SHARADCHANDRA NAGARI SAHAKARI PATSANSTHA MARYADIT,PUNE V. ITO WARD 10(1), PUNE

ITA 1068/PUN/2025

AI Insights

The case involves Sharadchandra Nagari Sahakari Patsanstha Maryadit, a cooperative credit society, appealing against the order of the Commissioner of Income Tax (Appeals) which confirmed the Assessing Officer's decision to disallow deductions under section 80P of the Income Tax Act, 1961. The primary contention was whether the interest income earned from cooperative banks and nationalized banks qualifies for deduction under section 80P(2)(a)(i) and 80P(2)(d). The Tribunal examined various judicial precedents, including decisions from the Supreme Court and High Courts, which supported the assessee's position that such interest income is indeed attributable to the business of providing credit facilities and thus eligible for deductions under section 80P.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 653139 (ITAT-PUNE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Other Referred Cases: Mavilayi Service Co-operative Bank Ltd. vs. CIT, PCIT vs. Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd, Vavveru Co-operative Rural Bank Ltd., Sahyadri Co-operative Credit Society Limited
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DAYANAND JAWALIKAR
• Assessee Lawyers: ABHAY AVACHAT
• Keywords: Set aside; Reassessment proceedings; Question of law; Assessment record; Tangible material; Co-operative Credit Society
• Section: 147; 56; 63

Judgement Text

" आयकर अपीलीय अिधकरण ”एस एम सी” Ɋायपीठ पुणेमŐ। IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES “SMC” :: PUNE BEFORE MS.ASTHA CHANDRA, JUDICIAL MEMBER AND DR.DIPAK P. RIPOTE, ACCOUNTANT MEMBER आयकर अपील सं. / ITA No.1068/PUN/2025 िनधाᭅरण वषᭅ / Assessment Year: 2011-12 Sharadchandra Nagari Sahakari Patsanstha Maryadit, At Post–Rajuri, Taluka–Junnar, Dist. Pune – 412411. Maharashtra. V s The Income Tax Officer, Ward-10(1), Pune. PAN: AAABS1016L Appellant/ Assessee Respondent / Revenue Assessee by Shri Abhay Avachat – AR Revenue by Shri Dayanand Jawalikar – JCIT(DR) Date of hearing 12/06/2025 Date of pronouncement 18/06/2025 आदेश/ ORDER PER DR. DIPAK P. RIPOTE, AM: This is an appeal filed by the Assessee against the order of ld.Commissioner of Income Tax(Appeal)[NFAC] passed under section 250 of the Income Tax Act, 1961 for A.Y.2011-12 on 29.03.2025 emanating from the Assessment Order u/s.143(3) r.w.s 147of the Act, dated 12.12.2018. The Assessee has raised the following grounds of appeal : ITA No.1068/PUN/2025 [A] 2 “1. The learned AO has erred in not considering and in not allowing deduction under section 80P(2)(a) (i) and / or 80P(2)(d) claimed by assessee in respect of interest earned from coop banks and the learned CIT A erred in disallowing the same. 2. The learned AO has erred in disallowing the entire deduction of Rs. 35,18,577/-claimed by assessee u/s 80P despite compliance with relevant provisions and the Id. CIT A erred in confirming the same. 3. The Ld. AO has erred in taxing interest of Rs. 65,61,102/- earned by assessee from coop banks as income from other source u/s 56 and the Id. CIT A erred in confirming the said treatment of AO. 4. The assessee prays to allow deduction of proportionate expenses u/s 57 if it is ultimately decided to tax the bank interest. 5. The AO and CIT A has erred in not following judgements of appellate forums including high court and supreme court. 6. The reassessment proceedings initiated against the assessee are bad in law since there is no fresh and tangible material before the AO to reopen the case, no satisfaction has been recorded, copy of the reasons recorded was not shared, and due to divergent views on the issue of deduction u/s 80P2d, no income has escaped the tax as per section 147 in our case. 7 The assessee hereby requests for allowing any other relief as available under the law. 8. The assessee craves leave to add, alter, amend, modify, delete all or any of the grounds of appeal.” Findings & Analysis : 2. We have heard both the parties and perused the records. It is observed from the Assessment Record that Assessee is a Co- operative Credit Society registered under Maharashtra Co-operative Societies Act, 1960. Assessee is engaged in the business of providing credit facilities to its members and accepts deposits from ITA No.1068/PUN/2025 [A] 3 its members. The Assessee filed Return of Income for A.Y.2011-12 declaring total income at Rs.NIL and claiming deduction u/s.80P of the Act, of Rs.35,18,577/-. The Assessing Officer issued notice u/s.148 of the Act, on 27.03.2018. Assessee made elaborate submission in the reassessment proceedings. In para 14.15 of the Assessment Order, the AO held that Assessee should be treated as Co-operative Bank which are not eligible for deduction u/s.80P of the Act. The Paragraph 14.15 of the Assessment Order is reproduced here as under : “14.15 Thus the conditions essential to qualify as a cooperative banks are satisfied by t assessee i.e. (1) the primary object or principal business of which is the transaction of banking business; (2) the paid up share capital and reserves of the assessee are not less than one lakh of rupees; and (3) the bye-laws of which do not permit deposits of any nominal members Therefore, it is clear that assessee society can be treated as a Co-operative Bank and also nature of the activity shows that it has taken the character of the Co-operative banks which are n eligible for deduction u/s 80P by virtue of share capital and surplus reserves and surpluse which are invested in banks other than mentioned in section 80P(2)(d).” 2.1 Therefore, AO held that Assessee is not eligible for deduction u/s.80P of the Act. 3. Aggrieved by the assessment order, assessee filed appeal before the ld.CIT(A). Para 6.8 of the ld.CIT(A)’s order is as under : “6.8 Hence, the income by way of interest earned by deposit or investment does not change its character irrespective of the fact whether such income of interest is earned from a scheduled bank or a ITA No.1068/PUN/2025 [A] 4 co-operative bank and, thus would not be eligible to claim deduction under Section 80P of the Act. Thus, I do not find any infirmity in the decision of the AO and I am not inclined to interfere with the decision of the AO.” 3.1 Thus, the main contention of the Assessing Officer is that Assessee should be treated as a Co-operative Bank, because the paid-up share capital and reserve of the Assessee are not less than One Lakh Rupees. According to Assessing Officer, Assessee’s primary object was profiteering. 3.2 However, the Hon’ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd., vs. CIT 431 ITR 1 (SC) has observed that the entity which has got banking license issued by Reserve Bank of India can be held as Bank. In this case, it is not the allegation of the Assessing Officer that Assessee has got Banking License issued by Reserve Bank of India. Rather, Assessee is registered as Co-operative Society under the Co-operative Societies Act, therefore, Assessee is Co-operative Credit Society. The income earned by assessee is from its activity of providing credit facility to its members and nominal members. As per Maharashtra Co- operative Societies Act, Nominal Members are also Members. ITA No.1068/PUN/2025 [A] 5 3.3 It is also mentioned by the Assessing Officer in the assessment order that assessee has earned interest income from Surplus Funds kept with PDCC Bank. Assessing Officer further observed that PDCC i.e.Pune District Central Co-operative Bank is a Bank and hence interest earned from PDCC will not be eligible for deduction u/s.80P of the Act, as per Explanation to Section 80P(4) of the Act. 4. Hon’ble Supreme Court in the case of PCIT vs.Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd 454 ITR 177(SC) has held as under : Quote, “ 5. There are concurrent findings recorded by CITA, ITAT and the High Court that the respondent/Assessee cannot be termed as Banks/Cooperative Banks and that being a credit society, they are entitled to exemption under section 80(P)(2) of the Income-tax Act. Such finding of fact is not required to be interfered with by this Court in exercise of powers under Article 136 of the Constitution of India. Even otherwise, on merits also and taking into consideration the CBDT Circulars and even the definition of Bank under the Banking Regulation Act, the respondent/Assessee cannot be said to be Co-operative Bank/Bank and, therefore, Section 80(P)(4)shall not be applicable and that the respondent/Assessee shall be entitled to exemption/benefit under section80(P)(2) of the Income-tax Act.” Unquote. 4.1 The decision of Hon’ble Supreme Court is squarely applicable to the assessee. 5. Now, the issue before us is whether assessee is eligible for deduction under section 80P(2)(a) of the Act or not! ITA No.1068/PUN/2025 [A] 6 5.1 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 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. ITA No.1068/PUN/2025 [A] 7 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. 5.2 Thus, the Hon’ble High Court of AP &TS held that Interest Income earned by investing Income derived from Business of providing credit facilities, Loans by a Co-Operative Society was eligible for deduction u/sec.80P(2)(a) of the Act. 6. In the case of Sahyadri Co-operative Credit Society Limited, the Sahyadri Co-operative Credit Society had deposited excess funds in the Banks or Institutions permitted by the Co-operative Societies Act. In that context, the Hon’ble Kerala High Court in the case of Pr.CIT Vs. Sahyadri Co-operative Credit Society Ltd., [2024] 301 Taxman 36 (Kerala) vide order dated 04.09.2024 has held as under : ITA No.1068/PUN/2025 [A] 8 Quote “7. On a consideration of the rival submissions, we are of the view that for the reasons stated hereinafter, the question of law that arises for consideration before us must be answered against the Revenue and in favour of the assessee. The permissible deduction that is envisaged under Section 80P(2) of the I.T. Act for a Co-operative Society that is assessed to tax under the head of 'Profits and Gains of Business or Profession' is of the whole of the amount of profits and gains of business attributable to any one or more of its activities. Thus, all amounts as can be attributable to the conduct of the specified businesses by a Co-operative Society will be eligible for the deduction envisaged under the statutory provision. 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.” Unquote 6.1 Thus, Hon’ble Kerala High Court has held that the character of income does not change. The Hon’ble Kerala High Court held that interest earned from deposits in permitted banks will be eligible for ITA No.1068/PUN/2025 [A] 9 deduction u/s.80P of the Act. The Hon’ble Kerala High Court’s decision is dated 04.09.2024 means, after the decision of Hon’ble Supreme Court in the case of Totagar’s Co.operative Sales Society Ltd. 6.2 Accordingly, respectfully following the judicial precedents, we hold that assessee is eligible for deduction u/s.80P of the Act, on the interest income earned by the assessee from Co-operative Banks and Nationalized Banks. 5.3 Respectfully following the judicial precedent, we direct the Assessing Officer to allow deduction u/sec.80P(2)(a)(i) of the Act on the interest earned. Accordingly, Grounds of appeal raised by the assessee are allowed. 7. In the result, appeal of the assessee is allowed. Order pronounced in the open Court on 18 June, 2025. Sd/- Sd/- ASTHA CHANDRA Dr.DIPAK P.RIPOTE JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; ᳰदनांक / Dated : 18 June, 2025/ SGR ITA No.1068/PUN/2025 [A] 10 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. "