KINANUR SERVICE CO-OPERATIVE BANK LTD,CHAYYOM V. ITO,WARD 1 & TPS, KASARAGOD

ITA 442/COCH/2024

AI Insights

The case involves Kinanur Service Co-op. Bank Ltd., a cooperative society engaged in accepting deposits and providing credit facilities to its members, which filed an appeal against the order of the National Faceless Appeal Centre, Delhi. The dispute centered on the denial of deduction under section 80P(2)(a)(1) for income earned on investments with a cooperative bank and interest income. The CIT(A) partially granted the deduction under section 80P(2)(d) for interest income from cooperative societies and banks but denied it for income from Scheduled banks. The Tribunal, referencing a High Court judgment, ruled in favor of the appellant, allowing the deduction for interest income from Scheduled banks as it was considered part of the profits and gains attributable to the main business of providing credit facilities to members.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 711820 (ITAT-COCHIN)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: misc
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LEENA LAL
• Keywords: Co-operative Credit Society

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH BEFORE SHRI INTURI RAMA RAO, AM AND SHRI SONJOY SARMA, JM ITA No. 442/Coch/2024 Assessment Year: 2020-21 Kinanur Service Co-op. Bank Ltd. .......... Appellant Choimkode, Nileshwar, Kasaragod 671314 [PAN: AAAAK2668K] vs. Income Tax Officer, Ward 1&TPS, Kasaragod .......... Respondent Appellant by: ------- None ------- Respondent by: Smt. Leena Lal, Sr. D.R. Date of Hearing: 04.06.2025 Date of Pronouncement: 22.07.2025 O R D E R Per: Inturi Rama Rao, AM This appeal filed by the assessee is directed against the order of the National Faceless Appeal Centre, Delhi [CIT(A)] dated 18.03.2024 for Assessment Year (AY) 2020-21. 2. Brief facts of the case are that the appellant is a co-operative society registered under the Kerala State Co-operative Societies Act, 1969. It is classified as primary agricultural credit co-operative society. It is engaged in the business of accepting deposits from Printed from counselvise.com 2 ITA No. 442/Coch/2024 Kinanur Service Co-op. Bank Ltd. members and providing credit facilities to members. The return of income for AY 2020-21 was filed on 16.11.2020 disclosing Nil income after claiming deduction u/s. 80P of the Income Tax Act, 1961 (the Act) of Rs. 47,90,455/-. Against the said return of income, the assessment was completed by the Income Tax Officer, Ward 1 & TPS, Kasaragod (hereinafter called \"the AO\") vide order dated 23.09.2022 by denying the claim for deduction u/s. 80P(2)(a)(1) in respect of income earned on investments made with co-operative bank of Rs. 27,75,730/- and made addition of Rs. 7,61,753/- being interest income. 3. Being aggrieved, an appeal was filed before the CIT(A), who vide the impugned order held that the appellant society is entitled for deduction u/s. 80P(2)(d) of the Act in respect of interest income received on investment held with co-operative societies and co- operative banks. However, proceeded to hold that such deduction is not available in respect of income earned from Scheduled banks. 4. Being aggrieved, the appellant is in appeal before this Tribunal in the present appeal. 5. When the appeal was called on nobody appeared on behalf of the assessee despite due service of notice of hearing. Therefore, we proceeded to dispose of the appeal after hearing the learned Sr. DR. 6. Regarding the interest income received from Treasury, Scheduled Banks, etc., this issue is no longer res integra, as it is Printed from counselvise.com 3 ITA No. 442/Coch/2024 Kinanur Service Co-op. Bank Ltd. covered by the judgement of the Hon'ble Jurisdictional High court in the case of CIT vs. Sahyadri Co-operative Credit Society Ltd. in ITA No. 63 of 2019, wherein it was held as under: - “ 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 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.” 7. Respectfully following the above decisions of the Hon'ble Jurisdictional High Court, we hold that the assessee is entitled for deduction under sections 80P(2)(i)(a) of the Act in respect of interest received from Treasury, Scheduled Banks, etc. Printed from counselvise.com 4 ITA No. 442/Coch/2024 Kinanur Service Co-op. Bank Ltd. 8. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 22nd July, 2025. Sd/- Sd/- (SONJOY SARMA) JUDICIAL MEMBER (INTURI RAMA RAO) ACCOUNTANT MEMBER Cochin, Dated: 22nd July, 2025 n.p. Copy to: 1. The Appellant 2. The Respondent 3. The Pr. CIT concerned 4. The Sr. DR, ITAT, Cochin 5. Guard File Assistant Registrar ITAT, Cochin Printed from counselvise.com "