AHMEDNAGAR ZILLA GRAMSEVAKANCHI SAHAKARI PATSANSTHA MARYADIT,PUNE V. ITO WARD 1, AHILYANAGAR

ITA 1592/PUN/2025

AI Insights

The case involves the Ahmednagar Zilla Gramsevakanchi Sahakari Patsanstha Maryadit, a cooperative credit society, which appealed against the order of the Commissioner of Income Tax (Appeals) confirming the disallowance of a deduction claimed under section 80P(2)(a)(i) of the Income Tax Act, 1961. The society had earned interest income from deposits with the District Central Co-operative Bank and claimed this income was eligible for deduction under the said section. The Assessing Officer had disallowed the deduction, citing a Supreme Court decision in Totagar's Co-operative Sales Society vs. ITO, which was contested by the society based on various High Court decisions that distinguished the circumstances of their case. The Tribunal, after considering the submissions and relevant judicial precedents, ruled in favor of the society.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 711747 (ITAT-PUNE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-07-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2022-2023
• Other Referred Cases: Totagar's Co-operative Sales Society Vs. ITO, Vavveru Co-operative Rural Bank Ltd., Pr.CIT Vs. Sahyadri Co-operative Credit Society Ltd., Pr.CIT Vs. Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANDEEP P SATHE
• Assessee Lawyers: PAYAL RATHI
• Keywords: Set aside; Question of law; Co-operative Credit Society
• Section: 263; 63

Judgement Text

" आयकर अपीलीय अिधकरण ”एस एम सी” Ɋायपीठ पुणेमŐ। IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES “SMC” :: PUNE BEFORE DR.DIPAK P. RIPOTE, ACCOUNTANT MEMBER AND SHRI VINAY BHAMORE, JUDICIAL MEMBER आयकर अपील सं. / ITA No.1592/PUN/2025 िनधाᭅरण वषᭅ / Assessment Year: 2022-23 Ahmednagar Zilla Gramsevakanchi Sahakari Patsanstha Maryadit, 1, Opp.Sardar Patel Karyala, Behind Ketkar Hospital, Ahilyanagar – 414001. Maharashtra. V s The Income Tax Officer, Ward-1, Ahilyanagar. PAN: AAAAA6582G Appellant/ Assessee Respondent / Revenue Assessee by Shri Payal Rathi – CA/AR Revenue by Shri Sandeep P Sathe – JCIT(DR) Date of hearing 17/07/2025 Date of pronouncement 21/07/2025 आदेश/ ORDER PER DR. DIPAK P. RIPOTE, AM: This is an appeal filed by Assessee against the order of ld.Commissioner of Income Tax(Appeal)[NFAC], passed under section 250 of the Income Tax Act, 1961 for the A.Y.2022-23 dated 06.05.2025, emanating from order u/s.143(3) of the Income Tax Act, Printed from counselvise.com ITA No.1592/PUN/2025 [A] 2 1961, dated 14.02.2024. The Assessee has raised following grounds of appeal : “1. On the facts and in the prevailing circumstances of the case and in Law, Ld. Cit NFAC erred in confirming the addition made by the Ld. Assessing Officer without appreciating the fact that interest on the deposits made by a co operative society with the co-operative Bank is eligible for deduction under section 80P of the Act. Hence, the impugned order under section 263 may please be squashed. 2. On the facts and in the prevailing circumstances of the case and in Law, Ld. CIT NFAC erred in confirming the addition made by the Assessing Officer without appreciating the submission made by the assessee society and the judgments of Hon'ble Jurisdictional Pune ITAT. Hence, the impugned order under section 263 may please be squashed. 3. The Appellate craves the permission to add, amend, modify, alter, revise, substitute, delete any or all grounds of the appeal, if deemed necessary at the time of hearing of the appeal.” Brief facts of the case : 1.1 As per the assessment order, the assessee is co-operative society registered under the Maharashtra state Co-operative societies Act, 1960 formed for the benefit of Gramsevak i.e.Employees of Grampanchayat and Zilha Parishad Servants in the Ahmednagar District. The members of the society are only Government servants. The Main Objective & business of Society is \"Accepting deposits from members and lending money to the members of the society\". The Assessee Society is providing credit facilities only to its members and interest is charged on these credit facilities/loans advances made, while the assessee has also received deposits from Printed from counselvise.com ITA No.1592/PUN/2025 [A] 3 its members and paid interest on these deposits as per sec 35 of the Act. The Society is working as per provisions of Co-operative Societies Act 1960 & Bye laws prescribed by Co-operative Societies Act 1960, authenticated by District Deputy registrar Ahmednagar. The loan installments are deducted from their salaries directly by the society. The Assessing Officer during the scrutiny proceedings noted that assessee has made an investment with District Central Co- operative Bank and earned interest of Rs.9,17,453/-. Assessee had claimed deduction u/s.80P(2)(a)(i) of the Act. The Assessing Officer disallowed the deduction u/s.80P(2)(a)(i) of Rs.9,17,453/- following Hon’ble Supreme Court’s decision in the case of Totagar’s Co-operative Sales Society Vs. ITO. Aggrieved by the assessment order, Assessee filed appeal before the ld.CIT(A) who confirmed the assessment order. 1.2 Aggrieved by the order of the ld.CIT(A), Assessee filed appeal before this Tribunal. Submission of ld.AR : 2. CA-Payal Rathi appeared on behalf of assessee. She filed duly signed letter of authority, authorizing CA-Payal Rathi and CA- Printed from counselvise.com ITA No.1592/PUN/2025 [A] 4 Prasad Bhandari. She submitted that assessee is a Co-operative Credit Society had claimed interest earned as deduction u/s.80P(2)(a)(i) of the Act. Assessee is eligible for said deduction. She relied on the decision of ITAT Pune in ITA No.1068/PUN/2025 of Sharadchandra Nagari Sahakari Patsanstha Maryadit Vs. ITO. Submission of ld.DR : 3. Ld.DR for the Revenue relied on the order of the Assessing Officer and ld.CIT(A). Findings & Analysis : 4. We have heard both the parties and perused the records. Assessee is a Co-operative Credit Society. Assessee had filed Return of Income for A.Y.2022-23 on 05.11.2022 declaring total income at Rs.35,750/- and claiming deduction u/s.80P of the Act, of Rs.55,33,426/-. The CBDT Vide Circular No.20/2022 had extended the date of filing Return of Income till 07.11.2022. Hence, Assessee has filed Return of Income within the time allowed u/s.139(1) of the Act. The Assessing Officer during the scrutiny noted that Assessee has earned interest income from District Central Co-operative Bank, therefore, Assessing Officer held that Assessee is not eligible for Printed from counselvise.com ITA No.1592/PUN/2025 [A] 5 deduction u/s.80P of the Act, relying on Hon’ble Supreme Court’s decision in the case of Totagars Co-operative Sale Society Limited. 4.2 The issue before us is whether assessee is eligible for deduction under section 80P(2)(a) of the Act, on the interest earned from Co-operative Banks or not! 4.3 The Hon’ble High Court of Andhra Pradesh and Telangana in the case of Vavveru Co-operative Rural Bank Ltd. [2017] 396 ITR 371 analysed the provisions of Section 80P, succinctly distinguished the decision of Hon’ble Supreme Court in the case of Totagars Cooperative Sale Society, and held as under : Quote,“8. Therefore, the real controversy arising in these writ petitions is as to whether the income derived by the petitioners by way of interest on the fixed deposits made by them with the banks, is to be treated as profits and gains of business attributable to any one of the activities indicated in sub-clauses (i) to (vii) of clause (a) of sub-section (2) of section 80P or not. 9. While the petitioners place strong reliance upon a decision of the Division Bench of this court in CIT v. Andhra Pradesh State Co- operative Bank Ltd. [2011] 12 taxmann.com 66/200 Taxman 200/336 ITR 516, the Revenue places strong reliance upon the decision of the Supreme Court in Totgar's Co-operative Sale Society Ltd. v. ITO [2010] 188 Taxman 282/322 ITR 283. …………………… Printed from counselvise.com ITA No.1592/PUN/2025 [A] 6 34. The case before the Supreme Court in Totgar's Co-operative Sale Society Ltd.'s case (supra) was in respect of a co-operative credit society, which was also marketing the agricultural produce of its members. As seen from the facts disclosed in the decision of the Karnataka High Court in Totgars, from out of which the decision of the Supreme Court arose, the assessee was carrying on the business of marketing agricultural produce of the members of the society. It is also found from paragraph-3 of the decision of the Karnataka High Court in Totgar's Co-operative Sale Society Ltd.'s case (supra) that the business activity other than marketing of the agricultural produce actually resulted in net loss to the society. Therefore, it appears that the assessee in Totgars was carrying on some of the activities listed in clause (a) along with other activities. This is perhaps the reason that the assessee did not pay to its members the proceeds of the sale of their produce, but invested the same in banks. As a consequence, the investments were shown as liabilities, as they represented the money belonging to the members. The income derived from the investments made by retaining the monies belonging to the members cannot certainly be termed as profits and gains of business. This is why Totgar's struck a different note. 35. But, as rightly contended by the learned senior counsel for the petitioners, the investment made by the petitioners in fixed deposits in nationalised banks, were of their own monies. If the petitioners had invested those amounts in fixed deposits in other co-operative societies or in the construction of godowns and warehouses, the respondents would have granted the benefit of deduction under clause (d) or (e), as the case may be. 36. The original source of the investments made by the petitioners in nationalised banks is admittedly the income that the petitioners derived Printed from counselvise.com ITA No.1592/PUN/2025 [A] 7 from the activities listed in sub-clauses (i) to (vii) of clause (a). The character of such income may not be lost, especially when the statute uses the expression \"attributable to\" and not any one of the two expressions, namely, \"derived from\" or \"directly attributable to\". 37. Therefore, we are of the considered view that the petitioners are entitled to succeed. Hence, the writ petitions are allowed, and the order of the Assessing Officer, in so far as it relates to treating the interest income as something not allowable as a deduction under section 80P(2)(a), is set aside.” Unquote. 4.4 Thus, the Hon’ble High Court of AP & TS held that Interest Income earned by investing Income derived from Business of providing credit facilities, Loans by a Co-Operative Society was eligible for deduction u/sec.80P(2)(a) of the Act. 5. In the case of Sahyadri Co-operative Credit Society Limited, the Sahyadri Co-operative Credit Society had deposited excess funds in the Banks or Institutions permitted by the Co-operative Societies Act. In that context, the Hon’ble Kerala High Court in the case of Pr.CIT Vs. Sahyadri Co-operative Credit Society Ltd., [2024] 301 Taxman 36 (Kerala) vide order dated 04.09.2024 has held as under : Quote “7. On a consideration of the rival submissions, we are of the view that for the reasons stated hereinafter, the question of law that arises for consideration before us must be answered against the Revenue and in favour of the assessee. The permissible deduction that is Printed from counselvise.com ITA No.1592/PUN/2025 [A] 8 envisaged under Section 80P(2) of the I.T. Act for a Co-operative Society that is assessed to tax under the head of 'Profits and Gains of Business or Profession' is of the whole of the amount of profits and gains of business attributable to any one or more of its activities. Thus, all amounts as can be attributable to the conduct of the specified businesses by a Co-operative Society will be eligible for the deduction envisaged under the statutory provision. The question that arises therefore is whether, merely because the assessee chooses to deposit its surplus profit in a permitted bank or financial institution, and earns interest on such deposits, such interest would cease to form part of its profits and gains attributable to its business of providing credit facilities to its members? In our view that question must be answered in the negative, since we cannot accept the contention of the Revenue that the interest earned on those deposits loses its character as profits/gains attributable to the main business of the assessee. It is not as though the assessee in the instant case had used the surplus amount [the profit earned by it] for an investment or activity that was unrelated to its main business, and earned additional income by way of interest or gain through such activity. The assessee had only deposited the profit earned by it in the manner mandated under Section 63 of the Multi-State Co- operative Societies Act, or permitted by Section 64 of the said Act. In other words, it dealt with the surplus profit in a manner envisaged under the regulatory Statute that regulated, and thereby legitimized, its business of providing credit facilities to its members. Under those circumstances, if the assessee managed to earn some additional income by way of interest on the deposits made, it could only be seen as an enhancement of the profits and gains that it made from its principal activity of providing credit facilities to its members. The nature and character of the principal income [profits earned by the assessee from its lending activity] does not change merely because the assessee acted in a prudent manner by depositing that income in a bank, instead of Printed from counselvise.com ITA No.1592/PUN/2025 [A] 9 keeping it in hand. The provisions of the I.T. Act cannot be seen as intended to discourage prudent financial conduct on the part of an assessee.” Unquote 5.1 Thus, Hon’ble Kerala High Court has held that the character of income does not change. The Hon’ble Kerala High Court held that interest earned from deposits in permitted banks will be eligible for deduction u/s.80P of the Act. The Hon’ble Kerala High Court’s decision is dated 04.09.2024 means, after the decision of Hon’ble Supreme Court in the case of Totagar’s Co.operative Sales Society Ltd. 6. The Hon’ble Supreme Court in the case of Pr.CIT Vs. Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd., 454 ITR 117 (SC) has held as under : Quote. “5. There are concurrent findings recorded by CITA, ITAT and the High Court that the respondent/Assessee cannot be termed as Banks/Cooperative Banks and that being a credit society, they are entitled to exemption under section 80(P)(2) of the Income-tax Act. Such finding of fact is not required to be interfered with by this Court in exercise of powers under Article 136 of the Constitution of India. Even otherwise, on merits also and taking into consideration the CBDT Circulars and even the definition of Bank under the Banking Regulation Act, the respondent/Assessee cannot be said to be Co-operative Bank/Bank and, therefore, Section 80(P)(4)shall not be applicable and Printed from counselvise.com ITA No.1592/PUN/2025 [A] 10 that the respondent/Assessee shall be entitled to exemption/benefit under section80(P)(2) of the Income-tax Act. 6. In view of the above and for the reasons stated hereinabove, the present appeal deserves to be dismissed and is accordingly dismissed, answering the question against the Revenue and in favour of the Assessee.” Unquote 6.1 The above order of Hon’ble Supreme Court was rendered in the context of the appeal filed by the Revenue against the order dated 14-10-2019 passed by the Hon’ble High Court of Judicature at Bombay in ITA No.933/2017, by which the High Court has dismissed the said appeal preferred by the Revenue. 7. The Hon’ble Bombay High Court’s order in ITA No.933/2017 dated 14.10.2019 in the case of Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd., emanates from the ITAT order in ITA No.2515/MUM/2014 dated 20.05.2016. The facts recorded in the ITAT order in ITA No.2515/MUM/2014 are that Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd., is a Co-operative CreditSociety registered under the Maharashtra Co-operative Society Act, had claimed deduction under section 80P(2)(d) of the Income Tax Act, 1961 as well as Rs.5,85,57,676/- claimed under section 80P(2)(a)(i) of theAct. The Assessing Officer disallowed the Printed from counselvise.com ITA No.1592/PUN/2025 [A] 11 claim of deduction u/s.80P(2) in the case of Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd. The Revenue in the appeal filed before ITAT in ITA No.2515/MUM/2014 has raised following questions: “(i) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition made by the AO amounting to Rs.5,85,57,676/- u/s.80P(2)(a)(i) and Rs.1,39,23,333/- u/s.80P(2)(d) of the I.T. Act even though assessee was carrying on banking business. (ii) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not considering the fact that amendment to Sec.80P(4) inserted w.e.f. 1.4.2007 by Finance Act, 2006 clearly bans all the co-operative banks other than primary agricultural credit society or a primary co-operative agricultural and rural development banks from claiming exemption under this section”. 7.1 The appeal filed by Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd., travelled up to Hon’ble Supreme Court and the Hon’ble Supreme Court has decided the appeal in favour of Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd., regarding deduction u/s.80P(2) of the Act. Therefore, this issue has attained finality. 8. Respectfully following the judicial precedents, we direct the Assessing Officer to allow deduction u/sec.80P(2)(a)(i) of the Act, Printed from counselvise.com ITA No.1592/PUN/2025 [A] 12 on the interest earned and delete the addition of Rs.9,17,453/-. Accordingly, Grounds of appeal raised by the assessee are allowed. 9. In the result, appeal of the assessee is allowed. Order pronounced in the open Court on 21 July, 2025. Sd/- Sd/- VINAY BHAMORE Dr.DIPAK P. RIPOTE JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; ᳰदनांक / Dated : 21 July, 2025/ SGR आदेशकᳱᮧितिलिपअᮕेिषत / Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant. 2. ᮧ᭜यथᱮ / The Respondent. 3. The CIT(A), concerned. 4. The Pr. CIT, concerned. 5. िवभागीयᮧितिनिध, आयकर अपीलीय अिधकरण, “एस एम सी” बᱶच, पुणे / DR, ITAT, “SMC” Bench, Pune. 6. गाडᭅफ़ाइल / Guard File. आदेशानुसार / BY ORDER, // TRUE COPY // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे/ITAT, Pune. Printed from counselvise.com "