M/S. ING VYSYA BANK EMPLOYEES CO-OPERATIVE SOCIETY LIMITED PRESENTLY KNOWN AS M/S. KOTAK MAHINDRA BANK EMPLOYEES CO-OPEATIVE SOCIETY LIMITED ,BENGALURU V. INCOME TAX OFFICER, WARD-5(2)(1), BENGALURU

ITA 330/BANG/2025

AI Insights

The case involves Kotak Mahindra Bank Employees Co-operative Society Ltd., which appealed against the order of the CIT(Appeals)-3, Delhi, concerning the disallowance of a deduction claimed under section 80P of the Income-tax Act, 1961. The primary issue was the eligibility of interest income received from Kotak Mahindra Bank, a non-cooperative bank, for deduction under section 80P(2)(a)(i) and 80P(2)(d). The Assessing Officer had disallowed the deduction, leading to the appeal. The Tribunal found that while the bank is not a cooperative bank, the interest income might still be deductible if it is part of the profits and gains of the banking business conducted by the society.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 652972 (ITAT-BANGALORE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Other Referred Cases: CIT v. Sri Biluru Guru Basaa Pathina Sahakari Sangha Niyamitha, Bagalkot
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: REVENUE; GANESH R. GHALE; STANDING COUNSEL REVENUE
• Assessee Lawyers: SUNAINA BHATIA; LETTER
• Keywords: Business income
• Section: 148; 143(3)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH : BANGALORE BEFORE SHRI PRASHANT MAHARISHI, VICE PRESIDENT ITA No.330/Bang/2025 Assessment year : 2011-12 M/s. ING Vysya Bank Employees Co- operative Society Ltd., [now Kotak Mahindra Bank Employees Co-operative Society Ltd.] No.89/2, Shell House, 2nd Floor, J.C. Road, Bengaluru – 560 002. PAN: AAATI 7022G Vs. The Income Tax Officer, Ward 5(2)(1), Bengaluru. APPELLANT RESPONDENT Appellant by : Ms. Sunaina Bhatia, Advocate Respondent by : Shri Ganesh R. Ghale, Standing Counsel for Revenue. Date of hearing : 10.06.2025 Date of Pronouncement : 17.06.2025 O R D E R 1. This appeal is filed by Kotak Mahindra Bank Employees Co-operative Society Ltd. (the assessee/appellant) for the assessment year 2011-12 against the appellate order passed by the CIT(Appeals)-3, Delhi [ld. CIT(A)] dated 20.12.2024 wherein the appeal of the assessee against the reassessment order passed u/s. 143(3) r.w.s. 147 of the Income-tax Act, 1961 [the Act] dated 27.12.2018 was dismissed. ITA No. 330/Bang/2025 Page 2 of 6 2. The assessee has raised the following grounds of appeal :- “1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case. 2. The learned CIT[A] is not justified in disposing off the appeal ex parte without allowing sufficient and real opportunity to the appellant to represent the case under the facts and in the circumstances of the appellant's case, 3. The learned CIT[A] is not justified in upholding the disallowance Rs.8,05,987/- from out of the deduction claimed u/s 80P[2][a][i] of the Act on the ground that the said income was not earned from co-operative banks and hence, the said income was not eligible for deduction u/s. 80P[2][a][i] of the Act. 4. Without prejudice to the above, the learned CIT[A] ought to have allowed deduction u/s. 57 of the Act for cost of funds and he ought not to have taxed the gross interest income and therefore, the income assessed is excessive and liable to be reduced substantially. 5. Without prejudice to the right to seek waiver with the Hon'ble CCIT/DG, the appellant denies itself liable to be charged to interest u/s. 234-A and 234-B of the Act, which under the facts and in the circumstances of the appellant's case deserves to be cancelled. 6. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.” 3. The brief facts of the case show that assessee is the employees co- operative society assessed as a co-operative society, filed its return of income on 26.9.2011 at Rs.Nil. In the return of income, the assessee claimed deduction u/s. 80P of the Act of Rs 85,77,066/- including ITA No. 330/Bang/2025 Page 3 of 6 also on Rs.8,05,987 of income received as interest from ING Vysya bank Limited. 4. Notice u/s. 148 of the Act was issued on 31.3.2018, served on the assessee on 31.3.2018, which was responded by the assessee by letter dated 25.9.2018 reiterating the return of income filed on 26.9.2011. The ld. AO found that assessee has earned interest income of Rs.19,83,170 from the Nationalised/Co-operative Banks on which assessee has claimed deduction u/s. 80P of the Act. Out of the interest of Rs.19,83,170, interest of Rs.8,05,987 was received from ING Vysya Bank Ltd., now Kotak Mahindra Bank Ltd., which is not a c-operative bank, but a nationalised bank. The ld. AO noted that the above interest is received by the assessee on reserve fund, as it is received from a non- co-operative bank, deduction u/s. 80P is not allowable. Accordingly, it was held that on the interest income of Rs.8,05,987 received from Kotak Mahindra Bank is neither eligible for deduction u/s. 80P(2)(a)(i) or u/s. 80P(2)(d) of the Act. Therefore, the claim of deduction u/s. 80P of Rs.85,77,066 is restricted to Rs.77,71,079. Accordingly the assessment order was passed on 27.12.2018. 5. Assessee being aggrieved with the above order preferred appeal before the ld. CIT(A). The ld. CIT(A) issued 5 notices out of which on 4 occasions, none appeared and on one occasion, the assessee sought an adjournment. Therefore as the assessee did not comply with any of the notices, the ld. CIT(A) decided the issue on its merits. The ld. CIT(A) held that assessee is not entitled to deduction u/s. 80P on the amount of ITA No. 330/Bang/2025 Page 4 of 6 Rs.8,05,987 received from Kotak Mahindra Bank u/s. u/s. 80P(2)(a)(i) or u/s. 80P(2)(d) of the Act. The ld. CIT(A) also distinguished the decision of Hon’ble Karnataka High Court in the case of CIT v. Sri Biluru Guru Basaa Pathina Sahakari Sangha Niyamitha, Bagalkot. Accordingly, the appeal of the assessee was dismissed. 6. On appeal before us, the ld. AR for the assessee vehemently submitted that the issue is squarely covered in favour of the assessee by the above decision of the Hon’ble jurisdictional High Court. It was further stated that the amount of fund deposited in the Kotak Mahindra Bank Ltd. which is where the members of the society are employees, is attributable to the business of the assessee and therefore deduction u/s. 80P(2)(a)(i) of the Act on the same is available. It was further stated that adequate cost of funds, alternatively, should also be granted to the assessee as deduction. It was also argued that to recompute the income from other sources in the hands of the assessee, the matter may be restored to the file of the ld. AO. 7. The ld. DR vehemently supported the orders of ld. lower authorities. It was submitted that the assessee did not furnish any information before the ld. CIT(A) and further the issue is covered by the decision of Hon’ble Karnataka High Court as mentioned by the AO. 8. I have carefully considered the rival contentions and perused the orders of ld. lower authorities. In this case, the assessee co-operative society earned interest from Kotak Mahindra Bank. The above bank is not a co-operative bank and therefore the assessee is not entitled to any ITA No. 330/Bang/2025 Page 5 of 6 deduction on the above sum under the provisions of section u/s. 80P(2)(d) of the Act. However, assessee is a members co-operative society carrying on banking business, therefore under the provisions of section 80P(2)(a)(i) of the Act, the assessee is entitled to deduction on the whole amount of the profits & gains of business attributable to the activity of carrying on the business of banking or providing credit facilities to its members. Therefore, even if the assessee has earned interest from a non-co-operative society, if such interest is attributable to the profits & gains of business of banking and if such interest is assessable to tax as business income, the whole of the amount is deductible in the hands of the assessee u/s. 80P(2)(a)(i) of the Act. Therefore, it needs to be ascertained first that whether the interest earned by the assessee of Rs.8,05,970 is attributable to the business of banking and is part of the profits & gains of the business of banking with the members or not. It is for the assessee to demonstrate before the ld. AO that such interest income is attributable and therefore is eligible for deduction u/s. 80P(2)(a)(i) of the Act. As these facts are not forthcoming, the claim of assessee for deduction u/s. 80P(2)(a)(i) of the Act cannot be decided. The lower authorities also, before rejecting the claim of assessee for deduction under this sub-section, have not examined from this aspect. Therefore, I restore ground Nos.3 & 4 of the appeal back to the ld. AO with a direction to the assessee to substantiate its claim u/s. 80P(2)(a)(i) of the Act and alternatively show the cost of funds available for deduction u/s. 58 of the Act. Thus ITA No. 330/Bang/2025 Page 6 of 6 ground Nos. 3 & 4 of the appeal of the assessee are allowed with the above directions. 9. No other grounds are pressed before me and therefore these are dismissed. 10. In the result, the appeal by the assessee is partly allowed for statistical purposes. Pronounced in the open court on this 17th day of June, 2025. Sd/- ( PRASHANT MAHARISHI ) VICE PRESIDENT Bangalore, Dated, the 17th June, 2025. /Desai S Murthy / Copy to: 1. Appellant 2. Respondent 3. Pr. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order Assistant Registrar ITAT, Bangalore. "