ITAT Allows 80P Deduction as Interest Earned from Co-Op Banks Treated as Eligible Income

Jaimuni Sahkari Patpedhi Maryadit Vs Assessment Unit (ITAT Mumbai)

The ITAT Mumbai adjudicated appeals filed by a credit co-operative society against orders passed by the Commissioner of Income Tax (Appeals) for Assessment Years 2017–18, 2018–19, and 2020–21 involving a common issue relating to deduction under Section 80P. The assessee, registered under the Maharashtra Co-operative Societies Act, was engaged in providing credit facilities exclusively to its members and did not possess a banking licence nor was it registered under the Banking Regulation Act.

The assessee had declared nil income and claimed deductions under Section 80P(2)(a)(i) in respect of income from providing credit facilities and under Section 80P(2)(d) in respect of interest and dividend earned from investments in co-operative banks. The Assessing Officer disallowed the deductions, particularly the claim of ₹1.51 crore under Section 80P(2)(d), on the ground that such interest from co-operative banks was restricted under Section 80P(4).

On appeal, the CIT(A) partly allowed relief by deleting the disallowance relating to income from credit facilities but upheld the denial of deduction on interest earned from co-operative banks, holding that such income was not eligible under Section 80P(2)(d) due to the restriction in Section 80P(4).

Before the Tribunal, the assessee contended that the interest income was derived solely from investments in co-operative banks, which are themselves co-operative societies, and therefore eligible for deduction under Section 80P(2)(d). The assessee distinguished the judicial precedents relied upon by the CIT(A), arguing that those cases involved interest from both co-operative and nationalised banks, unlike the present case.

The Tribunal examined the issue and noted that Section 80P(2)(d) allows deduction in respect of interest earned by a co-operative society from another co-operative society. It relied on judicial precedents, including decisions of the Supreme Court and High Courts, which clarified that co-operative banks are to be treated as co-operative societies for the purpose of Section 80P. The Tribunal also observed that Section 80P(4) does not disentitle such deduction where the assessee itself is not a co-operative bank.

Further, it noted that consistent judicial views, including those of coordinate benches, supported the allowability of such deductions. Based on these principles, the Tribunal held that the interest earned from investments in co-operative banks qualifies for deduction under Section 80P(2)(d).

Accordingly, the Tribunal set aside the disallowance of ₹1.51 crore and allowed the appeals of the assessee. Since the facts in other years were identical, the same decision was applied to all appeals, which were allowed in favour of the assessee.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

The instant appeals of the assessee were filed against the order of theNational Faceless Appeal Centre, Delhi [for brevity, ‘Ld.CIT(A)’] passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’), for Assessment Year 2017-18,2018-19 and 2020-21 order passed on 29.11.2024 (AY 2017-18) and for rest of the assessment years 28/11/2024, respectively.The impugned orders were emanated from the order of the Ld. Income-tax Officer, Ward 4(2), Thane (for brevity the “AO”) for AY 2017-18, National e-Assessment Centre, Delhi, order passed under section 143(3) read with section 143(3A), 143(3B) of the act, date of order 31/03/2021 and order passed by Assessment Unit, Income-tax Departmentpassed under section143(3) read with section 144B of the Act, date of order02/09/2022.

2. All the appeals are having same nature of fact and have a common issue. So, all the appeals were taken together, heard together and are disposed of by this common order. ITA No. 334/Mum/2025 for A.Y. 2020-21 is taken as lead case.

ITA No.334/Mum/2025

2.1 The assessee has taken the following grounds of appeal:-

“1. The Assessing Officer failed to appreciate the fact that the Appellant is a Credit Co-operative Society and thereby erred in disallowing the deduction claimed by your Appellant under the provisions of Section 80 P(2) (a) (i) and 80(P) (2) (d) of the Income Tax Act 1961 being Interest earned by a Co-operative Housing Society from other Co-operative society of Rs. 1,51,30,293/-.

2. The Hon’ble Commissioner Appeals erred upon in misreading the provisions of Section 80 P (2) (a) (i) and 80(P) (2) (d) and applying the same in the context of your appellant, although being a Credit Co-operative Society which is unfair and bad in law.

3. The Hon’ble Commissioner Appeals failed to give proper opportunity through the Video Conferencing as requested by the Appellant in their submissions to explain the matters if required.

4. The appellant craves leave to add, alter, amend or modify any of the grounds of appeal at any time before the time of hearing and make the necessary submissions.”

3. The brief facts of the case are that the assessee is a co-operative society registered under Maharashtra State Cooperative Act, 1960. The assessee has been providing credit facilities to its members only. The society has neither obtained the banking licence from RBI nor registered under Banking Regulations Act, 1960. The assessee filed the return of income and the case was selected for complete scrutiny under CASS and the Ld.AO had completed the assessment with an addition under section 80P on pro-rata basis and made the addition amount to Rs.1,91,57,308/-. While filing the return, the assessee has claimed the returned income Nil, but in the return of income, the assessee claimed deduction under section 80P(2)(d) towards interest and dividend from co-operative banks amount to Rs.1,51,30,293.06 and under section 80P(2)(a)(i) being income of society from credit facilities amount to Rs.40,27,051/-. After framing the assessment order, the assessee challenged the impugned order before theLd.CIT(A). The Ld.CIT(A) has considered the appeal of the assessee and observed that the assessee inadvertently claimed deduction under section 80P(2)(a)(i) which should have been claimed under section 80P(2)(d) related to the interest and dividend from co-operative banks amount to Rs.1,51,30,293/-. The Ld. CIT(A) observed that the claim of deduction under section 80P(2)(d) is duly restricted under section 80P(4) and the interest from co-operative banks is not allowable deduction as per section 80P(4) of the Act. Considering this, the income of the society from credit facilities amount to Rs.40,27,051/- was duly deleted. But the interest and dividend from investment in co-operative banks claimed under section 80P(2)(d) amount to Rs.1,51,30,293/- is rejected and the addition was confirmed.Accordingly, appeal of the assessee was partly allowed. Being aggrieved on the observation of the Ld.CIT(A), the assessee filed an appeal before us.

4. The Ld.AR argued and placed that the issue is well settled related to deduction of interest earned from co-operative banks is a permissible deduction under section 80P(2)(d) of the Act. The Ld.AR stated that the assessee claimed the deduction of interest which is only related the co-operative bank. The Ld.DR invited our attention to the assessment order, page 3, which is reproduced as below:-

“i. Details of investment interest provision Detailed list of interest accrued on investment with banks are enclosed for your perusal. The interest is computed on Fixed Deposits done by Society with other Co-operative Societies.

ii. Details of investment interest actual received in bank Detailed list of interest received on investment with banks are enclosed for your perusal. The interest is computed on Fixed Deposits done by Society with other Co-operative Societies.

iii. Details of Bank interest

Detailed branch-wise list of Bank interest received from Saving Bank account amounting to Rs.1,07,659. This interest is computed on Saving Bank held by branches of the Society with other various Co-operative Societies for handling ay-to-day activities.

iv. Details of interest from non-members.

As mentioned earlier Assessee Society does not provide and loan to non-members. Hence there is no question of interest received from non-members.”

So, there is no dispute that the interest was earned from the Fixed Deposit done by the Society with other co-operative banks.

5. On the other hand, the Ld.DR vehemently argued and stated that in section 80P(4) is restricted to deduction of interest from co-operative banks under section 80P(2)(d) of the Act. Section 80P(4) does not permit the deduction of interest of co-operative banks. The Ld.DR fully relied on the orders of the revenue authorities.

6. We heard the rival submissions and considered the documents available on record. The only issue as agitated by the assessee society related to interest and dividend from co-operative banks which is claimed as deduction under section 80P(2)(d) of the Act.The Ld. CIT(A) in his order had referred the judgement of Hon’ble High Court of Gujarat in the matter of Katlary Kariyana Merchant Sahkari Sarafi Mandali Ltd v. ACIT [2022] 140 com 602 (Gujarat) wherein the deduction of 80P(2)(d) were not allowed to the appellant.The Ld. AR distinguished that inference drawn in the instant matter as compared to the matter relied upon by Ld.CIT(A) in pronouncement of his Order.In the matter of Katlary Kariyana Merchant Sahkari Sarafi Mandali Ltd (supra) the facts were that the Appellant had received interest income from both Co-operative Banks as well as Nationalised Bank and the same was claimed as deduction u/s 80P(2)(d).Whereas in the instant case, the assessee has received interest only from Co operative Banks. Section 80P(2)(d) provides for deduction of interest received by a Co-operative Society from another Co-operative Society. A Co-operative Society being a Co-operative Society fits into the permissible provisions of the deductions.Thus the case referred by the Ld. CIT(A) in his judgement is not applicable or relatable to the facts of the instant case.

The Ld. AR argued that the two judgements passed by same Hon’ble Gujarat High Court in which the Ld. CIT(A) had relied onare distinguishable pertaining to the claim of deduction u/s 80P(2)(d).

7. The Ld. AR respectfully relied on the order of Hon’ble Gujrat High Court inPCIT v. Ashwinkumar Arban Co Operative Society Ltd [2024] 168 taxmann.com 314 (Gujarat) wherein the high court has allowed the deduction claimed by the appellant u/s 80P(2)(d) taking into consideration the judgement passed by Hon’ble Apex Court in the case of Kerala State Cooperative Agricultural and Rural Development Bank Ltd v. Assessing Officer [2023] 154 taxmann.com 305/295 Taxman 675/458 ITR 384 (SC). The relevant extract is as follows-

“28. Having heard learned advocates for the respective parties and considering the controversy arising in these tax appeals, we are of the opinion that the controversy sought to be canvassed with regard to deduction under section 80P(2)(d) of the Act is no more res integra in view of the decision of this Court in case of Katlary Kariyana Merchant Sahkari Sarofi Mandali Ltd. (supra) as well as in case of State Bank of India (supra) wherein it was held that the deduction of under section 80P(2)(d) of the Act is available to the cooperative societies on the income earned as interest on the investment made with the cooperative bank which in turn, is a cooperative society itself

In the matter of PCIT v. Shree Madhi Vighag Khand Udyog Sahakari Mandli Ltd [2025] 171 tomann.com 22 (Gujarat), wherein it was held that the appellant being a cooperative society, earning interest on investment made with a cooperative bank and claiming deduction under section 80P(2)(d), deduction was to be allowed under section 80P(2)(d).

8. Further the Ld. AR respectfully relied on the order of the Hon’ble Supreme Court in PCIT Vs Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Limited, Civil Appeal No. 8719/2022 dated 20/04/2023 it is held that,

“……….. 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 Section 80(P)(2) of the Income Tax Act.”

The reliance was placed in the order of the Hon’ble Supreme Court in Kerala State Co-Operative Agricultural And Rural Development Bank Ltd. KSCARDB vs. Assessing Officer, [2023] 458 ITR 384 (SC), it has been held that,

“15.14…………

Conclusion:

In the instant case, although the appellant society is an apex cooperative society within the meaning of the State Act, 1984, it is not a co-operative bank within the meaning of Section 5(b) read with Section 56 of the BR Act, 1949.

In the result, the appeals filed by the appellant are allowed and the order(s) of the Kerala High Court and other authorities to the contrary are set aside. Consequently, we hold that the appellant is entitled to the benefit of deduction under Section 80P of the Act.”

8. The further reliance was placed on the following judgments of coordinate bench of ITAT which are as follows.

i. (2014) 44 com 123 (Panaji Trib.) Tarani Mahila Co-op Credit Society Ltd.

ii. (2014) 50 com 210 (Pune Trib) – MSEB Employees Co-op Cr Soc. Ltd

iii. (2014) 59 com 97 (Bang Trib) Bagalkot District State Govt. Employees Co-op Credit Soc. Ltd.

iv. (2014) 60 com 163 (Hyderabad Trib)-Metrocity Criminal Courts Employees Mutually Aided Co-op. Credit Society

v. (2014) 52 com 104 (Bang. Trib) Shree Laxmananda Multipurpose Co-op Soc. Ltd.

vi. ITA no.644/Mum/2017 (Assessment Year: 2013-14) Income Tax Officer Ward-20(2)(2), Mumbai vs M/s. Mazgaon Dock Employees Co. Op. Credit Society Ltd dated 27.06.2018

vii. LT.A. No. 3048/Mum/2016 (Assessment Year: 2012-13) ITO 20(2)(2) vs M/s Mazgaon Dock Employees Co-op. Credit Society Ltd. dated 28/02/2018

viii. ITA No.62/MUM/2024 Assessment Year 2017-18 & ITA No. 165/MUM/2024 Assessment Year: 2020-21-Income Tax Officer-28.3.1, Mumbai vs Vaibhav Co-op Credit Society dated 29.05.2024

9. In our considered view the issue is well settled by the order of the Hon’ble Supreme Court. The revenue has restricted the claim of deduction U/s 80P(2)(d) in pursuance of section 80P(4) of the Act and the cooperative bank is not considered as cooperative society. Respectful reliance was placed on the order of Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Limited(supra) and Kerala State Co-Operative Agricultural and Rural Development Bank Ltd. KSCARDB(supra) where the Hon’ble Apex Court categorically stated that cooperative bank is the cooperative society and not acted as Bank under Banking Regulation Act,1949.We note the orders of the coordinate benches of ITATwho have taken same view in favour of the assessee. So, the interest earned from investment in cooperative bank is allowable deduction U/s 80P(2)(d) of the Act. The addition amount to Rs. 1,51,30,293/- is quashed.

10. In the result, appeal of the assessee bearing ITA No.334/Mum/2025 is allowed.

ITAs No.332 & 333/Mum/2025 (A.Ys. 2017-18 &2018-19)

11. The facts and circumstances in the above appeals are identical to ITA No.334/Mum/2025, which we have already decided in favour of the assessee. Therefore, the decision arrived at above shall apply mutatis mutandis to these appeals also and the appeals of the assessee are allowed.

12. In the result, all the appeals filed by the assessee bearing ITA Nos.332, 333 & 334/Mum/2025 are allowed.

Order pronounced in the open court on 06^th day of March 2025.