Kundapura Vyavasaya Seva Sahakari Sangha Vs ITO (ITAT Bangalore)
Bangalore ITAT Slams Denial of U/s 80P Deduction to Credit Co-operative Society – Interest on Bank Deposits Held Eligible U/s 80P(2)(a)(i), Ad-hoc Disallowance of Provisions Also Deleted
The Bangalore ITAT allowed the appeals of a primary agricultural credit co-operative society and held that interest earned on deposits kept with banks out of business funds/reserves is eligible for deduction u/s 80P(2)(a)(i) where the society is engaged in providing credit facilities to its members. The Tribunal noted that the assessee had never claimed deduction u/s 80P(2)(d) and therefore the Revenue wrongly relied upon the Karnataka High Court ruling in Totagars. Instead, the case was squarely covered by the Karnataka High Court decision in Tumkur Merchants Souharda Credit Cooperative Ltd., which held that temporary parking of surplus funds in banks does not change the character of business income.
The AO had treated interest income from scheduled/co-operative banks as “Income from Other Sources” and denied deduction u/s 80P while also making disallowances towards excess interest provision and other expense provisions on the allegation that the assessee followed a hybrid accounting system. However, the Tribunal found that the provisions were made on an accrual basis following a scientific method linked to outstanding member loans, and hence could not be disallowed merely on assumptions and conjectures.
The ITAT observed that there was no evidence brought by the department to show that the interest income was taxable under the head “Income from Other Sources”. Since the funds represented business reserves not immediately required for lending to members, interest earned therefrom remained attributable to the business of providing credit facilities to members and qualified for deduction u/s 80P(2)(a)(i). The Tribunal accordingly directed deletion of the disallowances and allowed the deduction claimed by the assessee for all three assessment years.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
1. ITA Nos. 1798-1800/Bang/2025 for Assessment Year 2017-18, 2018-19 & 2020-21 are filed by M/s. Kundapura Vyavasaya Seva Sahakari Sangha [ The Assessee/ Appellant] against the Appellate Order passed by the National Faceless Appeal Centre (NFAC), Delhi [ the Ld. CIT (A) ] dated 20.06.2025 by separate orders for all these assessment years wherein the Appeals of the Assessee were dismissed.
