THE EROOR SERVICE COOPERATIVE BANK LIMITED NO E859,EROOR V. INCOME TAX OFFICER, CORPORATE WARD 2(1), KOCHI

ITA 259/COCH/2025

AI Insights

The case involves the Eroor Service Co-op. Bank Ltd., which appealed against the order of the National Faceless Appeal Centre, Delhi, which had confirmed the assessment made by the ITO, Corporate Ward 2(1), Kochi. The assessment included interest income from cooperative banks and other institutions, which the assessee argued was eligible for deduction under section 80P of the Income Tax Act, 1961. The Tribunal examined whether the interest income earned from cooperative banks and other commercial banks was eligible for deduction under section 80P, referencing judgments from the Hon'ble Jurisdictional High Court which supported the assessee's position.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 669161 (ITAT-COCHIN)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2020-2021
• Other Referred Cases: PCIT v. Peroorkada Service Co-op. Bank Ltd. [2022] 442 ITR 141 (Ker), 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: LEENA LAL
• Assessee Lawyers: AMALJIT P.J.
• Keywords: Co-operative Credit Society
• Section: 143(3); 63

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH BEFORE SHRI INTURI RAMA RAO, AM AND SHRI PRAKASH CHAND YADAV, JM ITA No. 259/Coch/2025 Assessment Year: 2020-21 Eroor Service Co-op. Bank Ltd. .......... Appellant Eroor P.O., Thripunithura, Ernakulam 682306 [PAN: AACAT5303Q] vs. ITO, Corporate Ward 2(1), Kochi .......... Respondent Appellant by: Shri Amaljit P.J., CA Respondent by: Smt. Leena Lal, Sr. D.R. Date of Hearing: 26.05.2025 Date of Pronouncement: 24.06.2025 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 [CIT(A)] dated 03.02.2025 for Assessment Year (AY) 2020-21. 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 engaged in the business of accepting deposits from members and providing credit facilities to members. The return of income for AY 2020-21 was filed on 22.12.2020 declaring Nil 2 ITA No. 259/Coch/2025 Eroor Service Co-op. Bank Ltd. income after claiming deduction u/s. 80P of the Income Tax Act, 1961 (the Act). Against the said return of income, the assessment was completed by the ITO, Corporate Ward 2(1), Kochi (hereinafter called \"the AO\") vide order dated 09.09.2022 passed u/s. 143(3) r.w.s. 144B of the Act at a total income of Rs. 1,75,44,425/-. While doing so, the AO brought to tax interest income earned from co- operative banks and other institutions of Rs. 1,75,44,425/-. 3. Being aggrieved, an appeal was filed before the CIT(A), who vide the impugned order confirmed the action of the AO. 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. The issue that arises for our consideration is whether the interest income earned from co-operative banks of Rs. 1,75,44,425/- and Rs. 9,30.461/- being interest from other commercial bank eligible for deduction u/s. 80P of the Act. 6. The issue of interest income received from co-operative banks by a co-operative society is no longer res integra, as it is covered by the judgement of the Hon'ble Jurisdictional High court in the case of PCIT v. Peroorkada Service Co-op. Bank Ltd. [2022] 442 ITR 141 (Ker) 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 3 ITA No. 259/Coch/2025 Eroor Service Co-op. Bank Ltd. 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.” 7. With regard to the issue of eligibility of to interest income received from Treasury and scheduled banks is no longer res integra as it is covered by the judgement of the Hon'ble Jurisdictional High Court’s decision in the case of CIT vs. Sahyadri Co-operative Credit Society Ltd. in ITA No. 63 of 2019, wherein their Lordships have rejected the Revenue’s identical stand as under: - “12.2 Section 80P deals with Co-operative Societies' computation of income. As already noted, it has four sections and several sub-sections and clauses. The Parliament has considered the various situations in which the exigible income and the deductable income of the assessee is considered while computing the income of the assessee. For getting deduction, in our considered view, the assessee must also establish that the interest income earned by the assessee is from a Co-operative Society. As a matter of fact, in the case on hand, there is no dispute that it is not from a Co-operative Society 4 ITA No. 259/Coch/2025 Eroor Service Co-op. Bank Ltd. registered under Kerala Co-operative Societies Act. The interest income earned from District Co-operative Bank/State Co-operative Bank, in the facts and circumstances of the case, do come within Section 80P(2)(d). Therefore, the income constitutes income from other sources and the only eligible deduction is covered by Section 80P(2)(d) viz. Interest or dividend derived by the assessee from its investments with any other Co-operative Society. The source of interest income is from Bank and Treasury, interest income received from Treasury be included in the computation of total income of the assessee. In other words, interest earned from Treasury is inadmissible for deduction and interest income from Co-operative Societies registered under the Kerala Co-operative Societies Act are eligible for deduction. The contra consideration of Commissioner of Income Tax (Appeals) and the Tribunal is incorrect and liable to be modified as stated above. Hence, it is held that the interest income earned by the assessee does not come within the ambit of Section 80P(2)(a)(i) and permissible deduction of interest income is limited to Co-operative Societies/Banks registered under Kerala Co-operative Societies Act under clause (d) of the Act and effect order on the above lines is made by the Assessing Officer. The questions are accordingly answered.” 8. Respectfully following the above decisions of the Hon'ble Jurisdictional High Court, we hold that the assessee is entitled for deduction under section 80P(2)(d) of the Act on account of interest received from on investments made with the scheduled banks are and also eligible for deduction u/s. 80P(2)(1)(a) of the Act. 9. In the result, the appeal filed by the assessee stands allowed. Order pronounced in the open court on 24th June, 2025. Sd/- Sd/- (PRAKASH CHAND YADAV) JUDICIAL MEMBER (INTURI RAMA RAO) ACCOUNTANT MEMBER Cochin, Dated: 24th June, 2025 n.p. 5 ITA No. 259/Coch/2025 Eroor Service Co-op. Bank Ltd. Copy to: 1. The Appellant 2. The Respondent 3. The Pr. CIT concerned 4. The Sr. DR, ITAT, Cochin 5. Guard File By Order Assistant Registrar ITAT, Cochin "