AA520 VEERAMPALAYAM PACS LTD.,ERODE V. ITO, WARD-2(1), ERODE

ITA 593/CHNY/2025

AI Insights

The case involves the Veerappampalayam Primary Agricultural Co-operative Society Ltd., which appealed against the orders of the Commissioner of Income Tax (Appeals) and the Assessing Officer, who had disallowed the deduction claimed under Section 80P(2)(d) for interest income earned from deposits with cooperative banks. The Tribunal examined whether the interest income from these deposits qualified for deduction under Section 80P(2)(d), which allows deductions for income by way of interest or dividends derived from investments with any other cooperative society. The Tribunal referenced several precedents and decisions, including those from the jurisdictional High Court, which supported the society's claim.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 711790 (ITAT-CHENNAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2020-2021
• Other Referred Cases: M/s.K274 Uthukuli Primary Agricultural Cooperative Credit Society Limited vs. The Income Tax Officer, Ward- 1(3), CIT v. S-1308 AMMAPET PRIMARY AGRICULTURAL CO-OPERATIVE BANK LTD., PCIT V. S-1308 AMMAPET PRIMARY AGRICULTURAL CO-OPERATIVE BANK LTD., Totgars Cooperative Sale Society ltd Vs.ITO, Karnataka, Sri Basaveshwara Credit Co- operative Society ltd Vs.CIT, National Coal Development corporation staff co-operative credit Society ltd Vs.DCIT, Thorapadi Urban Co-op. credit society ltd. & anr Vs.ITO, Erode City Municipal Corporation Emp.Co-Op T and C Ltd K831 vs. ITO, K720 T Ganapathipalayam PACS ltd vs. ITO
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KUMAR CHANDAN; VIRTUAL
• Assessee Lawyers: G. VARDINI KARTHIK
• Keywords: Condonation of delay; Set aside; Revision of order; Co-operative Credit Society

Judgement Text

" आयकर अपीलीय अिधकरण, ‘ए’ Ɋायपीठ, चेɄई IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, CHENNAI ŵी जॉजŊ जॉजŊ क े, उपाȯƗ एवं ŵी एस.आर.रघुनाथा, लेखा सद˟ क े समƗ BEFORE SHRI GEORGE GEORGE K, VICE PRESIDENT AND SHRI S.R. RAGHUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.:593/Chny/2025 िनधाŊरण वषŊ / Assessment Year: 2020-21 AA520 Veerappampalayam Primary Agricultural Co-operative Society Ltd., 1, AA520, Veerappampalayam, Veerappampalayam BO, Attavanai Hanumanpalli, Erode – 638 101. vs. ITO, Ward -2 (1), Erode. [PAN:AADAA-8893-M] (अपीलाथŎ/Appellant) (ŮȑथŎ/Respondent) अपीलाथŎ की ओर से/Appellant by : Ms. G. Vardini Karthik, Advocate ŮȑथŎ की ओर से/Respondent by : Shri. Kumar Chandan, JCIT (Virtual) सुनवाई की तारीख/Date of Hearing : 23.06.2025 घोषणा की तारीख/Date of Pronouncement : 24.07.2025 आदेश /O R D E R PER S. R. RAGHUNATHA, AM : This appeal by the assessee is filed against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, for the assessment year 2020-21, vide order dated 31.12.2024. 2. The grounds of appeal raised by the assessee are as under: Printed from counselvise.com :-2-: ITA. No:593/Chny/2025 1. The order passed by the Learned CIT(A) dated 10.01.2025 is erroneous in law and opposed to the facts and circumstances of the case. 2. The Learned Commissioner of Income Tax (Appeals) erred in disallowing the deduction claimed under Section 80P(2)(a)(i) and 80P(2)(d) A. Furnishing of Return of Income Section 139(4) 1) The CIT(A) failed to see that the assessee had furnished his return of income within the time frame prescribed under section 139(4) of the Income Tax Act, 1961. B. Circular No.13/2023 allows condonation of delay for deduction u/s. 80P 2) The CIT(A) failed to see that CBDT had issued a Circular No. 13/2023 dated 26.07.2023 allowing the co-operative societies to claim deduction u/s 80P by filing condonation of delay Petition u/s.119(2)(b) to treat the return as filed u/s 139(1). Concept of Members and Deduction u/s.80P 3) The CIT(A) refused to hear the case on merits and failed to appreciate that the appellant has a strong prima facie case on merits. 4) The CIT(A) ought to have seen that the Appellant is a Primary Agricultural Cooperative Credit Society registered under the Tamil Nadu Cooperative Societies Act, 1983 and provides agricultural loans to its members (Class A and Class B) 5) The CIT(A) failed to see that there is no definition of members under the Income Tax Act, 1961 and all the members of the society have to renew their membership once in three years. 6) The CIT(A) failed to see that the concept of members (A class and B Class) is as per under Section 2(6) of the Tamilnadu Cooperative Society Act 1983 and also as per Bye laws of Society and the Assessing Officer himself has recorded that the associate members are also admitted as members of the society. 7) The Appellant's case is squarely covered by the order of the Jurisdictional Tribunal in the case of M/s.K274 Uthukuli Primary Agricultural Cooperative Credit Society Limited vs. The Income Tax Officer, Ward- 1(3) in ITA No. 586/Chny/2021 dated 18.07.2022 wherein the claim of deduction u/s 80P(2)(a)(i) in regard to interest income earned from Associate Members was allowed by placing reliance on Judgement of the Jurisdictional High Court in the case of CIT v. S-1308 ΑΜΜΑPET PRIMARY AGRICULTURAL CO-OPERATIVE BANK LTD. [2017] 392 ITR 55 (Mad) and PCIT V. S-1308 AMMAPET PRIMARY AGRICULTURAL CO-OPERATIVE BANK LTD., [2020] 426 ITR 244 (Mad) Printed from counselvise.com :-3-: ITA. No:593/Chny/2025 C. 80P (4) EDCC BANK IS ALSO A CO-OPERATIVE SOCIETY 8) The CIT(A) failed to see that deposits were made with EDCC bank, which is a co-operative society registered under the Tamil Nadu Co-operative Societies Act and places reliance on the order of the Jurisdictional Tribunal in the case of Erode Municipal Corpn. Emp Co-op T and C Ltd. K831 v. Assessing Officer in ITA Nos.509 & 510/Chny/2024 dated 22.07.2024 and Pallipalayam Farmers Service Cooperative society in ITA No. 964/Chny/2024 dated 21.08.2024 9) The Respondent ought to have seen that Section 80P(2)(d) of the Act envisages that a co-operative society can claim deduction towards income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society. 10) The Respondent failed to see that the assessee had kept surplus funds with other co-operative banks and the same is part of its business activity and hence total income including interest earned from deposits is eligible for deduction. 3. The brief facts of the case are that the assessee is a primary agricultural cooperative society under the Tamil Nadu Cooperative Societies Act, 1983. The society is engaged in the activity of lending credit facilities to its members, accepting deposits from members and borrowing from EDCC bank ltd. supplying seeds, fertilizers and other agricultural implements to its members. The assessee filed its return of income for the assessment year 2020-21 on 31.12.2020 declaring a Gross total income of Rs.42,82,436/- by claiming a deduction u/s.80P of the Act. Subsequently the assessee revised the return of income on 04.03.2021 declaring Gross total income of Rs.42,23,180/- by claiming the entire amount as deduction u/s.80P of the Act. The case was selected for complete scrutiny under CASS and accordingly the statutory notices were issued to the assessee. The AO found that during the financial year 2019-20, the assessee had earned an interest income of Rs.1,43,15,506/-, which includes Rs.53,94,339/- from investment and FDRs from cooperative banks and the balance amount of Rs.89,21,167/- from its Printed from counselvise.com :-4-: ITA. No:593/Chny/2025 members. The AO following the judicial precedent of the Hon’ble Supreme Court in the case of Totgars Cooperative Sale Society ltd Vs.ITO, Karnataka [2010] 188 Taxman 282 (SC), which has been followed by the State Bank of India (2016) 72 taxmann.com 64(Gujarat), Sri Basaveshwara Credit Co- operative Society ltd Vs.CIT(2014) 47 taxmann.com 189 (Bangalore Tribunal), National Coal Development corporation staff co-operative credit Society ltd Vs.DCIT, ITA No.1564/Kol/2011, disallowed the claim of deduction u/s.80P(2)(d) of the Act and passed an order dated 20.09.2022 by holding as under: From the above judicial pronouncements and facts of the case, it is clear that the deduction u/s.80P(20(a)(i) is available only to the income which is attributable to the business operation of the assessee co-operative society, i.e., in this case providing credit facilities to its members. Depositing / investing funds in a co-operative bank / commercial bank are not part of the business but providing credit facilities to its members is the main object of the society for which the society is registered. Such an interest income is not the ‘operational income’ of assessee- society from providing credit facilities to its members only. Consequently, the interest income has to be treated as ‘income from other sources’ and also the assessee is not eligible for deduction u/s.80P of the Act. Respectfully following all of the aforesaid legal precedents. I hold that such interest income earned by the assessee is not eligible for deduction u/s.80P(2)(a)(i) of the Act. In view of the above, it is clear that during the F.Y.2019-20 relevant to the A.Y.2020-21, the assessee has earned interest income from the Co- operative banks of Rs.53,94,339/- on the investment/FDRs of surplus funds with Co-operative banks and claimed deduction u/s.80P(2)(a)(i) of Rs.42,23,180/- and the same is not allowable deduction. After considering business loss arrived by the assessee, the deduction claimed under chapter- VI-A of the act is disallowed to the extent of Rs.42,23,180/- and the same is considered as income from ‘other source’ u/s.56 of the Act 1956. 4. Aggrieved by the order passed by the AO, the assessee preferred an appeal before the ld.CIT(A), NFAC, Delhi. 5. The assessee reiterated the claim of deduction u/s.80P of the Act before the ld.CIT(A) by filing a detailed response to the notices issued during Printed from counselvise.com :-5-: ITA. No:593/Chny/2025 the appellate proceedings. However, the ld.CIT(A) has dismissed the appeal of the assessee stating that the assessee is not eligible for the deduction u/s.80P of the Act on the interest income earned from the investment made in the cooperative banks, as there is concept of mutuality and passed an order dated 31.12.2024 by holding as under: In the light of the above discussions, it held that once the surplus fund is removed from the arena of mutuality, and placed at the disposal of a Co- operative bank, where there is no restriction in the utilization by non-member general public, the privity of mutuality is lost. The Cooperative Bank has earned a higher interest and passed on a portion of such interest earned from general public to the appellant assessee. As such, the amount of interestis not generated on account of transactions by and within the members of Cooperative Society – the present appellant. Since the income is not earned by applying privity of mutuality, it is outside the purview of deduction u/s.80P of the IT Act, from both 80P(2)(a)(i) as well as 80P(2)(d). This amount of Rs.42,23,180/- cannot be permitted as deduction. The action of AO is upheld and the grounds of appeal are dismissed. 6. Aggrieved by the order passed by the ld.CIT(A), the assessee is before us. 7. Before us the ld.AR for the assessee submitted that the assessee is a society registered under Tamilnadu Co-Operative Societies Act and the books of account of the assessee are audited by the department of co-operative audit, Government of Tamilnadu. The ld.AR submitted that the assessee is eligible for deduction u/s.80P(2)(d) of the Act, since the deposits were made in the co-operative bank, which is a cooperative society permitted to carry on the banking activities. To buttress the claim, the ld.AR brought to our attention to the decision of this Tribunal in the following cases, wherein the tribunal has followed the judgement of the jurisdictional High court in the case of Thorapadi Urban Co-op. credit society ltd. & anr Vs.ITO in WP No.11172, Printed from counselvise.com :-6-: ITA. No:593/Chny/2025 11174 & 11180 of 2023 holding that the deduction u/s.80P(2)(d) of the Act is allowable on interest income received from Erode District Central Cooperative bank (EDCC Bank). - Erode City Municipal Corporation Emp.Co-Op. T & C Ltd. K8311 Vs. ITO, in ITA No.509 & 510/Chny/2024 - K720 T Ganapathipalayam PACS ltd Vs. ITO in ITA No.963/Chny/2024. In light of the above decisions, the ld.AR submitted that the since the facts of the assessee society are identical and hence, prayed for deleting the disallowance of deduction u/s.80P of the Act by setting aside the order of the ld.CIT(A) and to allow the appeal of the assessee. 8. Per contra, the ld.DR strongly supported the orders of the AO as well as ld.CIT(A) and hence prayed for dismissing the appeal of the assessee. 9. We have heard both the parties, perused materials available on record and gone through orders of the authorities below along with case laws relied on. Admittedly, the assessee is a cooperative society registered under The Tamil Nadu Co-Operative Societies Act and the books of accounts are audited by the co-operative department, Government of Tamil Nadu. We find that the assessee had claimed deduction u/s.80P(2)(d) of the Act to the tune of Rs.42,82,436/- (as per the return of income) on account of interest income earned from the deposit / investment from EDCC Bank. The AO and the ld.CIT(A) have disallowed the claim stating that the assessee is not eligible for deduction as the interest income has been earned from the cooperative bank which is not a cooperative society. Printed from counselvise.com :-7-: ITA. No:593/Chny/2025 10. We find that the reliance of the ld.AR on the judicial precedents of this tribunal, following the decision of the Hon’ble Madras High court decision, in the identical set of facts, has decided the issue of deduction u/s.80P(2)(d) of the Act in favour of the assessee. The Tribunal in the case of K720 T Ganapathipalayam PACS ltd Vs. ITO in ITA No.963/Chny/2024 is held as under: 7. We have heard the rival contentions and gone through the order of the court and the orders of the lower authorities. It is noted that, for the Assessment year 2017-18 the Assessee had filed the Return of Income on 31-10-2017 declaring Rs.NIL income by claiming deduction u/s.80P(2)(a)(ii) of the Act, on its whole incomes as attributable to the carrying on the business of cottage industry. Initially the assessment was completed by passing orders on 31-05-2019 u/s.143(3) of the Act, subsequently order u/s.263 of the Act was passed on 27-032022 setting aside the assessment orders passed earlier u/s.143(3) and directed the Assessing Officer to examine the issues discussed in the order u/s 263. Accordingly, the Assessing Officer, has revised the orders u/s.143(3) r.w.s 263 and disallowed the interest income of Rs.10,14,372/- received from State Bank of India (Rs.3,42,190/-) and TAICO Bank (Rs.6,72,182/-) being not eligible under section 8OP for the reason that the State Bank of India is a Commercial bank and TAICO Bank is not a cooperative society but only a bank. 8. We note that the assessee is a co-operative society formed by the Government of Tamilnadu through social welfare department. The Ld.AR filed a paper book before us consisting of 1 to 47 pages and drew our attention to the Circular No.722 of the CBDT dated 19/09/1995 (Page No.37 of the paper book), wherein the criteria for availing the benefits of Section 80P(2)(a)(ii) of the Act by a ‘cottage industry’ have been specified in para 3 (supra). According to Ld.AR the assessee is a cottage industry, since the criteria stated in the said circular are satisfied and eligible for claiming deduction U/s. 80P(2)(a)(ii) of the Act. According to the AR both the AO and Ld.CIT(A) have appreciated the fact that the assessee is a ‘cottage industry’ but still have disallowed the interest earned from the banks as not eligible for deduction U/s.80P(2)(d) against the claim of the assessee U/s.80P(2)(a)(ii) of the Act. It is observed that the interest income earned by the society is in its regular course of its operations and does forms part of the revenue ‘attributable’ to the operations of the society as a cottage industry and in our considered view the assessee is eligible for deduction 80P(2)(a)(ii) itself. On perusal of the decision of the Hon’ble High court of Karnataka in the case Tumkur Merchants Souharda credit Co-Op. Ltd Vs. ITO, Ward V, Tumkur (supra), relied by the Ld.AR is clearly explained that, the interest earned from the deposits made out of the idle funds of the assessee, the said interest income is attributable to the profits and gains of the business only. Therefore, respectfully following the decision of the court, we are of the view that the lower authorities have grossly erred in disallowing the said deduction U/s.80P(2)(d), without appreciating the fact that, the claim of the assessee as a cottage industry and the entire Income was claimed as deduction u/s. Printed from counselvise.com :-8-: ITA. No:593/Chny/2025 80P(2)(a)(ii). Therefore, considering the facts and circumstances of the present case, we are of the view that, the assessee is a cottage industry and the entire income is attributable to business of the society and hence eligible to claim Interest earned on deposit also as deduction U/s.80P(2)(a)(ii) of the Act and allow the appeal of the assessee. 11. Therefore, in the present facts and circumstances of the case, since the assessee also has earned interest from the EDCC bank, respectfully following the decision of the Tribunal (supra) and the consistent view taken by the bench, we are of the view that the assessee is entitled for deduction u/s.80P(2)(d) of the Act and hence, we set aside the order of the ld.CIT(A) and direct the AO to allow the deduction claimed in the return of income filed by the assessee. We order accordingly by allowing the grounds of appeal raised by the assessee. 12. In the result, the appeal filed by the assessee is allowed. Order pronounced in the court on 24th July, 2025 at Chennai. Sd/- Sd/- (जॉजŊ जॉजŊ क े) (GEORGE GEORGE K) उपाȯƗ /VICE PRESIDENT (एस. आर. रघुनाथा) (S. R. RAGHUNATHA) लेखा सद˟/ACCOUNTANT MEMBER चेɄई/Chennai, िदनांक/Dated, 24th July, 2025 SP आदेश की Ůितिलिप अŤेिषत/Copy to: 1. अपीलाथŎ/Appellant 2. ŮȑथŎ/Respondent 3.आयकर आयुƅ/CIT– Chennai/Coimbatore/Madurai/Salem 4. िवभागीय Ůितिनिध/DR 5. गाडŊ फाईल/GF Printed from counselvise.com "