KUNDALIKA NAGARI SAHAKARI PATSANSTHA MARYADIT,ROHA V. ITO, WARD 1, PANVEL, PANVEL

ITA 790/PUN/2025

AI Insights

The case revolves around the appeal by Kundalika Nagari Sahakari Patsanstha Maryadit against the order of the Commissioner of Income Tax (Appeals) which confirmed the income assessed by the Assessing Officer. The primary contention was regarding the denial of deduction under section 80P(2)(d) for interest income earned from deposits with cooperative banks. The Tribunal examined whether the assessee, a Co-operative Credit Society, was entitled to deductions under section 80P(2)(a) and 80P(2)(d) of the Income Tax Act, 1961. The Tribunal referenced several judicial precedents, including decisions from the Supreme Court and other High Courts, which supported the assessee's position.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 361364 (ITAT-PUNE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-05-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2020-2021
• Other Referred Cases: CIT Vs. Totagars Co-operative Sales Society, Vavveru Co-operative Rural Bank Ltd. [2017] 396 ITR 371, Kolhapur District Central Co-op. Bank Kanista Sevakanchi Sahakar Pat Sanstha Ltd. Vs. Income-tax Officer 158 taxmann.com 322 (Pune Tribunal), Yashwant Nagari Sahakari Patsanstha Maryadit Vs. ITO in ITA No.644/PUN/2024 dated 04.06.2024, Mavilayi Service Co-operative Bank Ltd. Vs. Commissioner of Income Tax, Calicut 431 ITR 1 (SC) dated 12.01.2021
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MADHAN THIRMANPALLIL
• Keywords: Set aside; Question of law; Co-operative Credit Society
• Section: 143(3)

Judgement Text

" आयकर अपीलीय अिधकरण ”एस एम सी” Ɋायपी ठपुणेमŐ। 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.790/PUN/2025 िनधाᭅरण वषᭅ / Assessment Year: 2020-21 Kundalika Nagari Sahakari Patsanstha Maryadit, Ground Floor, Varun Apartment, Near Bhate Vachanalaya, Sonar Ali, Roha – 402109. Maharashtra. V s The Income Tax Officer, Ward-1, Panvel. PAN: AACAK6478R Appellant/ Assessee Respondent / Revenue Assessee by None Revenue by Shri Madhan Thirmanpallil – Addl.CIT(DR) – Virtual Hearing. Date of hearing 13/05/2025 Date of pronouncement 22/05/2025 आदेश/ ORDER PER DR. DIPAK P. RIPOTE, AM: This is an appeal filed by the assessee directed against the order of ld.Commissioner of Income Tax(Appeal)[NFAC] under section 250 of the Income Tax Act, 1961 dated 08.02.2025 for the A.Y.2020-21 emanating from assessment order u/s.143(3) r.w.s. ITA No.790/PUN/2025 [A] 2 144B dated 21.09.2022. The Assessee has raised the following grounds of appeal : “1. The Ld.CIT(A)-NFAC has erred in confirming the income assessed u/s 143(3) by the Ld. Assessing Officer (A.O.) NFAC, Delhi at Rs.21,85,217/-. 2. The Ld.CIT(A)-NFAC erred in denying the deduction u/s 80P(2)(d) at Rs.21,51,477/-for the reason that the Co-operative Banks are not the Co-operative Societies and thereby interest income earned on Deposits kept with them are not eligible for deduction u/s 80P(2)(d). 3. The Ld. CIT(A)-NFAC and Ld. AO erred in not allowing proportionate deduction of expenses incurred to earn interest income from Co-operative Banks. 4. The Ld.CIT(A)-NFAC erred by wrongly applying the provisions of Section 80P(4) in the Assessee's case who is a Co-operative Society and not a Co-operative Bank. The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal.” 2. At the outset of hearing, no one appeared on behalf of the assessee. No adjournment letter was filed. Findings & Analysis : 3. We have heard ld.DR for the Revenue and perused material placed before us. In this case, Assessee filed Return of Income for A.Y.2020-21 on 09.11.2020 showing total income of Rs.33,770/- and claiming deduction u/s.80P of the Act. In the assessment order, Assessing Officer observed that Assessee is a Co-operative Credit Society duly registered under Maharashtra Co-operative Societies ITA No.790/PUN/2025 [A] 3 Act. Assessing Officer(AO) observed that as per the Assessee’s reply dated 07.03.2022, Assessee has received interest income from following : i. TJSB Sahakari Bank Ltd. ii. Dombivali Nagari Sahakari Bank Ltd. iii. Revdanda Co-op. Urban Bank Ltd. iv. DNS Bank Ltd. v. SVC Co-op Bank Ltd. vi. Apara Sahakari Bank ltd. vii. Annasaheb Sawant Co-op. Urband Bank Mahad Ltd 4. Assessing Officer disallowed Assessee’s claim of deduction u/s.80P of the Act following the decision of Hon’ble Supreme Court in the case of CIT Vs. Totagars Co-operative Sales Society. Aggrieved by the assessment order, Assessee filed appeal before ld.CIT(A). Ld.CIT(A) confirmed the addition. 4.1 Aggrieved by the order of the ld.CIT(A), Assessee filed appeal before this Tribunal. 4.2 Admittedly, Assessee is a Co-operative Credit Society engaged in the activity of providing credit facility to its members. 4.3 Thus, the issue before us is whether assessee is eligible for deduction under section 80P(2)(a) of the Act or not! ITA No.790/PUN/2025 [A] 4 4.4 This issue has been dealt in various decisions of ITAT Pune in favour of assessee. 5. 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. …………………… 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 ITA No.790/PUN/2025 [A] 5 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 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. 5.1 Thus, the Hon’ble High Court of AP & TS held that Interest Income earned by investing Income attributable to Business and Profession by a Co-Operative Society was eligible for deduction u/sec.80P(2)(a) of the Act. 5.2 No contrary decision of the Hon’ble jurisdictional High Court has been brought to our notice. Therefore, as per rule of precedence, ITA No.790/PUN/2025 [A] 6 the proposition of law laid down by the Hon’ble High Court of AP & TS (supra) are binding precedents for us. 6. The Hon’ble ITAT Pune Bench in the case of Kolhapur District Central Co-op. Bank Kanista Sevakanchi Sahakar Pat Sanstha Ltd. Vs. Income-tax Officer 158 taxmann.com 322 (Pune Tribunal) has held as under : Quote “7………………………..I am of the considered opinion that even the interest income earned by cooperative society on deposits made out of surplus funds with cooperative banks as well as schedule bank qualifies for deduction both under the provisions of section 80P(2)(a)(i) and section 80P(2)(d) of the Act, therefore, the reasoning given by the lower authorities on this issue cannot be accepted. Therefore, I direct the Assessing Officer to allow deduction u/s 80P(2)(a)(i) and 80P(2)(d) in respect of interest income earned from cooperative bank/scheduled bank. Thus, the ground of appeal filed by the assessee stands allowed.”Unquote 7. The Hon’ble ITAT Pune Bench in the case of Yashwant Nagari Sahakari Patsanstha Maryadit Vs. ITO in ITA No.644/PUN/2024 dated 04.06.2024 held that the assessee was eligible for deduction u/sec.80P(2)(a) of the Act on the Interest earned by assessee. 8. The Hon’ble Supreme Court in the case of Mavilayi Service Co- operative Bank Ltd. Vs. Commissioner of Income Tax, Calicut 431 ITR 1 (SC) dated 12.01.2021 held as under : ITA No.790/PUN/2025 [A] 7 “21. An analysis of this judgment would show that the question of law that was reflected in paragraph 5 of the judgment was answered in favour of the assessee. The following propositions may be culled out from the judgment:(I) That section 80P of the IT Act is a benevolent provision, which was enacted by Parliament in order to encourage and promote the growth of the co-operative sector generally in the economic life of the country and must, therefore, be read liberally and in favour of the assessee;(II) That once the assessee is entitled to avail of deduction, the entire amount of profits and gains of business that are attributable to any one or more activities mentioned in sub-section (2) of section80P must be given by way of deduction;(III) That this Court in Kerala State Cooperative Marketing Federation Ltd. (supra) has construed section 80P widely and liberally, holding that if a society were to avail of several heads of deduction, and if it fell within any one head of deduction, it would be free from tax notwithstanding that the conditions of another head of deduction are not satisfied;(IV) This is for the reason that when the legislature wanted to restrict the deduction to a particular type of co-operative society, such as is evident from section 80P(2)(b) qua milk co-operative societies, the legislature expressly says so - which is not the case with section 80P(2)(a)(i);(V) That section 80P(4) is in the nature of a proviso to the main provision contained in section 80P(1)and (2). This proviso specifically excludes only co-operative banks, which are cooperative societies who must possess a licence from the RBI to do banking business. Given the fact that the assessee in that case was not so licenced, the assessee would not fall within the mischief of section 80P(4). ……….. “We now turn to the proper interpretation of section 80P of the Income- tax Act. Firstly, the marginal note to section 80P which reads \"Deduction in respect of income of co-operative societies\" is important, in that it indicates the general \"drift\" of the provision. This was so held by this Court in K.P. Varghese v. ITO [1981] 7 Taxman 13/131 ITR 597 as follows: \"9. This interpretation of sub-section (2) is strongly supported by the marginal note to Section 52 which reads \"Consideration for transfer in cases of understatement\". It is undoubtedly true that the marginal note to a section cannot be referred to for the purpose of construing the section but it can certainly be relied upon as indicating the drift of the section or, to use the words of Collins, M.R. in Bushel v. Hammond [1904] 2 KB 563 to show what the section is dealing with. It cannot control the interpretation of the words of a section particularly when the language of the section is clear and unambiguous but, being part of the statute, it prima facie furnishes some clue as to the meaning and purpose of the section(vide Bengal Immunity Company Limited v. State of Bihar [1955] 2 SCR 603]).\" ITA No.790/PUN/2025 [A] 8 28. Secondly, for purposes of eligibility for deduction, the assessee must be a \"co-operative society\". A co-operative society is defined in Section 2(19) of the IT Act, as being a co-operative society registered either under the Co-operative Societies Act, 1912 or under any other law for the time being in force in any State for the registration of co-operative societies. This, therefore, refers only to the factum of a co-operative society being registered under the 1912 Act or under the State law. For purposes of eligibility, it is unnecessary to probe any further as to whether the co-operative society is classified as X or Y. 29. Thirdly, the gross total income must include income that is referred to in sub-section (2). 30. Fourthly, sub-clause (2)(a)(i) with which we are directly concerned, then speaks of a co-operative society being \"engaged in\" carrying on the business of banking or providing credit facilities to its members. What is important qua sub-clause (2)(a)(i) is the fact that the co- operative society must be \"engaged in\" the providing credit facilities to its members. …………………… “Once it is clear that the co-operative society in question is providing credit facilities to its members, the fact that it is providing credit facilities to non-members does not disentitle the society in question from availing of the deduction. The distinction between eligibility for deduction and attributability of amount of profits and gains to an activity is a real one.” 8.1 Thus, applying the law laid down by the Hon’ble Supreme Court(supra) to the present case, it is observed that assessee is a Co- operative Credit Society, registered under Maharashtra Co-operative Societies Act, 1960. The assessee has provided credit facilities to its members. Assessee has claimed profit earned from providing credit facility to its members, exempt u/sec.80P(2)(a)(i) of the Act. Thus, all the conditions are fulfilled by assessee. Therefore, respectfully ITA No.790/PUN/2025 [A] 9 the Hon’ble Supreme Court(supra), we hold that assessee is eligible for deduction u/sec.80P(2)(a)(i) of the Act. 9. Respectfully following the judicial precedent, we direct the Assessing Officer to allow deduction u/sec.80P(2)(a) and 80P(2)(d) of the Act as claimed by the assessee. Accordingly, Grounds of appeal raised by the assessee are allowed. 10. In the result, appeal of the assessee is allowed. Order pronounced in the open Court on 22 May, 2025. Sd/- Sd/- (VINAY BHAMORE) (DIPAK P.RIPOTE) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; ᳰदनांक / Dated : 22 May, 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. "