MAHARAJA MULTI STATE CO OP. CREDIT SOCIETY LTD,SATARA vs. ITO, WARD 3, SATARA, SATARA

PER SATBEER SINGH GODARA, J.M. :

This assessee’s appeal for assessment year 2020-2021,

arises against the National Faceless Appeal Centre [in short [the

“NFAC”] Delhi’s Din and Order No. ITBA/NFAC/S/250/2023-

14.03.2024, involving proceedings 24/1062645737(1), dated

u/s.143(3) of the Income Tax Act, 1961 (in short “the Act”).

2 ITA.No.942/PUN./2024 Heard both the parties. Case file perused.

assistance coming from both the sides that the assessee’s sole

substantive grievance pleaded herein challenges correctness of both

the lower authorities action disallowing it’s sec.80P(2)(a)(i)

deduction in respect of interest income of Rs.1,61,60,407/- derived

from various co-operative banks in light of State Bank of India vs.

CIT [2016] 389 ITR 578 (Guj.) and Totagars Cooperative Sale Society vs. ITO 188 Taxman 282 (SC). The NFAC’s lower appellate

discussion to this effect reads as under :

“5.6. It is seen from the assessment order that the AO had

duly considered all the relevant contentions of the assessee and

had thereafter, made the impugned addition to the income of the

appellant/assessee. The appellant during these proceedings

has only submitted a singular reliance on a decision of ITAT,

Pune in the case of Rena SahakariSakharkarkhana Ltd. Vs

PCIT 2, Aurangabad as also on a decision of the appellate

authority in the case of Kunabi Vikas Sahakari Pathsanstha

Ltd.

3 ITA.No.942/PUN./2024 5.7. It is necessary herein to refer to the Supreme Court

decision on the very issue on which the addition made by the

AO. The relevant part of the judgment of Hon'ble Supreme Court

in the case of Totgars Cooperative Sale Society v. Income Tax

Officer, Karnataka wherein it held as under:

"The Parliament has included specifically "business profits

into the definition of the word "income". Therefore, we are

required to give a precise meaning to the words "profits

and gains of business" mentioned in Section 80P(2) of the

Act. In the present case, as stated above, assessee-Society

regularly invests funds not immediately required for

business purposes. Interest on such investments,

therefore, cannot fall within the meaning of the expression

"profits and gains of business". Such interest income

cannot be said also to be attributable to the activities of

the society, namely, carrying on the business of providing

credit facilities to its members or marketing of the

agricultural produce of its members. When the assessee-

Society provides credit facilities to its members, it earns

4 ITA.No.942/PUN./2024 interest income. As stated above, in this case, interest held

as ineligible for deduction under Section 80P(2)(a)(i) is not

in respect of interest received from members. In this case,

we are only concerned with interest which accrues on

funds not required immediately by the assessee(s) for its

business purposes and which have been only invested in

specified securities as "investment". Further, as stated

above, assessee(s) markets the agricultural produce of its

members. It retains the sale proceeds in many cases. It is

this "retained amount which was payable to its members,

from whom produce was bought, which was invested in

short-term deposits/securities. Such an amount, which

was retained by the assessee-Society, was a liability and

it was shown in the balance-sheet on the liability-side.

Therefore, to that extent, such interest income cannot be

said to be attributable either to the activity mentioned in

Section 80P(2)(a)(i) of the Act or in Section 80P(2)(a)(ii) of

the Act. Therefore, looking to the facts and circumstances

of this case, we are of the view that theAssessing Officer

5 ITA.No.942/PUN./2024 was right in taxing the interest income, indicated above,

under Section 56 of the Act."

5.8. It is evident from the above that the deduction

claimed under section 80P(2)(a)(i) of the Act is not allowable if

the funds are not invested for business purpose or with a co-

operative society in order to further the object of availing such a

deduction. Further, in light of the Supreme Court decision which

directly concerns the issue at hand, the reliance of the appellant

on the decision of ITAT Pune which seeks to differentiate the

case of the Supreme Court holds no binding force.

5.9. Furthermore, the fact pattern of the decisions

rendered by the ITAT, Pune and the appellate authority in the

other cases relied on by the appellant is differentiable from the

facts of the instant case and therefore, hold no relevance in

deciding the issue at hand.

5.10. Considering the above, I find that the judgment of the

Hon'ble Supreme Court is applicable in the instant case and the

disallowance made by the AO, requires no interference.

6 ITA.No.942/PUN./2024 5.11. However, in Form 35, appellant has made claim that

the interest income from the Co- operative banks during the AY-

2020-21 is of Rs. 1,13,77,017/- (instead of Rs. 1,61,60,407/-

as ascertained by the AO.). Regarding this, the AO is directed to

verify the actual interest received by the appellant from co-

operative banks during the Previous Year (i.e. 2019-20) and

restrict the disallowance of deduction claimed by the appellant

to that extent.

appeal is dismissed for statistical purpose.”

above extracted lower appellate reasoning that the assessee’s

impugned interest income has been rightly denied sec.80P(2)(a)(i)

deduction claim. We notice in this factual backdrop that this

tribunal’s recent coordinate bench’s order ITA.No.1249/PUN./2018

dated 07.01.2022 in The Rena Sahakari Sakhar Karkhana Ltd. vs.

PCIT’s case has rejected the Revenue’s identical arguments as

follows :

7 ITA.No.942/PUN./2024 “3. After culmination of the assessment proceedings, the Pr.

CIT called for the assessment records of the assessee. It was

observed by the Pr. CIT that the assessee had during the year

shown interest income from FDs with Co-operative Banks

amounting to Rs.75,38,534/-, against which it had claimed

deduction under Sec.80P(2)(d) of the Act. It was observed by the

Pr. CIT, that the A.O while framing the assessment had allowed

the aforesaid claim of deduction raised by the assessee.

Observing, that as co-operative banks were commercial banks

and not a co-operative society, therefore, the Pr.CIT was of the

view that the assessee was not eligible for claim of deduction

under Sec.80P(2)(d). In the backdrop of his aforesaid conviction,

the Pr. CIT was of the view that the assessment order passed

by the A.O under Sec.143(3), dated 07.03.2016, therein

allowing the assesses claim for deduction under Sec. 80P(2)(d),

had therein rendered his order as erroneous, insofar it was

prejudicial to the interest of the revenue. Accordingly, the Pr.CIT

not finding favour with the reply of the assessee, wherein the

latter had tried to impress upon him that it was duly eligible for

claim of deduction under Sec.80P(2)(d) of the Act, therein “set

8 ITA.No.942/PUN./2024 aside” the order of the A.O with a direction to redecide the issue

afresh and reframe the assessment.

has carried the matter in appeal before us. As the present

appeal involved a delay of 52 days, therefore, the ld. A.R took

us through the reasons leading to the same. It was submitted

by the ld. A.R that as the then counsel of the assessee society

who was looking after its tax matters, viz. Shr. Ravikiran

Pandurang Todkar, Chartered Accountant was taken unwell

due to kidney failure and had undergone kidney transplant,

therefore, due to his unavailability the appeal could not be filed

within the stipulated time period. Our attention was drawn towards the „affidavit‟ of the assessee society wherein the

aforesaid facts were deposed. On the basis of the aforesaid

facts, it was submitted by the ld. A.R that the delay involved in

filing of the present appeal in all fairness may be condoned. Per

contra, the ld. D.R did not object to the seeking of condonation of

the delay in filing of the appeal by the assessee society. After

giving a thoughtful consideration, we are of the considered

view, that as there were justifiable reasons leading to delay on

9 ITA.No.942/PUN./2024 the part of the assessee in filing of the present appeal before us,

therefore, the same merits to be condoned.

while framing the assessment had after making necessary

verifications taken a plausible view, therefore, the Pr. CIT had

exceeded his jurisdiction by seeking to review the order passed

by him in the garb of the revisional powers vested with him

under Sec.263 of the Act. It was submitted by the ld. A.R, that

the issue as regards the eligibility of the assessee for claim of

deduction under Sec.80P(2)(d) on interest income derived from

investments/deposits lying with co-operative banks was

squarely covered by the various orders of the coordinate

benches of the Tribunal viz., (i). M/s Solitaire CHS Ltd. vs. Pr.

CIT, ITA No. 3155/Mum/2019; dated 29.11.2019 ( ITAT “G”

Bench, Mumbai); Kaliandas Udyog Bhavan Premises Co-op

Society Ltd. Vs. ITO-21(2)(1), Mumbai, ITA No. 6547/Mum/2017

(ITAT Mumbai); and (iii). Majalgaon Sahakari Sakhar Karkhana

Ltd. Vs. ACIT, Circle-3, Aurangabad, ITA No, 308/Pun/2018

(ITAT Pune). On the basis of his aforesaid contentions, it was

averred by the ld. A.R that as the Pr. CIT had exceeded his

10 ITA.No.942/PUN./2024 jurisdiction and had not only sought to review the plausible

view that was taken by the A.O after necessary deliberations

which was in conformity with the order of the jurisdictional

bench of the Tribunal, therefore, his order may be vacated and

that of the A.O be restored.

of the Act. It was submitted by the ld. D.R, that as the assessee

was not eligible for claim of deduction under Sec.80P on the

interest income received on the investments/deposits lying with

the co-operative banks, therefore, the Pr. CIT finding the

assessment order passed by the A.O under Sec.143(3), dated

07.03.2016 as erroneous, insofar it was prejudicial to the interest of the revenue, had rightly „set aside‟ his assessment

with a direction to re-adjudicate the issue therein involved. Our

attention was also drawn by the ld. D.R to his written

submissions and certain judicial pronouncements in support of

his aforesaid contention.

the parties, perused the orders of the lower authorities and the

11 ITA.No.942/PUN./2024 material available on record, as well as the judicial

pronouncements relied upon by them. Our indulgence in the

present appeal has been sought, for adjudicating, as to whether

or not the claim of the assessee for deduction under section

80P(2)(d) in respect of interest income earned from the

investments/deposits made with the co-operative banks is in

order. In our considered view, the issue involved in the present

appeal hinges around the adjudication of the scope and gamut

of sub-section (4) of Sec. 80P as had been made available on the

statute, vide the Finance Act 2006, with effect from 01.04.2007.

On a perusal of the order passed by the Pr. CIT under Sec. 263

of the Act, we find, that he was of the view that pursuant to

insertion of sub-section (4) of Sec. 80P, the assessee would no

more be entitled for claim of deduction under Sec. 80P(2)(d) in

respect of the interest income that was earned on the amounts

which were parked as investments/deposits with the co-

operative bank, other than a Primary Agricultural Credit Society

or a Primary Co-operative Agricultural and Rural Development

Bank. Observing, that the co-operative banks from where the

assessee was in receipt of interest income were not cooperative

12 ITA.No.942/PUN./2024 societies, the Pr. CIT was of the view that the interest income

earned on such investments/deposits would not be eligible for

deduction under Sec. 80P(2)(d) of the Act.

ourselves to concur with the view taken by the Pr. CIT. Before

proceeding any further, we may herein cull out the relevant

extract of the aforesaid statutory provision, viz. Sec. 80P(2)(d),

as the same would have a strong bearing on the adjudication of

the issue before us.

“80P(2)(d) (1).

Where in the case of an assessee being a co-operative

society, the gross total income includes any income

referred to in sub-section (2), there shall be deducted, in

accordance with and subject to the provisions of this

section, the sums specified in sub-section (2), in computing

the total income of the assessee.

(2). The sums referred to in sub-section (1) shall be the

following, namely:-

(a)..........................................................................................

..

13 ITA.No.942/PUN./2024 (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;”

On a perusal of Sec. 80P(2)(d), it can safely be gathered

that interest income derived by an assessee co-operative

society from its investments held with any other co-

operative society shall be deducted in computing its total

income. 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

co-operative society. We are in agreement with the view

taken by the Pr. CIT, that with the insertion of sub-section

(4) to Sec. 80P of the Act, vide the Finance Act, 2006 with

effect from 01.04.2007, the provisions of Sec. 80P would

14 ITA.No.942/PUN./2024 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. However, at the same time, we are unable to

subscribe to his view that the aforesaid amendment would

jeopardize the claim of deduction of a co-operative society

under Sec. 80P(2)(d) in respect of its interest income on

investments/deposits parked with a co-operative bank. In

our considered view, as long as it is proved that the

interest income is being derived by a co-operative society

from its investments made with any other co-operative

society, the claim of deduction under the aforesaid

statutory provision, viz. Sec. 80P(2)(d) would be duly available. We find 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 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;”

15 ITA.No.942/PUN./2024 We are of the considered view, that though the co-

operative banks pursuant to the insertion of sub-section (4)

to Sec. 80P would no more be entitled for claim of

deduction under Sec. 80P of the Act, but as a cooperative

bank continues to be 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,

therefore, the interest income derived by a co-operative

society from its investments held with a co-operative bank

would be entitled for claim of deduction under

Sec.80P(2)(d) of the Act.

upon by the ld. A.R are concerned, we find that the issue that a

co-operative society would be entitled for claim of deduction

under Sec. 80P(2)(d) on the interest income derived from its

investments held with a co-operative bank is covered in favour

of the assessee in the following cases:

16 ITA.No.942/PUN./2024 (i). M/s Solitaire CHS Ltd. vs. Pr. CIT, ITA No.

3155/Mum/2019; dated 29.11.2019 ( ITAT “G” Bench,

Mumbai);

(ii). Majalgaon Sahakari Sakhar Karkhana Ltd. Vs. ACIT,

Circle-3, Aurangabad, ITA No, 308/Pun/2018 (ITAT Pune)

(iiii). Kaliandas Udyog Bhavan Pemises Co-op. Society Ltd.

Vs. ITO, 21(2)(1), Mumbai

We further find that the Hon'ble High Court of Karnataka

in the case of Pr. Commissioner of Income Tax and Anr. Vs.

Totagars Cooperative Sale Society (2017) 392 ITR 74

(Karn) and Hon’ble High Court of Gujarat in the case of

State Bank Of India Vs. CIT (2016) 389 ITR 578 (Guj), had

held, that the interest income earned by the assessee on

its investments with a co-operative bank would be eligible

for claim of deduction under Sec. 80P(2)(d) of the Act. Still

further, we find that the CBDT Circular No. 14, dated

28.12.2006 also makes it clear beyond any scope of doubt

that the purpose behind enactment of sub-section (4) of

Sec. 80P was that the co-operative banks which were

functioning at par with other banks would no more be

17 ITA.No.942/PUN./2024 entitled for claim of deduction under Sec. 80P(4) of the Act.

Although, in all fairness, we may herein observe that the

Hon'ble High Court of Karnataka in the case of Pr. CIT Vs.

Totagars co-operative Sale Society (2017) 395 ITR 611

(Karn), as had been relied upon by the ld. D.R before us,

had held, that a co-operative society would not be entitled

to claim deduction under Sec. 80P(2)(d); but then, the

Hon'ble High Court in the case of Pr. Commissioner of

Income Tax and Anr. Vs. Totagars Cooperative Sale

Society (2017) 392 ITR 74 (Karn) and Hon’ble High Court

of Gujarat in the case of State Bank Of India Vs. CIT

(2016) 389 ITR 578 (Guj), had observed, that the interest

income earned by a co-operative society on its investments

held with a co-operative bank would be eligible for claim of

deduction under Sec.80P(2)(d) of the Act. Backed by the

aforesaid conflicting judicial pronouncements, we may

herein observe, that as held by the Hon'ble High Court of

Bombay in the case of K. Subramanian and Anr. Vs.

Siemens India Ltd. and Anr (1985) 156 ITR 11 (Bom),

where there is a conflict between the decisions of non-

18 ITA.No.942/PUN./2024 jurisdictional High Court‟s, then a view which is in favour

of the assessee is to be preferred as against that taken

against him. Accordingly, taking support from the aforesaid judicial pronouncement of the Hon‟ble High

Court of jurisdiction, we respectfully follow the view taken

by the Hon'ble High Court of Karnataka in the case of Pr.

Commissioner of Income Tax and Anr. Vs. Totagars

Cooperative Sale Society (2017) 392 ITR 74 (Karn) and

that of the Hon’ble High Court of Gujarat in the case of

State Bank Of India Vs. CIT (2016) 389 ITR 578 (Guj),

wherein it was observed that the interest income earned

by a co-operative society on its investments held with a co-

operative bank would be eligible for claim of deduction

under Sec.80P(2)(d) of the Act.

framing the assessment had taken a possible view, and

allowed the assessee’s claim for deduction under Sec. 80P(2)(d)

on the interest income earned on its investments/deposits with

co-operative banks, therefore, the Pr. CIT was in error in

exercising his revisional jurisdiction u/s 263 of the Act for

19 ITA.No.942/PUN./2024 dislodging the same. Accordingly, finding no justification on the

part of the Pr. CIT, who in exercise of his powers under Sec. 263

of the Act, had dislodged the view that was taken by the A.O as

regards the eligibility of the assessee towards claim of

deduction under Sec. 80P(2)(d), we set-aside his order and

restore the order passed by the A.O under Sec. 143(3), dated

07.03.2016.”

to treat the assessee’s impugned interest income derived from

cooperative banks as eligible for sec.80P(2)(a)(i) deduction. It’s sole

substantive grievance is accepted in very terms. Both the learned

lower authorities action to this extent stands reversed. Ordered

accordingly.

Order pronounced in the open Court on 28.08.2023.

Sd/- Sd/- (RAMA KANTA PANDA) (SATBEER SINGH GODARA) VICE PRESIDENT JUDICIAL MEMBER Pune, Dated 28th August, 2024 VBP/-

20 ITA.No.942/PUN./2024

Copy of the Order forwarded to :

BY ORDER, // TRUE COPY //

Senior Private Secretary ITAT, Pune.