Malan Co-operative Agricultural Service Society Vs ITO (ITAT Chandigarh)
The appeal before the Income Tax Appellate Tribunal, Chandigarh Bench concerned the allowability of deduction under Section 80P(2)(a)(i) of the Income-tax Act, 1961, for Assessment Year 2022–23. The assessee, a co-operative agricultural service society registered in 1957, had claimed a deduction of ₹37,47,927 after declaring nil income. Its stated objects included encouraging thrift among members, accepting deposits, and providing short- and medium-term credit facilities for agricultural purposes.
During scrutiny, the Assessing Officer disallowed the entire deduction under Section 80P on the ground that the assessee failed to justify its eligibility. The CIT(A) affirmed this disallowance, relying heavily on the Supreme Court decision in Totgars’ Co-operative Sale Society Ltd., holding that interest earned on funds parked in fixed deposits with scheduled banks constituted income from other sources and was not operational income attributable to credit facilities.
The income profile of the assessee showed interest on loans to members of about ₹19.27 lakh, while interest from bank fixed deposits amounted to ₹1.50 crore. The CIT(A) observed that nearly 80% of the society’s funds were invested in fixed deposits with scheduled banks, whereas loans to members were only about ₹2 crore. On this basis, it was concluded that the predominant activity of the assessee was not providing credit facilities but earning interest from investments.
