Shiroda Progressive Urban Multipurpose Cooperative Society Limited Vs ITO (ITAT Panaji)
Panaji ITAT Allows Section 80P Deduction on Interest from Scheduled & Commercial Banks: Bank Deposits of Credit Co-operative Society Are Attributable to Banking Business
The Panaji ITAT in The Shiroda Progressive Urban Multipurpose Cooperative Society Ltd. v. ITO held that a credit co-operative society is entitled to deduction under section 80P(2)(a)(i) on interest earned from deposits/investments with scheduled and commercial banks, where such investments are attributable to its banking/credit business.
The assessee, a co-operative credit society engaged mainly in banking activities, had claimed deductions aggregating ₹44.36 lakh under sections 80P(2)(a)(i) and 80P(2)(c). The AO, relying upon the Supreme Court decision in Totgar’s Co-operative Sale Society Ltd., treated ₹44.03 lakh of interest on FDRs with other banks as “income from other sources” and denied the section 80P deduction.
The CIT(A) granted partial relief by allowing section 80P(2)(d) deduction on interest received from other co-operative societies, but denied it in respect of interest from scheduled and commercial banks.
The Tribunal relied upon the Karnataka High Court ruling in Tumkur Merchants Souharda Credit Cooperative Ltd. and the recent Bangalore ITAT decision in Mysore University Employees Co-op Credit Society Ltd. It reiterated that where funds generated from the society’s credit business, which are not immediately required for lending, are temporarily deposited with banks, such deposits constitute part of the normal business activity rather than an independent investment activity. Consequently, the interest is attributable to the society’s business and qualifies under section 80P(2)(a)(i).
The ITAT expressly held that the assessee was entitled to section 80P(2)(a)(i) deduction on interest from investments with scheduled and commercial banks because the interest was attributable to its banking business. It also directed the AO to allow the separate ₹50,000 deduction under section 80P(2)(c).
Since the assessee succeeded on merits, its additional grounds challenging the validity of the section 143(2) notice were treated as infructuous. The appeal was allowed.
Cases Discussed:
- Mysore University Employees co-op Credit Society Ltd. vs. Income-tax Officer (Bangalore – Trib.), [2026] 185 com709 (Bangalore – Trib.)[15-04-2026]
- Marathwada Krishi Vidyapeeth Karmachari Sahkari Patsanstha vs. PCIT & others (ITAT), ITA No.102/PUN2020 & others order dated 21.12.2022
- Totgar’s Cooperative Sales Society Ltd. vs. ITO (SC), (2010) 322 ITR 283 (SC)
- Tumkur Merchants Souharda Credit Cooperative Ltd. vs. ITO (Karnataka High Court), (2015) 230 Taxman 309 (Kar.)
- Mantola Cooperative Thrift Credit Society Ltd. vs. CIT (Delhi High Court), (2014) 110 DTR 89 (Delhi)
- Sureshdada Jain Nagari Sahakari Patsanstha Maryadit Vs. The Pr.CIT (ITAT Pune), ITA No.713/PUN/2016
- Shri Laxmi Narayan Nagari Sahakari Pat Sanstha Maryadit Vs. ITO (ITAT Pune), ITA No.604/PN/2014
FULL TEXT OF THE ORDER OF ITAT PANAJI
This appeal filed by the assessee is directed against the order dated 26.06.2025 passed by Ld. CIT(A)/NFAC for the assessment year 2016-17.
2. The appellant has raised the following grounds of appeal, which also includes additional grounds of appeal :-
“1. The order of the learned Commissioner of Income Tax (appeals) is opposed to the facts of the case and the law.
2. The learned Commissioner of Income Tax (appeals) has erred in not directing The learned AO to allow the deduction u/s 80P(2)(a)(i) In the sum of ₹ 26,53,634/- being Profits and gains of business eligible for deduction u/s 80P(2)(a)(i) of the Income Tax Act, 1961.
3. In the alternative, The learned Commissioner of Income Tax (appeals) has erred, while allowing the deduction for interest earned from co-operative societies u/s 80P(2)(d), in not directing The learned AO to allow the deduction u/s 80P(2)(a)(i) in respect of the interest from other banks.
4. The learned Commissioner of Income Tax (appeals) has erred in not directing The learned AO to allow the deduction u/s 80P(2)(c) in the sum of ₹ 50000/-.
5. The learned Commissioner of Income Tax (appeals) has erred in not declaring the notice issued u/s 143(2) on 27/8/2018 as time barred, the return of income having been filed on 31/3/2017 and consequently in not declaring the assessment as null and void.
6. The learned Commissioner of Income Tax (appeals) has erred in not declaring the notice issued u/s 143(2) on 27/8/2018 as invalid, the same not being in accordance with the binding circulars issued by the CBDT and consequently in not declaring the assessment as null and void.
7. The appellant craves leave to add to, delete from or to modify the above grounds at the time of hearing.”
3. Facts of the case, in brief, are that the assessee is a cooperative credit society and mainly engaged in business of banking and has filed its return of income on 31.03.2017 by declaring income of Rs.1,32,480/- after claiming deduction u/s 80P(2)(a)(i) of Rs.43,86,325/- and u/s 80P(2)(c) of Rs.50,000/- which is amounting in all to Rs.44,36,325/-. After considering the reply and submissions of the assessee, the Assessing Officer by following judgement passed by Hon’ble Supreme Court in the case of Totgar’s Cooperative Sales Society Ltd. vs. ITO (2010) 322 ITR 283 (SC), disallowed the deduction u/s 80P(2)(a)(i) regarding interest income earned from investment with other banks and u/s 80P(2)(c) of the IT Act regarding other income of the society and vide order dated 26.12.2018 completed the assessment u/s 143(3) of the IT Act by determining income of the assessee at Rs.89,72,496/- as against income of Rs.1,32,480/- returned by the assessee. The above assessed income includes addition of Rs.44,03,695/- as income from other sources being interest on FDRs with other banks & disallowance of deduction of Rs.43,86,325/- claimed by the assessee u/s 80P2(a)(i) of the IT Act and disallowance of deduction of Rs.50,000/- u/s 80P(2)(c) of the IT Act.
4. Being aggrieved with the above assessment order, the assessee preferred an appeal before Ld. CIT(A)/NFAC. After considering the reply and submissions of the assessee, Ld. CIT(A)/NFAC partly allowed the appeal of the assessee and deleted the double addition of Rs.44,36,325/- (43,86,325 + 50,000) and directed the Assessing Officer to allow the deduction u/s 80P(2)(d) of the IT Act on interest income received from other cooperative societies, however, also directed the Assessing Officer not to allow deduction u/s 80P(2)(d) of the IT Act, regarding interest income earned from other scheduled and commercial banks.
5. It is the above order against which the assessee is in appeal before this Tribunal.
6. We have heard Ld. Counsels from both the sides and perused the material available on record including the paper book furnished by the assessee. In this regard, we find that it is the claim of the counsel of the assessee that the assessee credit cooperative society has invested its funds with other banks including nationalized and cooperative banks and since the investment is attributable to banking business the same deserves for deduction u/s 80P(2)(a)(i) as well as u/s 80P(2)(d) of the IT Act. In this regard, we find support from coordinate bench consolidate decision (pertaining to various credit cooperative societies) passed in the case of Marathwada Krishi Vidyapeeth Karmachari Sahkari Patsanstha vs. PCIT & others in ITA No.102/PUN2020 & others order dated 21.12.2022 wherein the Tribunal held that the assessee credit cooperative societies are entitled to claim deduction u/s 80P(2)(a)(i) and 80P(2)(d) of the IT Act with regard to interest income arising from its investment with nationalized banks by observing as under :-
“All the above appeals have been preferred by different assessees in relation to the A.Yrs.2014-15, 2017-18 & 2018-19 agitating the passing of the order by the ld. Principal Commissioner of Income-tax (PCIT) u/s.263 of the Income-tax Act, 1961 holding that the grant of deduction u/s.80P by the Assessing Officer (AO) in respect of interest income earned from other credit cooperative societies or Nationalised banks led to the passing of erroneous assessment orders prejudicial to the interest of the Revenue. Because of the commonness of the issue, we are proceeding to dispose of all the appeals by the consolidated order for the sake of convenience.
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4. Succinctly, the facts common in all these cases are that the assesses filed returns claiming deduction u/s.80P in respect of interest income which was allowed by the respective AOs. The ld. PCIT(s) invoked the jurisdiction u/s 263 of the Act and disputed the allowability of the claim of deduction u/s.80P(2)(a)(i) in some cases and under 80P(2)(d) in others, thereby holding the assessment orders to be erroneous and prejudicial to the interest of the Revenue. Aggrieved thereby, the assessees have approached the Tribunal.
5. We have heard the rival submissions and gone through the relevant material on record. It is seen that all the cases are based on the ld. PCIT(s)’ understanding that the allowing of the deduction by the AO(s) u/s 80P is contrary to law. Insofar as the allowability of deduction u/s.8P(2)(a)(i) is concerned, we find that the Pune Tribunal in Sureshdada Jain Nagari Sahakari Patsanstha Maryadit Vs. The Pr.CIT (ITA No.713/PUN/2016) has decided the question of availability of deduction u/s 80P on interest income by noticing that the Pune Bench in an earlier case of Shri Laxmi Narayan Nagari Sahakari Pat Sanstha Maryadit Vs. ITO (ITA No.604/PN/2014) has allowed similar deduction. In the said case, the Tribunal discussed the contrary views expressed by the Hon’ble Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO (2015) 230 Taxman 309 (Kar.) allowing deduction u/s. 80P on interest income and that of the Hon’ble Delhi High Court in Mantola Cooperative Thrift Credit Society Ltd. Vs. CIT (2014) 110 DTR 89 (Delhi) not allowing deduction u/s.80P on interest income earned from banks. Both the Hon’ble High Courts took into consideration the ratio laid down in the case of Totgar’s Cooperative Sale Society Ltd. (supra). No direct judgment from the Hon’ble jurisdictional High Court on the point having been pointed out, the Tribunal in Shri Laxmi Narayan Nagari Sahakari Pat Sanstha Maryadit (supra) preferred to go with the view in favour of the assessee by the Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra). The position continues to remain the same before this Tribunal also.
We thus hold that no exception can be taken to the granting of deduction on interest income by the AO u/s 80P(2)(a)(i) of the Act.
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7. In view of the foregoing, we hold that the impugned orders questioning the deduction u/s.80P(2)(a)(i)/80P(2)(d) in respect of interest income, cannot be sustained.
8. In the result, all the appeals are allowed.”
7. Apart from above decision, we also find support from another coordinate bench decision passed in the case of Mysore University Employees co-op Credit Society Ltd. vs. Income-tax Officer [2026] 185 taxmann.com709 (Bangalore – Trib.)[15-04-2026] wherein the Tribunal allowed the deduction u/s 80P(2)(a)(i) of the IT Act with regard to interest income earned from deposits with banks by observing as under :-
“11.7 Thus, under the constitutional scheme and the doctrine of judicial discipline, the decision of the Hon’ble jurisdictional High Court is binding on the Tribunal, while decisions of other Hon’ble High Courts carry persuasive value and may be followed in the absence of a contrary jurisdictional precedent. Hence in our considered view, while deciding the issue of deductibility of interest income from deposit of surplus/idle fund by the cooperative societies engaged in providing credit facilities, we are bound to follow the principles laid down in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra), unless material brought on record that the said principle/finding has been overruled by the Hon’ble Supreme Court or the larger bench of the Hon’ble Karnataka High Court or disturbed by the Hon’ble Karnataka High Court in subsequent case.
11.8 Coming to facts of the case on the hand, the assessee is engaged solely in the business of providing credit facilities to its members. The interest income of Rs. 6,25,661/- has been earned on deposits made out of funds arising from business operations, which were not immediately required for lending. Such deposits are part of normal business activity and cannot be treated as independent investment activity.
11.9 Before parting, it is equally important to note that in several earlier decisions, this Tribunal had taken a view that interest income earned by a co-operative society from deposits placed with banks would not qualify for deduction under section 80P(2)(a)(i) of the Act and the same was liable to be taxed under the head “Income from other sources”. Accordingly, the claim of deduction under section 80P(2)(a)(i) in respect of such interest income was rejected in those cases. However, the legal position now stands clarified by the judgment of the Hon’ble jurisdictional High Court of Karnataka in Tumkur Merchants Souharda Credit Cooperative Ltd. (supra), and other case laws as discussed in preceding paragraphs wherein it has been held that where a cooperative society, engaged in the business of providing credit facilities to its members, temporarily parks its surplus funds with banks, the interest earned therefrom is attributable to the business of the society and is therefore eligible for deduction under section 80P(2)(a)(i) of the Act.
12. Since the decision of the Hon’ble Jurisdictional High Court is binding on this Tribunal, judicial discipline requires that the same be followed. Therefore, to the extent of our earlier decisions where we have taken a contrary view, we respectfully depart from the earlier stand and follow the ratio laid down by the Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra). Accordingly, the issue is now decided in favour of the assessee by granting deduction under section 80P(2)(a)(i) of the Act in respect of the interest income in question. Hence, the ground of appeal of the assessee is allowed.
13. In the result, the appeal of assessee is hereby allowed.”
8. Respectfully following the above decision of coordinate bench of this Tribunal passed in the case of Marathwada Krishi Vidyapeeth Karmachari Sahkari Patsanstha vs. PCIT & others in ITA No.102/PUN2020 order dated 21.12.2022 and another coordinate bench decision passed in the case of Mysore University Employees co-op Credit Society Ltd. vs. Income-tax Officer [2026] 185 taxmann.com 709 (Bangalore – Trib.)[15-04-2026], we are of the considered opinion that the assesssee credit cooperative society is entitled to claim deduction u/s 80P(2)(a)(i) of the IT Act with regard to interest income earned from its investments with scheduled and commercial banks since the interest income is attributable to banking business. Therefore, in addition to relief already allowed by Ld. CIT(A) u/s 80P(2)(d) of the IT Act and regarding deletion of double addition, we also deem it appropriate to direct the Assessing Officer to allow the deduction u/s 80P(2)(a)(i) of the IT Act regarding interest income earned by the assessee credit cooperative society from its investments from scheduled/ commercial banks and further direct the Assessing Officer to allow deduction of Rs.50,000/- regarding other income of the credit cooperative society u/s 80P(2)(c) of the IT Act. Thus, the original grounds of appeal raised by the assessee are allowed.
9. Since the appeal of the assessee is allowed on grounds related to merits of the case, the additional ground raised by the assessee becomes infructuous, hence need not be adjudicated.
10. In the result, the appeal filed by the assessee is allowed.
Order pronounced on this 07thday of August, 2026.
