THE BALUSSERY REGIONAL CO-OPERATIVE BANK LIMITED,BALUSSERY vs. ITO, WARD-2(2), CALICUT

The appellant assessee is a primary co-operative society registered under Kerala State cooperative Department and provides finance for agricultural allied activities, rural development, and rural housing etc. The assessee for the year under consideration declared income of Rs. 5,96,200/- after claiming deduction under chapter-VI of the Act for Rs. 29,79,121/- which includes deduction u/s 80P(2)(a)(i) of the Act for Rs. 28,52,121/-.

The AO during the assessment found that the interest income shown by the assessee includes an amount of Rs. 77,59,092/- received on account of deposit with Kozhikode District Co-operative Bank Ltd. (KDCBL) now known as Kerala state cooperative Bank. The AO held that income earned on deposit with cooperative bank is not allowable deduction under section 80P of the Act. Accordingly, the AO disallowed the deduction claimed under section 80P(2(a)(i) of the Act for Rs. 28,52,121/- only.

Aggrieved assessee preferred an appeal before the ld. CIT) and submitted that the KDCBL is a cooperative society registered under Kerala Cooperative department. Therefore, the interest earned on deposit is allowable u/s 8P(2)(d) of the Act. Furthermore, the surplus amount was deposited with said cooperative bank as per direction of cooperative department. The assessee also submitted that the facts of Totagars Cooperative sales Society are not similar to the facts of the case on hand. Hence, the principles laid down therein are not applicable to the present case.

However, the ld. CIT-A observed that the deduction under 80Pof the Act is allowable on “the amount of profit and gains of business” meaning thereby the operational income is eligible for deduction whereas, the interest income on the deposits with KDCBL is not from business operation. As such, the income earned on the surplus amount was not required for business purposes. Therefore, the interest income on the surplus money parked as deposit with KDCBL cannot be allowed as deduction under section 80P of the Act.

Being aggrieved by the order of the ld. CIT-A, the assessee is in appeal before us.

The ld. AR before us reiterated the submissions made before the lower authorities whereas the ld. DR relied on the findings of the authorities below. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we note that this Tribunal in the case of Umayanallor Service Co-op. Bank Ltd. Vs. ITO in 390/Coch/2017 for the AYs 2016-17 and 2018-19 involving identical facts and circumstances has decided the impugned issue in favor of the assessee vide order dated 25.09.2024 by obsrving as under: - “We notice in this background that the very issue stands adjudicated in Hon'ble Jurisdictional High Court’s recent decision in of 2019 in the case of PCIT v. Peroorkada Service Co-op. Bank Ltd. [2022] 442 ITR 141 (Ker) wherein their Lordships have rejected the Revenue’s identical stand as under: - “12.2 Section 80P deals with Co-operative Societies' computation of income. As already noted, it has four sections and several sub-sections and clauses. The Parliament has considered the various situations in which the exigible income and the deductable income of the assessee is considered while computing the income of the assessee. For getting deduction, in our considered view, the assessee must also establish that the interest income earned by the assessee is from a Co-operative Society. As a matter of fact, in the case on hand, there is no dispute that it is not from a Co-operative Society registered under Kerala Co- operative Societies Act. The interest income earned from District Co-operative Bank/State Co-operative Bank, in the facts and circumstances of the case, do come within Section 80P(2)(d). Therefore, the income constitutes income from other sources and the only eligible deduction is covered by Section 80P(2)(d) viz. Interest or dividend derived by the assessee from its investments with any other Co-operative Society. The source of interest income is from Bank and Treasury, interest income received from Treasury be included in the computation of total income of the assessee. In other words, interest earned from Treasury is inadmissible for deduction and interest income from Co-operative Societies registered under the Kerala Co-operative Societies Act are eligible for deduction. The contra consideration of Commissioner of Income Tax (Appeals) and the Tribunal is incorrect and liable to be modified as stated above. Hence, it is held that the interest income earned by the assessee does not come within the ambit of Section 80P(2)(a)(i) and permissible deduction of interest income is limited to Co-operative Societies/Banks registered under Kerala Co-operative Societies Act under clause (d) of the Act and effect order on the above lines is made by the Assessing Officer. The questions are accordingly answered.” We adopt the above detailed discussion mutatis mutandis in the case of assessee’s identical submission on section 80P deduction. Necessary Balussery Regional Co-op. Bank Ltd. computation shall follow as per law in very terms. Assessee’s twin appeals ITA Nos. 389 & 390/ Coch/2023 succeeds. In the result, the assessee’s appeals are allowed in above terms. A copy of this common order be placed in the respective files.”

Respectfully following the order of this Tribunal discussed above, we set aside the order of the learned CIT(A) and direct the AO to tax the impugned income at normal rate of tax. Hence, the ground of appeal of the assessee is hereby allowed.