PUNNAYURKULAM SERVICE CO OPERATIVE BANK LTD NO P 417,PUNNAYURKULAM V. INCOME TAX OFFICER, GURUVAYUR

ITA 512/COCH/2025

AI Insights

The case involves the Punnayurkulam Service Co-op. Bank Ltd., a cooperative society engaged in accepting deposits and providing credit facilities, which appealed against the order of the National Faceless Appeal Centre (NFAC) that denied them deductions under section 80P of the Income Tax Act for interest income received from other banks. The Income Tax Officer had initially assessed the income, including interest from banks, as 'income from other sources', which is not eligible for deduction under section 80P. The CIT(A) partially allowed the appeal by granting deductions for some income but not for all. The tribunal's decision, influenced by a prior High Court judgment, reversed the CIT(A)'s decision regarding the interest income from banks, allowing the deduction.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 716363 (ITAT-COCHIN)
• Duration Of Justice: 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-08-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2022-2023
• Appeal Filed On: 17-07-2025
• Other Referred Cases: CIT vs. Sahyadri Co-operative Credit Society Ltd. in ITA No. 63 of 2019
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEETHU S.
• Assessee Lawyers: M. RAMDAS
• Keywords: Co-operative Credit Society
• Section: 143(3)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH BEFORE SHRI INTURI RAMA RAO, AM AND SHRI RAHUL CHAUDHARY, JM ITA No. 512/Coch/2025 Assessment Year: 2022-23 Punnayurkulam Service Co-op. Bank Ltd. .......... Appellant Punnayurkulam, Thrissur 679561 [PAN: AACAP6129J] vs. The Income Tax Officer, WD-1 & TPS, Guruvayur......... Respondent Assessee by: Shri M. Ramdas, CA Revenue by: Ms. Neethu S., Sr. DR Date of Hearing: 18.08.2025 Date of Pronouncement: 20.08.2025 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 (NFAC) dated 19.05.2025 for Assessment Year (AY) 2022-23. 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 a primary agricultural credit co-operative society. It is engaged in the business of accepting deposits from members and providing credit facilities to members. The return of Printed from counselvise.com 2 ITA No. 512/Coch/2025 Punnayurkulam Service Co-op. Bank Ltd. income for AY 2022-23 was filed on 01.11.2022 declaring Nil income. Against the said return of income, the assessment was completed by the Assessment Unit, Income Tax Department (hereinafter called \"the AO\") vide order dated 20.03.2024 passed u/s. 143(3) r.w.s. 144B of the Income Tax Act, 1961 (the Act) at a total income of Rs. 71,77,582/-. While doing so, the AO had denied deduction u/s. 80P of the Act of Rs. 71,77,582/- in respect of interest income received from co-operative banks and other banks by holding that such income is assessable as ‘income from other sources’. 3. Being aggrieved, an appeal was filed before the CIT(A), who vide the impugned order directed the AO to allow deduction u/s. 80P(2)(d) of the Act in respect of income received from co- operative banks of Rs. 45,13,369/-. However, confirmed the disallowance of deduction u/s. 80P(2)(a)(i) in respect of interest income earned from Treasury of Rs. 2,41,001/- and miscellaneous income of Rs. 24,23,212/-. 4. Being aggrieved, the appellant is in appeal before this Tribunal in the present appeal. 5. We have heard the rival contentions and perused the material available on record. Regarding the interest income and miscellaneous income received from Treasury, Scheduled Banks, etc., this issue is no longer res integra, as it is covered by Printed from counselvise.com 3 ITA No. 512/Coch/2025 Punnayurkulam Service Co-op. Bank Ltd. 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.” 6. 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. 512/Coch/2025 Punnayurkulam Service Co-op. Bank Ltd. 7. In the result, the appeal filed by the assessee stands allowed. Order pronounced in the open court on 20th August, 2025. Sd/- Sd/- (RAHUL CHAUDHARY) JUDICIAL MEMBER (INTURI RAMA RAO) ACCOUNTANT MEMBER Cochin, Dated: 20th August, 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 "