Case Law Details
Nimdasbar S K U S Limited Vs ITO (ITAT Kolkata)
The ITAT Kolkata allowed the assessee’s appeals for AYs 2020-21 and 2018-19, holding that interest earned on surplus funds deposited with co-operative banks and scheduled banks by a credit co-operative society qualified for deduction under Section 80P(2)(a)(i) of the Income-tax Act, 1961.
The assessee, a credit co-operative society engaged in providing credit facilities to its members, filed its return claiming deduction under Section 80P(2)(a)(i) in respect of interest income of ₹92,82,955 earned from deposits and investments made with co-operative banks and commercial banks. During scrutiny, the Assessing Officer held that the interest on such deposits constituted income from other sources taxable under Section 56 and denied the deduction under Section 80P(2)(a)(i). The assessment was completed under Section 143(3) read with Section 144B, and the CIT(A) affirmed the disallowance.
The Tribunal observed that the assessee’s principal business was advancing credit facilities to its members and accepting deposits only from its members. It held that interest earned on surplus funds deposited with co-operative banks or scheduled banks could not be treated as income from other sources. The Tribunal found that the issue was squarely covered by the jurisdictional High Court’s decision in West Bengal State Co-operative Agriculture & Rural Development Bank Ltd. Vs. DCIT, which held that interest earned on deposits of surplus funds, where such funds were neither amounts due to members nor liabilities owed to members, was eligible for deduction under Section 80P(2)(a)(i). The Tribunal also noted the High Court’s reliance on decisions in Tumkur Merchants Souharda Credit Cooperative Ltd., Vavveru Co-operative Rural Bank Ltd., and Principal Commissioner of Income Tax vs. Gunja Samabay Krishi Unnayan Samity Ltd., while observing that the decision in Totgars Cooperative Sales Society Ltd. was not applicable to such facts.
The Tribunal further noted that, in the assessee’s own case for AY 2017-18, the Revenue had accepted the interest as business income and allowed deduction under Section 80P(2)(a)(i) in an assessment under Section 143(3). It also observed that for AY 2015-16, the CIT(A) had allowed the deduction and the Revenue had not challenged that order. Holding that the issue had attained finality and that the Revenue could not adopt a different stand on the same facts in the absence of any change in facts or circumstances, the Tribunal relied on the Supreme Court decision in Radhasoami Satsang vs. Commissioner of Income-tax.
Accordingly, the Tribunal set aside the order of the CIT(A), directed the Assessing Officer to allow the deduction under Section 80P(2)(a)(i), and allowed both appeals.
Recent Cases Discussed
- West Bengal State Co-operative Agriculture & Rural Development Bank Ltd. Vs. DCIT, ITAT/36/2025, IA No. GA/1/2025, order dated 06.08.2025
- Principal Commissioner of Income Tax vs. Gunja Samabay Krishi Unnayan Samity Ltd., [2023] 147 taxmann.com 518 (Cal)
FULL TEXT OF THE ORDER OF ITAT KOLKATA
These are appeals preferred by the assessee against the orders of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 26.06.2025 for the AYs2020-21, 2018-19.
ITA No. 1905/KOL/2025
2. The only issue raised by the assessee in the grounds of appeal is against the confirmation of action of the ld. AO in treating the interest income of ₹92,82,955/- received from the banks as income from other sources denying the benefit of deduction u/s 80P of the Act. The assessee has also challenged that the ld. CIT (A) ought to have considered the corresponding interest expenses, which are required to be allowed against the gross interest received from the banks.
3. The facts in brief are that the assessee is a credit co-operative society, engaged in the business of giving credit facility to its members and has filed the return of income on 09.10.2018, declaring the return of income as NIL, after claiming the deduction u/s 80P(2)(a)(i) of the Act amounting to ₹92,82,955/-. The case of the assessee was selected for scrutiny under Computer Assisted Scrutiny Selection (CASS) and the statutory notices along with questionnaire were duly issued and served upon the assessee. the ld. AO noted on the verification of details filed by the assessee that the assessee has made investment/ deposits in the co-operative banks/ commercial banks out of surplus funds of the society. Therefore, the interest of income arising from the deposits/ investment from the funds in the banks are in the nature of income from other sources taxable u/s 56 of the Act and cannot be characterized as income from business and profession. Therefore deduction u/s 80P of the Act is not available. Accordingly, a show cause notice was issued to the assessee. The assessee replied the same, however, the reply of the assessee did not find favour and the ld. AO rejected the claim of the assessee u/s 80P(2)(a)(i) of the Act and assessed the income of the assessee at ₹92,82,955/- in the assessment framed u/s 143(3) read with section 144B of the Act dated 21.04.2021.
4. In the appellate proceedings, the CIT (A) confirmed the order of the ld. AO and dismissed the appeal.
5. After hearing the rival contentions and perusing the materials available on record, we note that the assessee is a credit cooperative society engaged in the business of advancing money to its members. During the year the surplus funds of the society were deposited into the co-operative banks/ scheduled banks and the interest received on the said investments were shown as business income and deduction u/s 80P(2)(a)(i) Act was claimed. According to the ld. AO, the said income his not a business income but income from other sources and therefore, deduction u/s 80P of the Act was denied. In our opinion, the assessee is engaged in the business of advancing credit facilities to its members being a credit co-operative society and accepting the deposits from its members only. Therefore, the income derived from the surplus funds kept in the co-operative bank / Scheduled banks, cannot be treated as income from other sources. The case of the assessee is squarely covered by the decision of Hon’ble Jurisdictional High Court in case of the West Bengal State co-operative Agriculture & rural Development Bank Ltd. Vs. DCIT in ITAT/36/2025, IA No. GA/1/2025 vide order dated 06.08.2025, in which similar issue be decided in favor of the assessee, wherein it has held as under:-
“12. The facts of the case of the assessee before us is entirely different as the amount which was deposited in the bank was not an amount due to the members and it was not the liability of the society to the members and, therefore, the interest earned from such deposits in the bank should be held to be eligible for deduction under section 80P(2)(a)(i) of the Act. Yet again in Tumkur Merchants Souharda Credit Cooperative Ltd. vs. Income-tax Officer Word- V, Tumkur, [2015] 55 taxmann.com 447 (Karnataka) identical issue was considered and it was held that where Cooperative Society was engaged in the business of providing credit facilities to its members, they deposited excess amount for short term in banks, interest earned was entitled to be deducted under section 80P of the Act.
13. In Vavveru Co-operative Rural Bank Ltd. vs. Chief Commissioner of Income Tax (2017) 88 taxmann.com 728 (Telangana and Andhra Pradesh), the Hon’ble Division Bench was considering a writ petition challenging order of assessment passed under Section 143(3) of the Act and the question arose whether the denial by the Assessing Officer of the benefit of deduction under Section 80P(2)(a)(i) to the petitioner’s society therein, is correct or not. The Court considered the expression ‘attributable to’ and held that since the statute does 2025:CHC-OS:145-DB not use the expression ‘derived from’, but uses the expression ‘attributable to’, accepted the contention of the petitioner therein that clause (a) should receive a wider interpretation. It was pointed out that the decision of the Hon’ble Supreme Court in Vavveru Co-operative (supra) can be relied upon by the revenue in cases where the amount payable to the members was retained for a short duration and invested by the society, as a consequence of which the amount so retained would be a liability for the society. The facts of the case on hand is entirely different as was the case in Vavveru Co-operative Rural Bank Ltd. Furthermore, it was pointed out that in Tumkur Merchants Souharda Credit Cooperative Ltd.[supra], the said society was carrying on business activity other than marketing of agricultural produce actually resulted in net loss to the society and it appears that the assessee in Tumkur Merchants Souharda Credit Cooperative Ltd.[supra] was carrying on some of the activities listed in clause [a] along with other activities. Further, it was held that the investment made by the petitioner-Society [Vavveru Co-operative Rural Bank Ltd.] had invested those amount in fixed deposits in other Co-operative societies or in the construction of godown and warehouses, the department would have granted the benefit of deduction under clauses [d] or [e], as the case may be. Furthermore, the original source of investment made by the petitioner-Society in nationalised banks is admittedly the income of the petitioner derived from the activities listed in sub-clauses (i) to (vii) of clause [a] and the character of such income may not be lost, especially when the statue uses the expression ‘attributable to’ and not any one of the two expressions, namely ‘derived from’ or ‘directly attributable to’. In Principal Commissioner of Income Tax vs. Gunja Samabay 2025:CHC-OS:145-DB Krishi Unnayan Samity Ltd., [2023] 147 taxmann.com 518 [Cal], it was held that where the assessee/Co-operative Society earned interest income on surplus fund invested in deposits with banks and Government securities, since neither the said amount of deposit was due to its members nor was it a liability to its members, same would quality for deduction under section 80P(2)(a)(i).
14. Thus, the above decisions which have been referred to would clearly apply to the facts and circumstances of the assessee’s case and this will lead to the irresistible conclusion that the Assessing Officer, the CIT(A) as well as the Tribunal erred in not granting the deduction as claimed by the assessee under section 80P(2)(a)(i) of the Act and also erred in following the decision in Totgars Cooperative Sales Society Ltd. (supra) which is not applicable to the facts and circumstances of the case. Accordingly, the substantial questions of law (1), (2) and (3) are answered in favour of the appellant/assessee.”
5.1. We also note that the issue has been accepted by the Revenue in scrutiny proceedings for A.Y., 2017-18, which culminated u/s 143(3) of the Act and the said interest was treated as business income and deduction u/s 80P(2)(a)(i) of the Act, was accepted by the department. Similarly, in A.Y. 2015-16 the ld. AO disallowed deduction claimed by the assessee u/s u/s 80P(2)(a)(i), however, the ld. CIT (A) in the order passed u/s 250(6) of the Act dated 13.02.2025, allowed the appeal of the assessee and Revenue has not preferred any appeal against the said order. In our opinion, the issue has attained finality. Once a particular position has been accepted by the Revenue ,then the Revenue cannot be allowed to take a different stand on the same facts unless there is change in the facts and circumstances. The case of the assessee is covered by the decision of Hon’ble Apex Court in case of Radhasoami Satsang vs. Commissioner of Income-tax [1992] 60 Taxman 248 (SC)/[1992] 193 ITR 321 (SC)/[1991] 100 CTR 267 (SC)[15-11-1991]. Accordingly, we set aside the order of ld. CIT (A) and direct the ld. AO to allow the deduction u/s 80P(2)(a)(i) of the Act.
ITA No. 1906/KOL/2025
6. The issue raised in this appeal is similar to one as decided by us in ITA No. 1905/KOL/2025. Accordingly, our decision would, mutatis mutandis, apply to this appeal of assessee in ITA No. 1906/KOL/2025. Hence, the appeal of assessee in ITA No. 1906/KOL/2025 is allowed.
7. In the result, the appeals of the assessee are allowed.
Order pronounced on 25.06.2026.
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