INCOME TAX OFFICER, WARD 5,SANGLI., SANGLI. vs. SHREE GANESH NAGARI SAHAKARI PAT SANSTHA MARYADIT, ASHTA,, ASHTA

ORDER

PER VINAY BHAMORE, JM:

2. Facts of the case, in brief, are that the assessee is a credit co- operative society duly registered under the Maharashtra Cooperative Societies Act engaged in the activity of providing credit facilities to its members and also accepting deposits from them. The return of income was furnished on 08.10.2018 by declaring income of Rs.Nil after claiming deduction u/s 80P(2)of the IT Act of Rs.3,53,11,443/. The return was selected for scrutiny and after considering the submissions of the assessee, the Assessing Officer completed the assessment proceedings u/s 143(3) of the IT Act and vide order dated 23.03.2021 determined total income at Rs.2,95,71,620/- as against the Nil income returned by the assessee. The above assessed income includes addition of Rs.2,94,35,283/- (Rs.2,94,11,786/- interest earned from cooperative banks + Rs.23,497/- interest earned from Axis Bank) disallowance on account of deduction u/s 80P(2)(d) of the IT Act and addition of Rs.58,631/- being delayed payment of employees’ contribution to Provident Fund u/s 36(1)(va) of the IT Act and addition of Rs.77,708/- (Rs.58,134/- + Rs.19,574/-) u/s 28 of the IT Act.

C.O. No.49/PUN/2025 3. Being aggrieved with the above assessment order, the assessee preferred an appeal before Ld. CIT(A)/NFAC. After considering the written submission furnished by the assessee, Ld. CIT(A)/NFAC partly allowed the appeal filed by the assessee by observing as under :- “7.6 The appellant stated that as per the bylaws of the society, it was required to keep certain funds as deposits with co-operative banks. Further, the appellant has stated that the appellant society is not the bank but that its nature of business was coupled with that of banking. In this regard, the appellant has placed heavy reliance on certain case laws decided by various ITATs including jurisdictional ITAT, Pune wherein the said matter has been discussed in detail and it is given in the favour of the appellant. In all these cases the Hon’ble ITATs has held that a credit co-operative society is one which is authorised by the register of co-operative society for accepting deposits and lending money to its members as the main objective of providing credit facility to its members while also carrying the business of banking activity. Such societies are eligible for deduction u/s 80P(2)(d) of the Act. Therefore, it is concluded that the funds which were invested with the co-operative banks were an integral part of the business activity of the appellant business and hence any income arises out of such business activity was clearly allowed as a deduction as per the above decisions. 7.7 Further, it is observed that the appellant has earned interest of Rs.23,497/- from nationalised banks i.e. Axis Bank. The interest income earned from nationalised banks is not covered u/s 80P(2)(d) of the Act, therefore, the appellant is not eligible to claim deduction u/s 80P(2)(d) of the Act related to interest earned from the nationalised banks. Therefore, the AO is directed to calculate the deduction related to the interest income earned from nationalised banks and the same may be assessed as income from other sources. Therefore, the AO is directed to allow deduction u/s 80P(2)(d) in respect of interest income earned from cooperative banks of Rs. 2,94,11,786/- and grant relief to the appellant. The appellant has raised the objection on the denial of deduction u/s 80P(2) of the Act through ground nos. 1, therefore, ground nos. 1 of appeal filed by the appellant is partly allowed. 7.8 Ground no. 2 and 3 are on the issue on non-offering the interest income of Rs.58,134/- from Deepak VasantraoSuryavanshi and Rs.19,574/- from Laxman Dinakar Patil. The appellant has furnished the supporting documents which proves that the interest income of C.O. No.49/PUN/2025 Rs.58,134/- and Rs.19,574/- was offered as the income. Therefore, ground no. 2 and 3 are decided in favour of the appellant. 7.9 Ground no. 4 is on disallowing Rs.58,631/- u/s 36(1)(va) of the Act. The appellant has received the employees contribution of Rs.58,631/- for payment of provident fund and the same should be credited to the employees account on or before the due date whereas the appellant has not paid the employees contribution on or before the due date. As per section 36(1)(va) of the Act, if the employees contribution is not paid to the government account on or before the due date, the same is not allowable deduction. Therefore, ground no. 4 is decided against the appellant. 8.0 In the result, the appeal of the appellant is partly allowed.”

4. It is the above order against which the Revenue is in appeal and the assessee is in Cross Objection before this Tribunal.

5. First, we shall take up the Cross Objection filed by the assessee for adjudication. C.O. No.49/PUN/2025 : 6. The assessee raised the following grounds in its cross objection :-

1. Under the facts and circumstances of the case and in law, appellant is eligible for deduction u/s 80P(2)(a)(i).

2. Under the facts and circumstances of the case and in law, the Ld Commissioner of Income Tax (Appeals) has erred in not allowing deduction u/s 80P in respect to interest of Rs. 23,497/- from nationalized bank i.e. Axis Bank.

3. Under the facts and circumstances of the case and in law, the Ld Commissioner of Income Tax (Appeals) has erred in not allowing deduction u/s 80P of Rs. 58,631/- being employees' contribution towards Provident Fund by invoking the provisions of Section 36(1)(va) of the Income-tax Act, 1961, on the alleged ground that the said contribution was not deposited on or before C.O. No.49/PUN/2025 the statutory due date. Despite of the fact that appellant is eligible for deduction U/s 80P(2)(a)(i).

4. Under the facts and circumstances of the case and in law, the Ld Assessing Officer has erred in making disallowance of Rs.58,631/- being employees' contribution towards Provident Fund by invoking the provisions of Section 36(1)(va) of the Income-tax Act, 1961, on the alleged ground that the said contribution was not deposited on or before the statutory due date. Which is beyond the scope of "Limited Scrutiny".

5. Under the facts and circumstances of the case and in law, Ld Assessing Officer has erred in issuing Notice of Demand without passing Assessment Order.

6. The appellant craves the permission to add, amend, modify, revise, substitute, delete or alter any/all of the above grounds of appeal

if deemed necessary at the time of hearing of the appeal.”

7. We have heard Ld. counsels from both the sides and perused the material available on record including the written submissions furnished by the assessee.

8. Ground no.1 & 2 raised by the assessee in its cross objection which relates to allowability of Rs.23,497/- interest income earned from Axis Bank u/s 80P(2)(a)(i) of the Act is not pressed by the counsel of the assessee, Accordingly, the same are dismissed as not pressed.

9. With regard to ground no.3 & 4 raised by the assessee in its cross objection which relates to not allowing the deduction of Rs.58,631/- u/s 80P(2)(a)(i) of the IT Act, we find that after disallowance of Rs.58,631/- being delayed payment of employees’ C.O. No.49/PUN/2025 contribution to PF u/s 36(1)(va) of the IT Act the business profit of the assessee has increased. In this regard, it was the contention of the assessee that CBDT has issued Circular No.37/2016 dated 02.11.2016 which allows the benefit of deduction under Chapter VIA on enhanced profit. The relevant circular is reproduced below :- “CIRCULAR NO. 37/2016 F.No.279/Misc./140/2015/ITJ Government of India Ministry of Finance, Department of Revenue Central Board of Direct Taxes ****** New Delhi, Dated 2nd November 2016 Subject: Chapter VI-A deduction on enhanced profits- Reg. Chapter VI-A of the Income-tax Act, 1961 ("the Act"), provides for deductions III respect of certain incomes. In computing the profits and gains of a business activity, the Assessing Officer may make certain disallowances, such as disallowances pertaining to sections 32, 40(a )(ia), 40A(3), 43B etc., of the Act. At times disallowance out of specific expenditure claimed may also be made. The effect of such disallowances is an increase in the profits. Doubts have been raised as to whether such higher profits would also result in claim for a higher profit-linked deduction under Chapter VI-A.

2. The issue of the claim of higher deduction on the enhanced profits has been a contentious one. However ,the courts have generally held that if the expenditure disallowed is related to the business activity against which the Chapter VI-A deduction has been claimed ,the deduction needs to be allowed on the enhanced profits. Some illustrative cases upholding this view are as follows: (i) If an expenditure incurred by assessee for the purpose of developing a housing project was not allowable on account of non-deduction of TDS under law, such disallowance would ultimately increase assessee's profits from business of developing housing project. The ultimate profits of assessee after adjusting disallowance under section 40 (a)(ia) of the Act would quality for deduction under section 80-18 of the Act. This view was taken by the courts in the following cases:

C.O. No.49/PUN/2025 • Income-tax Officer - Ward 5(1) vs. Keval Construction, Tax Appeal No. 443 of 2012, December 10, 2012, Gujarat High Court. • Commissioner of Income-tax-IV, Nagpur vs. Sunil Vishwambhamath Tiwari, IT Appeal No.2 of 2011, September 11, 2015, Bombay High Court. (ii) If deduction under section 40A(3) of the Act is not allowed, the same would have to be added to the profits of the undertaking on which the assessee would be entitled for deduction under section 80-18 of the Act. This view was taken by the court in the following case: • Principal CIT, Kanpur vs. Surya Merchants Ltd., IT. Appeal No. 248 of 2015, May 03,2016, Allahabad High Court. The above views have attained finality as these judgments of the High Courts of Bombay, Gujarat and Allahabad have been accepted by the Department.

3. In view of the above, the Board has accepted the settled position that the disallowances made under sections 32, 40(a)(ia ), 40A(3), 43B, etc. of the Act and other specific disallowances, related to the business activity against which the Chapter VI-A deduction has been claimed ,result in enhancement of the profits of the eligible business, and that deduction under Chapter VI-A is admissible on the profits so enhanced by the disallowance.

4. Accordingly, henceforth, appeals may not be filed on this ground by officers of the Department and appeals already filed in Courts/ Tribunals may be withdrawn/ not pressed upon. The above may be brought to the notice of all concerned.”

C.O. No.49/PUN/2025 11. With regard to ground no.5 nothing was pleaded by the counsel of the assessee at the time of hearing of appeal, hence dismissed.

during the course of appellate proceedings before the Hon’ble Tribunal.”

15. We have heard Ld. Counsels from both the sides and perused the material available on record. In this regard, we find that all the grounds raised by the Revenue revolves around the issue of allowability of deduction u/s 80P(2)(d) of the IT Act to primary credit cooperative society. In this regard, we find that in number of decisions passed by coordinate benches of this Tribunal it has been held that a primary credit cooperative society is eligible to claim deduction u/s 80P(2) of the IT Act on interest and dividend income earned from its investment with other cooperative banks which are also cooperative societies duly registered under Maharashtra State Cooperative Societies Act. In this regard, following decisions are relevant :- (i) Gurudatta Gramin Bigersheti, order dated 28-07-2025.

C.O. No.49/PUN/2025 (ii) Pune JilaMadhyawarti Sahkari Bank Sevakanchi Sahkari Patsanstha Maryadit, order dated 23-06-2025. (iii) Sharadchandra Nagari Sahakari Patsanstha Maryadit, order dated 04-06-2025.