SHUBHAM NAGRI SAHAKARI PATSANSTHA MARYADIT,MUMBAI V. INCOME TAX OFFICER,WARD 41(2)(5), , MUMBAI

ITA 823/MUM/2026

AI Insights

The case involves Shubham Nagri Sahakari Patsanstha Maryadit, a cooperative credit society, which appealed against the decision of the Income Tax Officer and the CIT(A) that denied them a deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961. The primary contention was whether the income from investments and interest earned on surplus funds should qualify for deductions under section 80P(2)(a)(i) or section 80P(2)(d). The Tribunal examined precedents and the specific activities of the assessee to determine the correct application of the law.

• Duration Of Justice: 1 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2026
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Mumbai
• Assessment Year: 2018-2019
• Appeal Filed On: 28-01-2026
• Other Referred Cases: Totagars Co-operative Sale Society vs. CIT, Mavilayi Service Co-operative Bank Ltd. vs. CIT, State Bank of India vs CIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ADITYA RAI
• Assessee Lawyers: RAVINDRA NAIK
• Keywords: Co-operative Credit Society

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “J(SMC)” BENCH, MUMBAI BEFORE SMT. BEENA PILLAI (JUDICIAL MEMBER) & SHRI BIJAYANANDA PRUSETH (ACCOUNTANT MEMBER) I.T.A. No. 823/Mum/2026 Assessment Year: 2018-19 Shubham Nagri Sahakari Patsanstha Maryadit 997, 2/2 Aadarsh Housing Society Parksite, Vikhroli (West) Mumbai - 400079 [PAN: AAGTS9805F] Vs. Income Tax Officer, Ward – 41(2)(5), Mumbai (Appellant) (Respondent) Assessee by Shri Ravindra Naik, C.A. Revenue by Shri Aditya Rai, Sr. DR Date of Hearing 16.03.2026 Date of Pronouncement 26.03.2026 ORDER Per Smt. Beena Pillai, JM: Present appeal filed by assessee arises out of the order dated 19/12/2025 passed by NFAC, Delhi [hereinafter referred to as “Ld.CIT(A)”] for Assessment Year 2018-19 on the following grounds:- “1. The Ld. Assessing Officer has erred in not allowing deduction u/s 80P(2)(a)(i) to a co-operative society engaged in providing credit facilities to its members. 2. The Appellant further reserve the right to add, amend or alter the aforesaid grounds of appeal as they may think fit by themselves or by their representatives.” 2. The assessee is a co-operative credit society engaged in the business of accepting deposits from and providing credit facilities to its members. For the A.Y. 2018-19, the assessee filed its return of income declaring total income of Rs.31,96,235/- and claimed Printed from counselvise.com 2 I.T.A. No. 823/Mum/2026 deduction of the entire income u/s 80P(2)(a)(i) of the Income-tax Act, 1961. The Ld. AO, while completing assessment u/s 143(3), treated the assessee as a co-operative bank and disallowed the deduction u/s 80P(2), inter alia holding that the activities of the assessee were akin to banking and that a substantial portion of income was in the nature of interest earned on surplus funds. Aggrieved by the order of Ld.AO, assessee preferred appeal before Ld.CIT(A). 3. The Ld.CIT(A), upheld the action of the Ld.AO by holding that the assessee functions as a commercial financial intermediary and that the interest income earned from surplus funds invested in banks is not attributable to the business of providing credit facilities to members, but is assessable under the head “Income from Other Sources”, relying upon the decision of Hon’ble Supreme Court in the case of Totagars Co-operative Sale Society reported in (2010) 322 ITR 283 (SC). Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before the Tribunal. 4. The Ld.AR submitted that the assessee is a co-operative credit society engaged in providing credit facilities exclusively to its members and is duly eligible for deduction u/s 80P(2)(a)(i) of the Act. He submitted that the Ld.AO as well as the Ld.CIT(A) erred in treating the assessee as a co-operative bank, ignoring the fact that the assessee does not hold any license from the Reserve Bank of India and, therefore, cannot be brought within the mischief of section 80P(4). Printed from counselvise.com 3 I.T.A. No. 823/Mum/2026 4.1. The Ld.AR further submitted that the entire income of the assessee is attributable to its core activity of providing credit facilities to its members and, therefore, qualifies for deduction under section 80P(2)(a)(i). It was contended that the interest earned on deposits of surplus funds is incidental and integrally connected with the business of the assessee and cannot be segregated and taxed under the head “Income from Other Sources”. 4.2. The Ld.AR placed reliance on various judicial precedents, including the decision of the Hon’ble Supreme Court in Mavilayi Service Co-operative Bank Ltd. vs. CIT reported in (2021) 431 ITR 1 (SC), wherein it has been held that a co-operative society providing credit facilities to its members is entitled to deduction u/s 80P(2)(a)(i), and that the absence of an RBI license is a relevant factor to distinguish a co-operative society from a co-operative bank. It was further submitted that the reliance placed by the lower authorities on the decision in Totgar’s Co-operative Sale Society Ltd. (supra) is misplaced and distinguishable on facts, as in the present case the funds are part of the regular business of the assessee and not in the nature of surplus funds unconnected with its business activity. 4.3. The Ld.AR contended that the Ld.CIT(A) erred in not applying the principle of mutuality and in concluding that the assessee functions as a commercial financial intermediary, without appreciating the factual position that the assessee operates only for the benefit of its members. 4.4. On the other hand, the Ld.DR relied heavily on the orders of the lower authorities. Printed from counselvise.com 4 I.T.A. No. 823/Mum/2026 We have perused the submissions advanced by both sides in the light of the records placed before us. 5. It is observed that the assessee is a co-operative credit society engaged in providing credit facilities to its members and has claimed deduction u/s 80P(2)(a)(i) of the Act in respect of its income. The issue for consideration is whether the income earned by the assessee from investments made is eligible for deduction under section 80P(2)(a)(i) of the Act. 5.1. We find that the Hon’ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. (supra) has held that a co-operative society engaged in providing credit facilities to its members is entitled to deduction u/s 80P(2)(a)(i), and the provisions of section 80P(4) would not apply unless the assessee is a co-operative bank. Further, the Hon’ble Karnataka High Court in the case of Ld. PCIT vs.Totgar’s Co-operative Sale Society Ltd. reported in (2017) 392 ITR 74 has held that interest income earned from surplus funds not immediately required for business purposes is to be under section 80P(2)(d) of the Act. Similar view has been taken by Hon’ble Gujarat High Court in case of State Bank of India vs CIT reported in (2016) 389 ITR 578. Both these decisions have categorically observed that the interest income is owned by an SEC on its investments out of surplus funds with other cooperative banks it would be eligible for 2 claimed deduction under section 80P (2) (d) of the Act. 5.2. In the present facts of the case, it is observed that the assessee had investments of its funds in banks and earned interest income. The interest income which is directly attributable to its business of Printed from counselvise.com 5 I.T.A. No. 823/Mum/2026 providing credit facilities to its members are only eligible for deduction under section 80P(2)(a(i) of the Act. To the extent such funds are surplus and not immediately required for the business of providing credit facilities to its members, the interest income arising therefrom cannot be said to be attributable to its business activity and therefore cannot be claimed under section 80P(2)(a)(i). However, at the same time, it cannot be denied that the assessee, being a co- operative credit society, is entitled to deduction u/s 80P. Such interest earned are to be granted deduction under section 80P(2)(d) of the Act. The assessee is thus directed to give the details of the interest earned from its members that is attributable to their business activity of providing credit facilities and the interest earned from other cooperative societies/banks as a result of investment made therein. 5.3. In view of the above discussions, we hold that, the assessee shall be entitled to deduction u/s 80P(2)(a)(i) in respect of income derived from its core activity of providing credit facilities to its members. Insofar as the interest income earned from surplus funds invested in banks, the same has to be considered under section 80P(2)(d) of the Act. Also hold that if there is any interest that is owned by the assessee from other than cooperative societies/bank, the said interest income shall be considered under the head income from other sources and relevant relief may be granted as available to the assessee under section 56/57 of the act in accordance with law. Printed from counselvise.com 6 I.T.A. No. 823/Mum/2026 5.4. The Ld. AO is directed to examine the nature of interest earned by the assessee and segregate the interest income attributable to business activity and surplus funds, and compute the deduction accordingly. Accordingly, the ground raised by the assessee is partly allowed for statistical purposes. In the result, the appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 26/03/2026 Sd/- Sd/- (BIJAYANANDA PRUSETH) (BEENA PILLAI) Accountant Member Judicial Member Mumbai Dated: 26/03/2026 SC Sr. P.S. Copy of the order forwarded to: (1)The Appellant (2) The Respondent (3) The CIT (4) The CIT (Appeals) (5) The DR, I.T.A.T. True Copy By order (Asstt. Registrar) ITAT, Mumbai Printed from counselvise.com "