Deduction Allowed as Interest from Co-operative Banks Qualifies under Section 80P

ITO Vs Ganesh Nagari Sahakari Pat Sanstha Maryadit (ITAT Pune)

ITAT Pune Upholds Section 80P Deduction on Interest from Co-operative Banks; Revenue Appeal Dismissed

The Pune Bench of the Income Tax Appellate Tribunal (ITAT) adjudicated cross appeals for AY 2018-19 involving a primary credit co-operative society. The Assessing Officer had denied deduction under section 80P(2)(d) on interest earned from deposits with co-operative banks and made other additions, which were partly deleted by the CIT(A).

On Revenue’s appeal, the ITAT held that co-operative banks are also co-operative societies, and therefore interest income earned by a credit co-operative society from investments with co-operative banks qualifies for deduction under section 80P(2)(d). The Tribunal relied on consistent coordinate bench decisions, the Bombay High Court ruling in Annasaheb Patil Mathadi Kamgar Sahkari Pathpedhi Ltd., and its affirmation by the Supreme Court, holding that section 80P(4) does not bar such deduction for credit co-operative societies which are not co-operative banks. Accordingly, the Revenue’s appeal was dismissed.

On the assessee’s cross-objection, the Tribunal held that disallowance of employees’ PF contribution under section 36(1)(va) merely enhanced business profits, which remained eligible for deduction under section 80P(2)(a)(i), following CBDT Circular No. 37/2016. The AO was directed to allow deduction on the enhanced profit. Other grounds were either not pressed or dismissed.

In result, the Revenue’s appeal was dismissed and the assessee’s cross-objection was partly allowed.

FULL TEXT OF THE ORDER OF ITAT PUNE