AMMAPALAYAM BASUVAPTTI PRIMARY AGRICULTURAL CO OP CREDIT SOCIETY LIMITED,ERODE V. THE INCOME TAX OFFICER, WARD 2(1) ERODE, ERODE

ITA 2706/CHNY/2025

AI Insights

The case involves M/s. Ammapalayam Basuvaptti PACCS Ltd., a Primary Agricultural Cooperative Credit Society, which appealed against the disallowance of a deduction claimed under section 80P of the Income Tax Act, 1961, amounting to 27,33,412/-. The deduction was initially disallowed by the Assessing Officer (AO) and upheld by the Learned Commissioner of Income Tax (Appeals). The main contention was whether the interest income earned from deposits with Erode Central Cooperative Bank (ECCB) qualified for deduction under section 80P(2)(a)(i). The Tribunal referenced decisions from the Madras High Court and other benches of the Tribunal, which supported the assessee's position that such income was part of its business activities and thus eligible for deduction under section 80P.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 792504 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2020-2021
• Appeal Filed On: 29-09-2025
• Other Referred Cases: Totgars Cooperative Sales Society Limited, Thorapadi Urban Cooperative Society Limited, Veerakeralam PACC, DAE Employees Cooperative Thrift and Credit Society Limited, CIT vs Sun Engineering Works Pvt Ltd, Badarinath v. Tamil Nadu, CIT vs. Veerakeralam Primary Agricultural Co-operative Credit Society
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R. RAGHUPATHY
• Assessee Lawyers: A. VIJAYALAKSHMI
• Keywords: Set aside; Reassessment proceedings; Reopening of assessment; Co-operative Credit Society
• Section: 147; 148; 143(3); 142(1); 139

Judgement Text

"आयकर अपीलीय अिधकरण, ’डी’ \u0001यायपीठ, चे ई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH: CHENNAI \u0001ी एबी टी. वक , ाियक सद\u0011 एवं एवं एवं एवं \u0001ी जगदीश, लेखा सद क े सम\u0015 BEFORE SHRI ABY T. VARKEY, JUDICIAL MEMBER AND SHRI JAGADISH, ACCOUNTANT MEMBER आयकर अपील सं./ITA Nos.2705 & 2706/Chny/2025 िनधा\u000eरणवष\u000e/Assessment Year: 2020-21 M/s. Ammapalayam Basuvaptti – Primary Agricultural Co-op. Credit Society Ltd., 54/67, Appachi Chettiar Street, Chennimalai, Erode-638 051. v. The ITO, Ward-2(1), Erode. [PAN: AACAA 0842 M] (अपीलाथ\u0016/Appellant) (\u0017\u0018यथ\u0016/Respondent) अपीलाथ\u0016 क\u001a ओर से/ Appellant by : Ms.A. Vijayalakshmi, CA (by virtual) \u0017\u0018यथ\u0016 क\u001a ओर से /Respondent by : Mr.R. Raghupathy, Addl.CIT सुनवाईक\u001aतारीख/Date of Hearing : 19.11.2025 घोषणाक\u001aतारीख /Date of Pronouncement : 04.12.2025 आदेश / O R D E R PER ABY T. VARKEY, JM: These are appeals preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)/NFAC, (hereinafter referred to as ‘Ld.CIT(A)‘), Delhi, dated 07.08.2025 for the Assessment Year (hereinafter referred to as ‘AY‘) 2020-21 against the quantum assessment and penalty levied u/s.270A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act‘). Printed from counselvise.com ITA Nos.2705 & 2706/Chny/2025 (AY 2020-21) M/s. Ammapalayam Basuvaptti PACCS Ltd. :: 2 :: 2. The main grievance of the assessee is against the action of the Ld.CIT(A) confirming the disallowance of deduction claimed by the assessee u/s.80P to the tune of ₹27,33,412/-. 3. Brief facts are that the assessee is a Primary Agricultural Cooperative Credit Society (hereinafter referred to as ‘PACCS‘), whose ITR was selected for complete scrutiny; and the AO is noted to have inter- alia disallowed the claim of deduction u/s.80P of the Act to the tune of ₹27,33,412/-, which action has been confirmed by Ld CIT(A). Aggreived assessee is before us. 4. Assailing the impugned action of Ld CIT(A), the Ld.Counsel for the assessee submitted that the main objective of the assessee Society is to provide financial assistance to its members against receipt of interest income. According to the Ld.Counsel, surplus income available with the assessee was invested with Erode Central Cooperative Bank (hereinafter referred to as ‘ECCB‘) and the interest income earned to the tune of ₹27,33,412/- from ECCB was claimed as deduction u/s.80P(2)(a)(i) of the Act. However, the AO held that interest income earned from ECCB was not part of the assessee’s regular business activity and hence, not eligible for claim of deduction u/s.80P(2)(a)(i) of the Act. According to the AO, any interest income earned out of surplus funds is in the nature of ‘income from other sources’ liable for taxation u/s.56 of the Act. And, Printed from counselvise.com ITA Nos.2705 & 2706/Chny/2025 (AY 2020-21) M/s. Ammapalayam Basuvaptti PACCS Ltd. :: 3 :: the AO rejected the judicial precedents relied upon by the assessee in support of claim for deduction, but he placed reliance upon the Hon’ble Apex Court ruling in the case of Totgars Cooperative Sales Society Limited. And on appeal, according to Ld Counsel, the Ld.CIT(A) erred in concurring with the findings of the AO qua application of ratio laid down in Totgars Cooperative Sales Society Limited (supra) which has no application and thus erroneously confirmed the disallowance u/s 80P of the Act. 5. According to the Ld.Counsel for the assessee, its claim for deduction u/s.80P(2)(a)(i) of the Act is fully covered by the decision of Hon’ble Madras High Court in the case of Thorapadi Urban Cooperative Society Limited, Veerakeralam PACC as well as that of a Coordinate bench of this Tribunal delivered in the case of DAE Employees Cooperative Thrift and Credit Society Limited [ITA Nos.592-594/Chny/2023]. It was vehemently argued that the Coordinate bench of this Tribunal after considering the Hon’ble Apex Court decision in the case of Totgars Cooperative Sales Society Limited, and of Hon’ble Madras High Court in the case of Thorapadi Urban Cooperative Society Limited, Veerakeralam PACC had concluded that Credit Cooperative Societies are entitled to claim u/s.80P of the Act in respect of interest income earned from deposits kept in other cooperative banks. The Ld.Counsel asserted that its case is fully covered with the decision of the Coordinate bench of this Tribunal in the case of Printed from counselvise.com ITA Nos.2705 & 2706/Chny/2025 (AY 2020-21) M/s. Ammapalayam Basuvaptti PACCS Ltd. :: 4 :: DAE Employees Cooperative Thrift and Credit Society Limited supra. Per- Contra, the Ld.DR placed reliance upon the order of Ld CIT(A) and doesn’t want us to interfere with the impugned action of Ld CIT(A). 6. We have heard the rival submissions in the light of material placed on record and carefully perused the cited decision of the Coordinate bench of this Tribunal in the case of DAE Employees Cooperative Thrift and Credit Society Limited supra wherein the Tribunal noted that it was a Primary Agricultural Cooperative Credit Society (PACCS) engaged in the activity of providing financial assistance to its members, and found that it is entitled to claim deduction u/s.80P(2) in respect of income derived from its business activity including interest income earned from fixed deposits with other cooperative banks /societies. Coming back to the present case, we note that the AO has acknowledged that the assessee is PACC society engaged in the business of rendering financial assistance to its members. It is also an undisputed fact that the interest income was earned by the assessee on account of surplus funds invested in ECCB, which is a Cooperative Society. Hence, the decision of this Tribunal in the case of DAE Employees Cooperative Thrift and Credit Society is applicable to the instant case of assessee. And, we find considerable force in the submission of the assessee that the judicial precedents in the case of Totgars Cooperative Sales Society Limited relied upon by the AO, is distinguishable in as much as in the said case the principal business Printed from counselvise.com ITA Nos.2705 & 2706/Chny/2025 (AY 2020-21) M/s. Ammapalayam Basuvaptti PACCS Ltd. :: 5 :: activity of that society was trading in agriculture’s produce and not providing financial assistance to its members as in this case. Instead, as noted the decision of this Tribunal in the case of DAE Employees Cooperative Thrift and Credit Society is applicable to the instant facts of assessee’s case, which is noted as under:- “…..5. The brief facts of the case are that, the assessee is a cooperative society engaged in the business of providing credit facility to its members. The assessee has not filed its return of income for the assessment years 2012-13, 2014-15 & 2017-18 u/s. 139 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”). Therefore, the assessment has been re-opened u/s. 147 of the Act and notice u/s. 148 of the Act, dated 13.03.2019 was issued and served on the assessee. In response to 148 notice, the assessee has filed its return of income for the assessment years 2012-13, 2014-15 & 2017-18 on 26.03.2019 and declared Nil total income, after claiming deduction u/s. 80P(2)(a)(i) of the Act. The assessment has been completed u/s. 143(3) r.w.s. 147 of the Act on 09.12.2019 where, the Assessing Officer has disallowed deduction claimed u/s. 80P(2)(a)(i) of the Act, on the ground that the assessee did not satisfied the conditions of filing return of income on or before due date prescribed u/s. 139(1) or u/s. 139(4) of the Act. The Assessing Officer had also made additions towards interest earned on fixed deposits with other cooperative banks on the ground that the assessee is not entitled for deduction toward interest income earned from deposits with other cooperative banks. However, since the deduction claimed towards total income has been disallowed, no separate addition has been made towards disallowance of interest income. 6. The assessee challenged the assessment order before the CIT(A) and argued that the issue is covered in favour of the assessee by the decision of the ITAT, Chennai Benches in assessee’s own case for assessment year 2013- 14. The CIT(A), after considering relevant submissions of the assessee and also by following the decision of ITAT Chennai Benches in assessee’s own case, directed the Assessing Officer to delete additions made towards disallowance of deduction claimed u/s. 80P(2)(a)(i) of the Act. 7. The ld. Senior AR, AR V Sreenivasan, submits that the ld. CIT(A) failed to appreciate the fact that the assessee society has not earned any interest income from other cooperative society, but has earned interest from cooperative bank, where it has been parked some of its funds and hence, interest earned from surplus fund is not eligible for deduction u/s. 80P(2)(d) of the Act. The ld. DR, further relied on the decision of Hon’ble Supreme Court in the case of CIT vs Sun Engineering Works Pvt Ltd [1992] 198 ITR 297, submits that in reassessment proceedings, the assessee cannot claim any new benefits or fresh claims, because the reopening of assessment is in the benefits of the revenue. Therefore, he submitted that the CIT(A) erred in allowing relief to the assessee and their order should be reversed. 8. The Ld. Counsel for the assessee, on the other hand submits that the assessee’s case is fully covered in favour of the assessee by the decision of Printed from counselvise.com ITA Nos.2705 & 2706/Chny/2025 (AY 2020-21) M/s. Ammapalayam Basuvaptti PACCS Ltd. :: 6 :: ITAT, Chennai Benches in assessee’s own case in ITA No. 3047/Chny/2019 for assessment year 2013-14, where the Tribunal has considered an identical issue and held that the assessee is entitled for deduction u/s. 80P of the Act, in respect of interest income earned from fixed deposits with other cooperative banks. 9. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. We find that an identical issue has been considered by the Tribunal in appellant’s own case for assessment year 2013-14 in ITA No 3047/Chny/2019 dated 10.11.2020, where under identical set of facts, the Tribunal held that the assessee is entitled for deduction u/s. 80P of the Act, towards income derived from its business activities including interest income earned from fixed deposits with other cooperative banks. The relevant findings of the tribunal are as under: “8. We have heard both the parties, perused the materials available on record and gone through the orders of authorities below along with various case laws cited by both the parties. There is no dispute with regard to the fact that the assessee is a credit co-operative society registered under the Tamil Nadu Co-operative Societies Act, 1983. It is also not in dispute that the assessee is engaged in the business of providing credit facilities to its members. The AO has disallowed deduction claimed u/s.80P(2)(a)(i) of the Act primarily on two grounds. The first objection of the AO is with regard to claim of deduction in the light of provisions of Section 80A(5) of the Act which restricts the deduction unless such deduction is claimed in the return of income. We have gone through the provisions of Section 80P read with Section 80A(5) of the Act and found that nowhere in Section 80P or in Section 80A(5) of the Act it is mentioned that the assessee is required to file its return of income within the prescribed time provided u/s.139(1) or 139(4) of the Act. But, what is required to be seen is whether the assessee has made a claim in the return of income filed for the relevant year or not, even though such return is not filed within due date. In this case, the assessee although not filed its return of income for the impugned assessment year u/s.139 of the Act but such return of income has been filed in response to the notice issued u/s.148 of the Act and in the said return of income the assessee has made a claim for deduction u/s.80P(2)(a)(i) of the Act. Therefore, we are of the considered view there is no merit in the arguments taken by the ld.DR that the assessee is not entitled for deduction u/s.80P unless such deduction is claimed by filing return of income within the prescribed time allowed u/s.139(1) or 139(4) of the Act. This view is fortified by the decision of the Hon’ble Kerala High Court in the case of Chirakkal Service Cooperative Bank Ltd., vs. CIT (2016) 384 ITR 490 (Ker), where the Hon’ble Kerala High Court held that “a return filed by the assessee beyond the period stipulated u/s.139(1) or 139(4) or 142(1) or 148 of the Act can also be accepted and acted upon provided further proceedings in relation to such assessments are pending in the statutory hierarchy of adjudication in terms of the provisions of the IT Act. In all such situations, it cannot be treated that a return filed at any stage of such proceedings could be treated as non est in law and invalid for the purpose of deciding exemption under Section 80P of the Act.” 9. Coming back to the issue of interest income earned from fixed deposits and claimed deduction u/s.80P(2)(d) of the Act. The AO has denied deduction claimed u/s.80P(2)(d) of the Act in respect of interest income earned from a co-operative bank on the ground that as Printed from counselvise.com ITA Nos.2705 & 2706/Chny/2025 (AY 2020-21) M/s. Ammapalayam Basuvaptti PACCS Ltd. :: 7 :: per the said provisions, interest earned from any other co-operative society is only eligible for deduction u/s.80P(2)(a)(i) of the Act. The AO has taken support from the decision of the Hon’ble Supreme Court in the case of M/s. Totagars Co-operative Sales Society Ltd., supra. We have gone through the findings recorded by the AO in the light of the decision of the Hon’ble Supreme Court in the said case and find that the fact of the case before the Hon’ble Supreme Court is entirely different from the facts of the present case. In the case before the Hon’ble Supreme Court, the assessee was a co-operative sales society which is engaged in the business of trading in agricultural produce for its members and during the course of its business it has parked surplus funds in other co-operative banks / nationalized banks and earned interest. In those facts, the Hon’ble Supreme Court came to the conclusion that the assessee is not entitled for deduction towards interest income u/s.80P(2)(d) of the Act, because such interest is not earned from its business activity. In this case, the assessee is primarily engaged in the business of providing credit facilities to its members and in the course of its business it has parked funds collected from its members in other co-operative banks / nationalized banks as per the statutory requirements of the cooperative societies Act. The assessee has treated interest earned from other co-operative banks as part of its business activity. Once the assessee has earned interest income as part of its business activity and such interest income is earned out of the funds belonging to its members, then the assessee is entitled for deduction u/s.80P(2)(d) of the Act in respect of such interest income. Therefore, we are of the considered view that the case laws relied upon by the AO in the case of Totogars Co- operative Sales Society Ltd., is not applicable to the present facts. We further noted that an identical issue was considered by the Hon’ble Madras High Court in the case of CIT vs. Veerakeralam Primary Agricultural Co-operative Credit Society (2016) 388 ITR 492 (Mad), where the Hon’ble High Court after referring to the decision of the Hon’ble Supreme Court in the case of Totagars Cooperative Sales Society Ltd., held that the benefit of deduction u/s.80P of the Act is excluded for co-operative banks but credit co-operative societies are entitled to claim deduction u/s.80P of the Act in respect of interest income earned from deposits kept in other co-operative banks. 10. In this view of the matter and considering facts and circumstances of the case, we are of the considered view that the ld.CIT(A) was right in allowing the benefit of deduction claimed u/s.80P of the Act in respect of income derived from the activity including interest income earned from fixed deposits. We do not find any error or infirmity in the order of the CIT(A). Hence, we are inclined to uphold the order of the CIT(A) and dismiss the appeal filed by the Revenue.” 10. In this view of the matter and consistent with view taken by the coordinate bench in appellant’s own case, we are of the considered view that the assessee is entitled for deduction u/s. 80P(2)(a)(i) of the Act, in respect of income derived from its business activity including interest income earned from fixed deposits with other cooperative banks/societies. The ld. CIT(A), after considering relevant facts has rightly directed the Assessing Officer to delete additions made towards disallowance of deduction claimed u/s. 80P(2)(a)(i) of the Act and thus, we are inclined to uphold the findings of the ld. CIT(A) and dismiss appeals filed by the revenue for assessment years 2012-13, 2014-15 & 2017-18. 11. The assessee has filed cross objections in support of order of the ld. CIT(A). Since, the appeals filed by the revenue has been dismissed, the cross objections filed by the assessee in support of findings of the ld. CIT(A) Printed from counselvise.com ITA Nos.2705 & 2706/Chny/2025 (AY 2020-21) M/s. Ammapalayam Basuvaptti PACCS Ltd. :: 8 :: becomes infructuous and thus, cross objections filed by the assessee for assessment years 2012-13, 201415 & 2017-18 are dismissed. 12. In the result, appeals filed by the revenue for assessment years 2012-13, 2014-15 & 2017-18 and cross objections filed by the assessee for assessment years 2012-13, 201415 & 2017-18 are dismissed….” 7. We find the facts of the present case identical to the case decided by this Tribunal in the case of DAE Employees Cooperative Thrift and Credit Society (supra). And the Ld.DR couldn’t distinguish the case on law or facts. Accordingly, in respectful compliance to the decision of this Tribunal (supra), we are of the view that the assessee is entitled for its claim of deduction u/s 80P(2)(a)(i) of the Act. Accordingly, the impugned order is set aside and the AO is directed to delete the addition of ₹27,33,412/-. Accordingly, the appeal of the assessee is allowed. 8. In the result, the appeal of the assessee is allowed. ITA No.2706/Chny/2025 9. This is an appeal preferred by the assessee against the penalty levied u/s.270A of the Act. In this regard, it is noted that the AO has levied penalty u/s.270A of the Act for underreporting of income in consequence of its misreporting of income for an amount of ₹27,33,412/- [which was added in the quantum assessment (supra)]. Since we have deleted the addition of ₹27,33,412/-, which was added in the quantum assessment (supra), the penalty levied u/s.270A has to be deleted by relying on the legal maxim “sublato Fundmento Credit opus” meaning in Printed from counselvise.com ITA Nos.2705 & 2706/Chny/2025 (AY 2020-21) M/s. Ammapalayam Basuvaptti PACCS Ltd. :: 9 :: case a foundation is removed, the super-structure falls which principle was recognized by the Hon’ble Supreme Court in the case of Badarinath v. Tamil Nadu AIR 2000 SC 3243, wherein, the Hon’ble Supreme Court held that once the basis of proceedings is gone, all consequential orders & acts would fall on the ground automatically which is applicable to judicial and quasi judicial proceedings. In the result, appeal filed by the assessee in ITA Nos.2706/Chny/2025 is allowed. 10. In the result, appeals filed by the assessee in ITA Nos.2705 & 2706/Chny/2025 are allowed. Order pronounced on the 04th day of December, 2025, in Chennai. Sd/- Sd/- (जगदीश) (JAGADISH) लेखा सद /ACCOUNTANT MEMBER (एबी टी. वक ) (ABY T. VARKEY) \u0001याियक सद\bय/JUDICIAL MEMBER चे ई/Chennai, !दनांक/Dated: 04th December, 2025. TLN आदेश क\u001a \u0017ितिलिप अ$ेिषत/Copy to: 1. अपीलाथ\u0010/Appellant 2. \u0011\u0012थ\u0010/Respondent 3. आयकरआयु\u0018/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय\u0011ितिनिध/DR 5. गाड फाईल/GF Printed from counselvise.com "