Sant Savta Gramin Bigar Seti Sahakari Pathasanstha Maryadit Vs Assessment Unit (ITAT Pune)
Cash Belonging to Members Not Taxable in Society’s Hands; Bank Interest Also Eligible for Section 80P — ITAT Pune Allows Co-operative Society’s Appeal
The Pune SMC Bench of the ITAT allowed the appeals of Shree Sant Savta Gramin Bigar Seti Sahakari Pathasanstha Maryadit for AYs 2017-18 and 2018-19, granting full relief on both major issues—addition of demonetisation cash deposits and denial of deduction under section 80P on bank interest.
Key holdings of the Tribunal:
- Demonetisation cash deposits (₹60.32 lakh) deleted:
Although cash was deposited during the demonetisation period, the AO himself accepted that the cash belonged to members of the co-operative society. Once this factual position was admitted, the Tribunal held that no addition could be made in the hands of the society, as the money did not belong to it. Reliance was placed on the Pune ITAT decision in Bhagur Urban Credit Co-operative Society Ltd., and the addition made u/s 68 was ordered to be deleted. - Section 80P deduction on bank interest allowed:
Interest earned from State Bank of India and Bank of India was held to be eligible for deduction u/s 80P(2)(a)(i). The Tribunal distinguished Totgar’s and followed:- AP & Telangana HC in Vavveru Co-operative Rural Bank Ltd., and
- Kerala HC in Sahyadri Co-operative Credit Society Ltd. (2024),
holding that interest earned by depositing surplus funds (arising from credit-facility business) in permitted banks does not lose its character as business income attributable to the activity of providing credit facilities to members.
- Character of income unchanged:
Prudent deployment of surplus funds in banks, as permitted under co-operative laws, cannot convert business income into “income from other sources”. - Both years covered:
Since facts were identical, relief granted for AY 2017-18 was applied mutatis mutandis to AY 2018-19.
Accordingly, the ITAT allowed both appeals in full, deleting the demonetisation-related addition and directing the AO to grant deduction under section 80P on bank interest income.
FULL TEXT OF THE ORDER OF ITAT PUNE
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