SHREE GUDALESHWAR GRAMIN BIGAR SHETI SAH PAT SANSHTA MARYADIT, GUDAL,RADHANAGARI, KOLHAPUR vs. THE INCOME TAX OFFICER, WARD 1 (1), KOLHAPUR, KOLHAPUR

PER BENCH :

This assessee’s appeal, for assessment year 2020-

2021, arises against the order of the National Faceless Appeal

Centre [in short the “NFAC”] Delhi’s Din and Order No. ITBA/NFAC/S/250/2023-24/1060100571(1), dated 28.09.2022, in proceedings u/s.143(3) of the Income Tax Act, 1961 (in short

“the Act”).

Heard both the parties. Case file perused.

2 I.T.A.No. 406/PUN./2024 2. The assessee’s sole substantive grievance in the

instant appeal challenges correctness of learned NFAC’s action

disallowing it’s sec.80P(2)(a)(i)/80P(2)(d) deduction claim of

Rs.1,55,87,420/- representing interest income(s) realized from

parking of alleged surplus funds in co-operative bank(s)/

institution(s). Needless to say, the learned NFAC has treated

the same to be income from “other” sources u/sec.56 of the

Act since not derived from credit facilities provided to members

in the regular course of business.

representing the assessee submitted that the coordinate bench

of this tribunal in assessee’s own case has allowed the similar

deduction(s) for the assessment year 2018-2019 vide order

dated 29.04.2024 in ITA.No.405/PUN./2024, reading as

under:

“2. The assessee pleads the following substantive

grounds in the instant appeal :

law, Commissioner of Income Tax (Appeals), NATIONAL

FACELESS APPEAL CENTRE (NFAC), Delhi, erred in not

allowing deduction of Rs.76,39,977/- which is allowed by

the Income Tax Officer, Assessment Unit, on account of

interest income on deposit with other co-operative banks

on the ground that the said income does not qualify for

3 I.T.A.No. 406/PUN./2024 deduction u/s 80P(2)(a)(i) of the Act. The appellant submits

that the society is engaged in carrying on the business of

banking or providing credit facilities to its members.

Hence, entire income of the society is eligible for deduction

u/s 80P(2)(a)(i). The appellate order passed may please be

deleted.

under section 80P(2)(d) in respect of interest received on

short term deposit kept with the co-operative bank. The

appellant is entitled to deduction u/s.80P(2)(d) in respect

of the interest income earned on fixed deposits kept with

the co-operative Banks. The appellant prays that the ITO

be directed to allow the deduction of Rs.76,39,977/-.

source, the learned A.O. may be directed to allow

proportionate deduction for interest paid on deposit

accepted by the co-operative credit society. The rate of

interest on the deposit accepted by the society from the

members is greater than the rate of interest on deposit

given by the Banks. Hence, there is no profit on the

interest income relating to the deposit with the bank. The

deposit is kept only with a view to comply with the

statutory compliance of the statutory liquidity ratio.

law, Commissioner of Income Tax (Appeals), NATIONAL

4 I.T.A.No. 406/PUN./2024 FACELESS APPEAL CENTRE (NFAC), Delhi, erred in not

allowing deduction of Rs.4,60,020/-, on account of income

relating to nominal member on the ground that nominal

members are not members of the society. The appellant

submits that the term “member of co-operative society”

includes “nominal members” as per the provisions of

Maharashtra Cooperative Societies Act. The appellate

order passed may please be deleted.

Jevise, substitute, delete any or all grounds of appeal, if

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

instant appeal challenges correctness of learned NFAC’s action

disallowing it’s sec.80P(2)(a)(i) deduction claim of

Rs.76,39,977/- representing interest income(s) realized from

parking of alleged surplus funds in other co-operative

bank(s)/institution(s). Needless to say, the learned NFAC have

treated the same to be income from “other” sources u/sec.56 of

the Act since not derived from credit facilities provided to

members in the regular course of business.

the learned lower authorities action that such interest income;

be it derived from cooperative bank(s)/institutions or public

sector bank(s); as the case may be; ought to be treated as

5 I.T.A.No. 406/PUN./2024 income from other sources in light of Totgars Co-Operative Sales

Society Ltd vs CIT [2010] 322 ITR 283 (SC). We find in this

factual backdrop that this tribunal’s learned co-ordinate bench’s

order in The Rena Sahakari Sakhar Karkhana Ltd. vs. PCIT’s

ITA.No.1249/PUN./2018 dated 07.01.2022 has settled the

issue regarding the former limb of interest income derived from

cooperative bank(s) etc., in assessee’s favour and against the

department as under :

“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

6 I.T.A.No. 406/PUN./2024 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

aside” the order of the A.O with a direction to redecide the

issue afresh and reframe the assessment.

Pr.CIT 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

7 I.T.A.No. 406/PUN./2024 consideration, we are of the considered view, that as there

were justifiable reasons leading to delay on the part of the

assessee in filing of the present appeal before us,

therefore, the same merits to be condoned.

the A.O 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

jurisdiction and had not only sought to review the

8 I.T.A.No. 406/PUN./2024 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.

short “D.R”) relied on the order passed by the Pr. CIT

under Sec.263 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.

both the parties, perused the orders of the lower

authorities and the 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

9 I.T.A.No. 406/PUN./2024 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 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.

persuade ourselves to concur with the view taken by the

Pr. CIT. Before proceeding any further, we may herein cull

10 I.T.A.No. 406/PUN./2024 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).................................................................................

(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

11 I.T.A.No. 406/PUN./2024 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 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

12 I.T.A.No. 406/PUN./2024 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;”

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.

relied 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-

13 I.T.A.No. 406/PUN./2024 operative bank is covered in favour of the assessee in the

following cases:

(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

14 I.T.A.No. 406/PUN./2024 banks would no more be 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-jurisdictional High Court‟s, then a

view which is in favour of the assessee is to be

preferred as against that taken against him.

15 I.T.A.No. 406/PUN./2024 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.

while 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 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

16 I.T.A.No. 406/PUN./2024 restore the order passed by the A.O under Sec. 143(3),

dated 07.03.2016.”

has derived it’s impugned interest income from both nominal as

well as regular members and the learned NFAC declined the

claim of deduction. This issue is also found to be no more res

integra once hon’ble apex court’s recent landmark decision in

Mavilayi Service Co-operative Bank Ltd., vs., CIT [2021] 431 ITR

1 (SC) has rejected the Revenue’s very stand. Faced with this

situation, I thus accept the assessee’s impugned sec.80P(2)(a)(i)

deduction claim in very terms. Necessary computation shall

follow as per law. Ordered accordingly. Allowed.

mutandis to accept the assessee’s instant sole substantive

grievance of sec.80P(2)(a)(i)/80P(2)(d) deduction claim(s) of

Rs.1,55,87,420/- in very terms. Ordered accordingly.

Order pronounced in the open Court on 03.06.2024

Sd/- Sd/- [R.K. PANDA] [SATBEER SINGH GODARA] ACCOUNTANT MEMBER JUDICIAL MEMBER Pune, Dated 03rd June, 2024

VBP/-

17 I.T.A.No. 406/PUN./2024

Copy to

//By Order//

//True Copy //

Sr. Private Secretary, ITAT, Pune Benches, Pune.