts in the present case are identical in nature and the instant case law is therefore, applicable in this case. Further, the AO has made compendious analysis and has given clear finding of the fact that for the reasons identified in the assessment order, the appellant's claim for deduction with respect to interest income and Dividend Income earned from Co-operative bank is not found to be allowable deduction under any provision of Section 80Pof the I.T. Act. and its claim u/s 80P is hit by the provisions of section 80P(4) of the Act. In effect, thereto addition of Rs.73,14,914/- is hereby sustained and the grounds of appeal raised by the appellant are dismissed.”
Dissatisfied, the assessee is in appeal before the Tribunal raising the following grounds of appeal : “On the facts and in law –
1. The Hon. CIT Appeals (NFAC) has erred in confirming the addition of Rs. 73,14,914/-made by the learned AO, by disallowing the claim of Appellant Society U/s 80P(2)(d) on the ground that appellant society has earned interest from its deposits with Co-operative bank. 1.2 The addition is not justified on the following grounds: a) The appellant society accepts deposits from and disburses loan only to its Primary members. The nominal members are also not permitted to make deposits or open account with the appellant society. This fact is clearly spelt out in bye laws of society. b) The appellant society is credit co-operative society and is governed by co-operative laws. c) The appellant society is not governed by Banking Regulation Act and also the Reserve Bank of India does not have any say in its operations. d) The appellant society is a Credit Co-operative Society and hence the decision laid down by Hon. Supreme Court in case of Totgars Co-operative Sales Society Ltd., is not applicable to case of assessee Society.
2. Your appellant prays leave to produce such other evidence as may be necessary to substantiate its case.
3. The appellant craves leave to add, amend, modify, or delete any of the grounds of appeal at or before the hearing.”
At the outset, the Ld. AR submitted that the impugned issue is squarely covered in favour of the assessee by catena of decisions pronounced by various Benches of the Tribunal including the Pune Tribunal and Hon’ble High Court(s) wherein the claim of deduction u/s 80P(2)(a)(i)/80P(2)(d) of the Act under the similar set of facts as that of the assessee has been allowed. He submitted that the Jurisdictional Tribunal has consistently allowed the claim of deduction in respect of interest income earned by the assessee society from investments made in the Co- operative Banks/Co-operative Society u/s 80P(2)(a)(i)/80P(2)(d) of the Act and hence in the instant case interest income earned by the assessee from investment with Co-operative Banks during the relevant AY under consideration should be allowed as deduction u/s 80P(2)(d) of the Act. In support thereof, the Ld. AR relied on the decision of the Pune Tribunal in the case of ITO Vs. Pragati Gramin Bigarsheti Sahakari Pat Sanstha Maryadit and Ors. for AY 2017-18, dated 20.12.2022 and in the case of ITO Vs. Surroday Gramin Bigarsheti Sahakari Path Sanstha Maryadit and Ors. for AY 2015-16, dated 23.09.2019.
The Ld. DR fairly conceded with the above submission of the Ld. AR that the impugned issue is covered in favour of the assessee by catena of decisions of various judicial forums as cited by the Ld. AR.
We have heard the Ld. Representatives of the parties and perused the material on record and various judicial precedents cited by the Ld. AR as well as the paper book filed by the Ld. AR on behalf of the assessee. The facts of the case are not in dispute. During the relevant AY 2018-19, the assessee has received interest from investments in Co-operative banks and claimed deduction u/s 80P(2) of the Act to the tune of Rs.73,14,914/- which has been disallowed by the Ld. AO and such disallowance has been upheld by the Ld. CIT(A)/NFAC for the reasons reproduced above. We find some force in the submission of the Ld. AR that the impugned issue is covered in favour of the assessee by catena of decisions of various judicial forums including Jurisdictional Pune Tribunal wherein it has been consistently held that interest income earned from Co-operative banks are eligible for deduction u/s 80P(2)(a)(i)/80P(2)(d) of the Act as the same is attributable to the business of the assessee society. In the case of Pragati Gramin Bigarsheti Sahakari Pat Sanstha Maryadit (supra) and Surroday Gramin Bigarsheti Sahakari Path Sanstha Maryadit (supra), the Co- ordinate Bench of the Pune Tribunal held that a Co-operative credit society is distinct and separate from a Co-operative bank and it is entitled to deduction u/s 80P(2)(a)(i) without being hit by the provisions of section 80P(4) of the Act. It was also held therein that a co-operative credit society is eligible for deduction u/s 80P(2)(d) in respect of interest/dividend derived from investment made in Co-operative bank.
Respectfully following the decision(s) (supra) and in the absence of any objection raised and/or contrary decision brought on record by the Ld. DR, we hereby set aside the impugned order of the Ld. CIT(A)/NFAC and allow the deduction claimed by the assessee u/s 80P(2)(d) of the Act. The effective grounds of appeal raised by the assessee are accordingly allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 12th February, 2026.