Co-op Society eligible to Section 80P Deduction on Interest from Co-op Bank

Paisafund Gramin Bigar Sheti Sahakari Pat Sanstha Maryadit Vs ITO (ITAT Pune)

A cooperative society, registered under the Maharashtra Co-operative Societies Act, 1960, and engaged in providing credit facilities and accepting deposits from its members, has successfully appealed against a disallowance of deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961. The appeal, filed against an order by the National Faceless Appeal Centre (NFAC), Delhi, concerned the assessment year 2018-19.

The appellant had filed its income tax return declaring a ‘Nil’ income after claiming deductions of Rs. 27,45,026/- under Chapter VIA of the Act. The case was initially selected for ‘Limited Scrutiny’ and subsequently for ‘Complete Scrutiny’ under the E-assessment Scheme, 2019, and CASS, respectively. During the assessment, the Assessing Officer (AO) disallowed the claimed deduction under Section 80P(2)(a)(i), bringing to tax Rs. 27,45,026/- as interest income earned on fixed deposits with cooperative banks. The AO’s reasoning was that this interest income did not qualify for the deduction.

Aggrieved by the AO’s order, the society appealed to the NFAC, which dismissed the appeal in limine for non-prosecution. This led the cooperative society to file an appeal before the Income Tax Appellate Tribunal (ITAT).

The core issue before the ITAT was the eligibility of the cooperative society for exemption under Section 80P(2)(a)(i) or Section 80P(2)(d) of the Act concerning interest income earned from cooperative banks. The appellant’s representative argued that the issue was covered by numerous decisions from Pune Benches of the Tribunal, which had consistently allowed such deductions. The Senior Departmental Representative, however, relied on the orders of the lower authorities, contending that no interference was warranted.