Case Law Details
Ahmedabad Co-operative Department Stores Ltd. Vs DCIT (ITAT Ahmedabad)
The appeals before the Income Tax Appellate Tribunal Ahmedabad were filed by Ahmedabad Co-operative Department Stores Ltd. against orders passed by the Commissioner of Income Tax (Appeals), NFAC, Delhi for Assessment Years 2018-19 and 2020-21. The Tribunal dealt primarily with the issue of deduction under Section 80P(2)(d) of the Income-tax Act, 1961 in respect of interest income earned from deposits with co-operative banks and dividend income received from co-operative institutions.
The assessee, a co-operative departmental store, was engaged in running departmental and medical stores at Ahmedabad and Gandhinagar. It also operated an Indian Oil gas agency and acted as a collection centre for Torrent Power Ltd. For Assessment Year 2018-19, it filed its return declaring taxable income of ₹38,11,600 after claiming deduction under Section 80P amounting to ₹2,91,93,822.
The Assessing Officer completed assessment under Sections 143(3) read with 144B and made various additions, including disallowance of deduction under Section 80P in relation to interest income from fixed deposits with Gujarat State Co-operative Bank Ltd. and Ahmedabad District Co-operative Bank Ltd., as well as dividend income.
Before the Tribunal, the assessee relied upon the judgment of the Gujarat High Court in PCIT v. Ashwinkumar Arban Co-Operative Society Ltd. The Gujarat High Court had held that deduction under Section 80P(2)(d) is available to co-operative societies in respect of interest earned from investments made with co-operative banks because co-operative banks are themselves co-operative societies.
The High Court had further clarified that exclusion of co-operative banks from benefits under Section 80P by virtue of Section 80P(4) does not disentitle another co-operative society from claiming deduction under Section 80P(2)(d) on interest income earned from investments with such co-operative banks. The Tribunal reproduced substantial portions of the High Court judgment, including observations that the issue was no longer res integra and that decisions relied upon by the Revenue, including Totgars Cooperative Sale Society Ltd., did not alter the legal position.
After considering the submissions, the Tribunal observed that there was no change either in the factual position or in the governing legal principles. Respectfully following the binding judgment of the Gujarat High Court, the Tribunal held that co-operative banks qualify as co-operative societies for purposes of Section 80P(2)(d). Consequently, the assessee was held entitled to deduction in respect of interest income earned from deposits with co-operative banks.
The Tribunal also dealt with the assessee’s claim regarding dividend income received from co-operative institutions. It held that since the dividend income was derived from investments with co-operative societies, the same was also eligible for deduction under Section 80P(2)(d). Accordingly, the disallowance relating to dividend income was deleted.
Another issue related to addition made by the Assessing Officer on account of alleged discrepancy in reserve account. The Tribunal found that the addition had been sustained without proper appreciation of reconciliation and explanations furnished by the assessee. In absence of cogent material supporting the addition, the Tribunal held the addition to be unsustainable and directed deletion of the same.
Grounds relating to jurisdiction of the CIT(A) for enhancement and restriction of deduction under Section 80P(2)(c)(ii) were not pressed by the assessee and were accordingly dismissed as not pressed.
In conclusion, the Tribunal partly allowed both appeals filed by the assessee and granted deduction under Section 80P(2)(d) in respect of interest income from co-operative banks and dividend income from co-operative institutions while also deleting the addition made on account of reserve account discrepancy.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The captioned two appeals have been filed by the Assessee against the orders passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, vide orders dated 23.11.2023 & 05.12.2023, for the Assessment Years 2018-19 and 2020-21.
2. Since the issues involved in both the appeals are common and identical, we extract the grounds of appeal raised in ITA No.99/Ahd/2024 for Assessment Year 2018-19 for the purpose of adjudication. The decision rendered in the said appeal shall apply mutatis mutandis to the other appeal bearing ITA No. 100/Ahd/2024 for Assessment Year 2020-21.
3. The Assessee has taken the following ground of appeal:-
1. The Ld. CIT(A) has erred in law and on facts in wrongly exercising the power of enhancement of income u/s. 251(1) of the Act. In view of the facts and legal position of the case, the Ld. CIT(A) has no power of enhancement u/s. 251(1) of the Act, on the issues which were not subject of assessment and accordingly, the order passed by the Ld. CIT(A) relating to enhancement of income is required to be quashed on this ground.
2. The Ld. CIT(A) has erred in law and on facts while enhancing the income of the 2 assessee society by an amount of Rs. 1,99,29,661/- (Para No. 24(2) of the CIT(A) order), in respect of disallowance of deduction u/s. 80P of the Act, which has not been dealt with by the AO in the assessment order passed u/s. 143(3) of the Act as well as which was not subject matter of appeal as per the grounds of appeal filed before the Ld. CIT(A). In view of the legal position, the enhancement of income of Rs. 1,99,29,661/- made by the Ld. CIT(A) is required to deleted.
3. The Ld. CIT(A) has erred in law and on facts while confirming the disallowance made by the AO in respect of the interest income on Fixed Deposits (FD) of Rs. 50,98,219/-from Gujarat State Co-Op. Bank Ltd. and of Rs. 40,81,942/- from Ahmedabad District Co-Op. Bank Ltd. totalling to Rs. 91,80,161/- claimed u/s. 80P of the Act. In view of the fact that in assessee society’s own case for Asst. Year 2014-15, the then jurisdictional CIT(A) has allowed the deduction u/s. 80P of the Act in respect of the interest income on FD with same co-operative banks and there being no change in the facts and circumstances of the case for the AY under reference, the deduction u/s. 80P of the Act totalling to Rs. 91,80,161/- is required to be allowed.
4. The Ld. CIT(A) has erred in law and on facts while confirming the disallowance made by the AO in respect of the dividend income of Rs. 84,000/- claimed u/s. 80P of the Act. Under the facts and circumstances of the case and in law, the deduction u/s. 80P of the Act is required to be allowed in respect of the dividend income of Rs. 84,000/-
5. The Ld. CIT(A) has erred in law and on facts while allowing the deduction u/s. 80P of the Act only to the tune of Rs. 50,000/- while treating the assessee society as “Other society within the meaning of Sec. 80P(2)(c)(ii) of the Act. Under the facts and circumstance of the case, the assessee society is required to be allowed the deduction u/s. 80P of the Act for an amount of Rs. 2,91,93,822/- as claimed in the return of income filed.
6. The Ld. CIT(A) has erred in law and on facts while confirming the addition of Rs. 66,97,745/-made by the AO in respect of the alleged difference in the Reserve Account without proper consideration of the submission. In view of the fact of the case and the elaborate submission filed, the addition of Rs. 66,97,745/- made on account of alleged difference in the Reserves Account is required to be deleted.
4. At the time of hearing, the Ld. AR submitted that Ground Nos. 1 and 2, relating to the jurisdiction of the Ld. CIT(A) to enhance the income, and Ground No. 5 relating to restriction of deduction u/s 80P(2)(c)(ii), are not pressed. Accordingly, these grounds are dismissed as not pressed.
5. The facts of the case are that the assessee is a Co-operative Departmental Store having Departmental and Medical Stores at Ahmedabad and Gandhinagar. It is also engaged in activities such as running an Indian Oil gas agency and acting as a collection centre for Torrent Power Ltd. It filed its return of income for A.Y. 2018–19 declaring total net taxable income at Rs.38,11,600/-, after claiming deduction under section 80P of Act amounting to Rs.2,91,93,822/-. The case was selected for scrutiny under CASS and the assessment was completed under section 143(3) read with section 144B of the Act on 14.06.2021 determining total income at Rs.2,81,44,314/- by making various additions, including disallowance of deduction under section 80P in respect of certain income components.
6. Aggrieved by the order of the Assessing Officer, the assessee preferred an appeal before the Ld. CIT(A), who partly confirmed the additions and also restricted the deduction under section 80P of the Act.
7. Aggrieved by the order of the Ld. CIT(A), the assessee is now in appeal before the Tribunal.
8. Heard the arguments of both the parties and perused the material available on record.
Issue : Deduction u/s 80P in respect of Interest Income
9. The principal issue before us relates to the eligibility of deduction under section 80P(2)(d) of the Act in respect of interest income earned from deposits with co-operative banks. The Ld. AR submitted before us that this issue stands settled by the order of the Hon’ble jurisdictional High Court in the case of PCIT Vs. Ashwinkumar Arban Co-Operative Society Ltd, [2024] 168 taxmann.com 314 (Gujarat). For the sake of ready reference, snippets of the said order is reproduced below:-
“Section 80P, read with section 263 of the Income-tax Act, 1961 Deductions Income of co-operative societies (Interest from co- operative bank) Assessment year 2018-19-Principal Commissioner invoked revisional powers under section 263 on ground that Assessing Officer had allowed deduction on interest earned by assessee, a cooperative society, from investment made with a cooperative bank under section 80P(2)(d) which was erroneous and prejudicial to Interest of revenue Tribunal reversed Principal Commissioner’s order holding that cooperative bank was a cooperative society registered under Gujarat State Cooperative Societies Act and, therefore, interest earned by assessee from said bank was eligible for deduction under section 80P(2)(d) – Whether deduction under section 80P(2)(d) is available to cooperative societies on income earned as interest on investment made with cooperative bank which in turn, is a cooperative society itself – Held, yes – Whether exclusion of applicability of section 80P to cooperative banks by section 80P(4) would not disentitle assessee from claiming deduction under section 80P(2)(d) in absence of any amendment in said section – Held, yes – Whether thus, provisions of section 80P(2)(d) would be applicable to instant case and Principal Commissioner was not justified in invoking revisional powers under section 263 which was rightly reversed by Tribunal – Held, yes [In favour of assessee)
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- The controversy sought to be canvassed with regard to deduction under section 80P(2)(d) is no more res integra in view of the decision of this Court in case of Katlary Kariyana Merchant Sahkari Sarafi Mandali Ltd. v Asstt. Commissioner of Income Tax [2022] 140 com 602 (Guj.) as well as in case of State Bank of India v Commissioner of Income Tax (2018) 389 ITR 578 (Guj.) wherein it was held that the deduction under section 80P(2)(d) is available to the cooperative societies on the income earned as interest on the investment made with the cooperative bank which in turn, is a cooperative society itself. [Para 28]
- Reliance placed by the revenue on decisions of the Karnataka High Court in Totgars’ Cooperative Sale Society (2017) 395 ITR 611 and Supreme Court in case of Totgars Cooperative Sale Society Ltd v. Income Tax Officer 322 ITR 283 (S.C), the Karnataka High Court appears to have taken into consideration the amendment in section 194A(3)(v) wherein the cooperative bank is excluded from the applicability of tax to be deducted at source. However, it appears that the interpretation made by the Karnataka High Court to the effect that the cooperative banks have been excluded from the definition of the cooperative societies by Finance Act, 2015 by amending section 194A(3)(v) is concerned, on perusal of section 194A (3), it appears that it provides for exemption from deducting Tax Deducted at Source from the income on interest other than interest on securities as the cooperative societies other than cooperative banks meaning thereby that the cooperative banks are liable to deduct TDS from the interest other than interest on securities. Therefore it cannot be said that cooperative banks are excluded from the definition of cooperative societies by such an amendment. [Para 29]
- Moreover, as reliance placed on the aforesaid decision for applicability of section 80P(4) in the facts of the case is also not possible to accept as section 80P(4) would be applicable to the cooperative bank when the cooperative bank is liable to pay tax under the provisions of the Act and in such eventuality, the provision of section 80P would not be applicable as per the amendment of sub-section (4) of section 80P. Therefore, the exclusion of applicability of section 80P to cooperative banks by section 80P (4) would not disentitle the respondent-assessee from claiming deduction under section 80P(2)(d) in absence of any amendment in the said section and that would not be sufficient to deny the claim of the respondent-assessee for deduction of interest earned from investment made in a cooperative bank which is also a cooperative society from the total income. [Para 30]
- The Apex Court in case of Kerala State Co-operative Agricultural & Rural Development Bank Ltd. v. Assessing Officer in 458 ITR 184 while considering various provisions of the Banking Regulation Act read with provisions of the Income Tax Act has held that the provision of section 80P(4) would not be applicable to a cooperative bank which is not a bank as per the provisions of the Banking Regulation Act, 1949.[Para 31]
- In view of the above the provisions of section 80P(2)(d) would be applicable in the facts of the case and the Principal Commissioner was not justified in invoking revisional powers under section 263 which is rightly reversed by the Tribunal holding that the cooperative bank is a cooperative society registered under the Gujarat State Cooperative Societies Act and in view of the various decisions of the Court, the Tribunal after following the same has come to the conclusion that the assessment was not erroneous allowing deduction of section 80P(2)(d) which is in consonance with the various decisions of the Court as a twin condition invoking section 263 as to the assessment being erroneous and prejudicial to the interest of the revenue are not being fulfilled. [Para 33]
- In view of the foregoing reasons the question is answered in favour of the assessee and against the revenue. Tax Appeals being devoid of any merit are dismissed [Para 34].”
6.1 We have heard the rival submissions and perused the material available on record. The Hon’ble Gujarat High Court in the aforesaid decision has held that a co-operative bank, being a co-operative society, qualifies for the purposes of section 80P(2)(d), and therefore, interest income earned from such investments is eligible for deduction.
6.2 Since there is no change in the legal proposition and the factual matrix of the case, respectfully following the decision of the Hon’ble Jurisdictional High Court (supra), we hold that the assessee is entitled to deduction under section 80P(2)(d) in respect of interest income earned from co-operative banks and the ground raised by the assessee in this regard is hereby allowed.
Issue : Dividend Income
7. The assessee has also claimed deduction under section 80P of the Act in respect of dividend income received from co-operative institutions. Since such income is derived from investments with co-operative societies, the same is also eligible for deduction under section 80P(2)(d) of the Act. Accordingly, the disallowance of deduction on dividend income is deleted.
The appeal of the assessee on this ground is allowed.
Issue : Addition on Account of Reserve Account
8. The addition made by the Assessing Officer on account of alleged discrepancy in reserve account has been sustained without proper appreciation of the reconciliation and explanations furnished by the assessee. In the absence of any cogent material on record to substantiate the addition, the same is unsustainable. Accordingly, the addition is directed to be deleted.
The appeal of the assessee on this ground is thus allowed.
9. In the result, both the appeals filed by the assessee are partly allowed.
Order pronounced in Open Court on 15.05.2026
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