Harsiddhi Co. Op. Credit Society Ltd. Vs ACIT (ITAT Ahmedabad)
Summary: The Ahmedabad Bench of the Income Tax Appellate Tribunal held that interest income of ₹45,31,057 earned by a co-operative society from fixed deposits maintained with three co-operative banks was eligible for deduction under Section 80P(2)(d) of the Income Tax Act, 1961. Following the Gujarat High Court’s decision in PCIT-1 v. Ashwinkumar Arban Co-operative Society Limited, the Tribunal rejected the Assessing Officer’s view that the deduction was unavailable merely because the interest was received from co-operative banks rather than other co-operative societies. The Assessing Officer was directed to allow deduction on the entire fixed deposit interest assessed as income from other sources.
Background of the assessment: The assessee, a co-operative society, filed its return of income for Assessment Year 2020-21 on 29 December 2020, declaring nil income. It claimed deductions of ₹23,99,554 under Section 80P(2)(a)(i) and ₹10,58,405 under Section 80P(2)(d). The assessment was completed under Section 143(3) read with Section 144B at a total income of ₹45,31,057. The Assessing Officer treated the entire interest earned on fixed deposits as income from other sources and denied the deduction claimed under Section 80P(2)(d).
Appeal and recall proceedings: The assessee challenged the assessment before the National Faceless Appeal Centre, which dismissed the appeal through an order dated 13 August 2024. The Tribunal initially decided the appeal on 27 March 2025. Subsequently, the assessee filed Miscellaneous Application No. 54/Ahd/2025, contending that its principal ground had mistakenly been treated as general and dismissed. By an order dated 12 August 2025, the Tribunal recalled its earlier decision because the principal ground and the dependent grounds required adjudication.
Assessee’s submissions: The assessee explained that it had earned ₹45,31,057 as interest on fixed deposits and claimed ₹34,72,602 as expenditure incurred for earning that income. The balance of ₹10,58,455 was offered as income from other sources, against which deduction under Section 80P(2)(d) was claimed. The assessee argued that the Assessing Officer had wrongly taxed the entire gross interest without allowing the expenditure or the statutory deduction. Reliance was placed on the Gujarat High Court’s decision in PCIT-1 v. Ashwinkumar Arban Co-operative Society Limited, R/Tax Appeal No. 538 of 2024.
Revenue’s submissions: The Departmental Representative supported the orders of the lower authorities, including the denial of deduction on interest received from co-operative banks.
Tribunal’s findings: The Tribunal observed that the Assessing Officer had denied the deduction on the premise that Section 80P(2)(d) applied only to interest received from a co-operative society and not from a bank. However, the Gujarat High Court had held that a co-operative bank registered under the Gujarat State Co-operative Societies Act is itself a co-operative society for the purposes of the deduction. Accordingly, interest derived from such co-operative banks was eligible for deduction under Section 80P(2)(d).
Deduction on entire fixed deposit interest: On examining the details in the paper book, the Tribunal found that the entire interest of ₹45,31,057 had been received from three co-operative banks. Consequently, the assessee was entitled to deduction under Section 80P(2)(d) on the entire interest amount, rather than only the net interest of ₹10,58,455 originally claimed. The Assessing Officer was directed to allow the deduction on the full amount.
Disposal of remaining grounds: Since the Tribunal allowed the principal ground concerning deduction of the entire fixed deposit interest, the alternative grounds relating to expenditure of ₹34,72,602 and deduction of ₹10,58,455 became infructuous and were dismissed. The remaining grounds concerning set-off, interest under Sections 234A to 234D and initiation of penalty under Section 270A were dismissed as consequential.
Final outcome: The assessee’s appeal was partly allowed. The Assessing Officer was directed to allow deduction under Section 80P(2)(d) on the entire fixed deposit interest of ₹45,31,057 received from three co-operative banks.
Cases Discussed
1. PCIT-1 v. Ashwinkumar Arban Co-operative Society Limited (Gujarat High Court), R/Tax Appeal No. 538 of 2024 — Relied upon for the proposition that a co-operative bank registered under the Gujarat State Co-operative Societies Act qualifies as a co-operative society, making interest earned from deposits with such banks eligible for deduction under Section 80P(2)(d) of the Income Tax Act, 1961.
FULL TEXT OF THE ORDER
This appeal is filed by the assessee against the order of the National Faceless Appeal Centre (NFAC), Delhi (in short “the CIT(A)”) dated 13.08.2024 for the Assessment Year (A.Y.) 2020-21 in the proceedings under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
2. The appeal was earlier heard and adjudicated vide order dated 27.03.2025. The assessee had filed a Miscellaneous Application No.54/Ahd/2025 (In ITA No.1765/Ahd/2024) which was decided on 12.08.2025 whereby the order dated 27.03.2025 was recalled for the reason that ground no.1 taken by the assessee in the appeal was mistakenly recorded as general in nature and dismissed. It was also ordered that the subsequent grounds are on the basis of ground no.1 and those grounds also require verification.
3. The brief facts of the case are that the assessee had filed its return of income for the A.Y. 2020-21 on 29.12.2020 declaring total income of Rs. Nil. The assessee is a Co-operative Society and had claimed deduction of Rs.23,99,554/- under Section 80P(2) (a)(i) of the Act and deduction of Rs.10,58,405/- under Section 80P(2)(d) of the Act. The assessment was completed under Section 143(3) r.w.s. 144B of the Act at a total income of Rs.45,31,057/-. The Assessing Officer had treated the entire interest income on FDR of Rs.45,31,057/- as income from other sources and also disallowed the claim of deduction under Section 80P(2)(d) of the Act thereon.
4. Aggrieved with the order of the Assessing Officer, the assessee had filed an appeal before the First Appellate Authority which was adjudicated vide the impugned order and the appeal of the assessee was dismissed.
5. The assessee has raised the following grounds in this appeal: –
“1. Ld. CIT(A) has erred in law and on the facts of the case in not allowing the deduction amounting to Rs.45,31,057/- being the interest earned from Co-Operative Banks us 80P(2)(d).
2. Ld. CIT(A) has erred in law and on facts of the case in disallowing expenditure amounting to Rs.34,72,602/- being the expenditure incurred for the purpose of earning interest income.
3. Alternatively and without prejudice to the above LD. CIT(A) has erred in law and on facts of the case in confirming the action of learned AO in disallowing deduction u/s 80P(2)(d) amounting to Rs.10,58,455/-.
4. Alternatively and without prejudice to the above, learned CIT(A) ought to have granted the benefit of set off under S.70 or 71 of the Act.
5. Learned CIT(A) has erred in law and on the facts in confirming the action of AO in charging interest u/s. 234A/B/C/D.
6. Learned CIT(A) has erred in law and on the facts in confirming the action of AO in initiating penalty u/s.270A of the Act which is wholly unsustainable in law and on facts of the case.”
6. Shri Mohit Balani, Ld. AR of the assessee explained that the assessee had earned interest of Rs.45,31,057/- on FDRs and the expenses incurred for earning income being 76.46% amounting to Rs.34,72,602/- was claimed as deduction. The balance amount of Rs.10,58,455/- was considered as income from other sources which was claimed as deduction under Section 80P(2)(d) of the Act. He submitted that the Assessing Officer was not correct in treating the entire FDR interest of Rs.45,31,057/- as income from other sources without allowing any deduction for expenses as claimed and also denying the deduction under Section 80P(2)(d) of the Act. He submitted that the issue of deduction under Section 80P(2)(d) of the Act is covered by the decision of the Hon’ble Gujarat High Court in the case of PCIT-1 vs. Ashwinkumar Arban Co-operative Society Limited in R/Tax Appeal no.538 of 2024.
7. Per contra, Shri Suresh Chand Meena, the Ld. Sr. DR supported the order of the lower authorities on this issue.
8. We have considered the submissions of the assessee and the materials available on record. The assessee had claimed deduction of Rs.10,58,455/- under Section 80P(2)(d) of the Act. This was after reducing 76.64% of expense from FDR interest of Rs.45,31,057/-. The Assessing Officer had disallowed the claim of deduction for the reason that the said deduction was limited only to interest received from Co- operative Society and not from Bank. The Hon’ble Gujarat High Court in the case of Ashwinkumar Arban Co-operative Society Limited (supra) has held that the Co-operative Bank is a Co-operative Society registered under Gujarat State Co-operative Societies Act and accordingly deduction under Section 80P(2)(d) of the Act was admissible to the interest derived from Co-operative Banks. Therefore, the Assessing Officer was not correct in denying the deduction under Section 80P(2)(d) of the Act in respect of interest income received from other Co-operative Banks. From the details available in the paper-book, it is found that the entire FDR interest of Rs.45,31,057/- was received from three Co-operative Banks only. Therefore, the assessee was entitled for deduction u/s 80P(2)(d) in respect of the entire FD interest of Rs.45,31,057/-, which was assessed as income from other sources by the Assessing Officer. Accordingly, the Assessing Officer is directed to allow deduction under Section 80P(2)(d) of the Act in respect of entire FDR interest of Rs.45,31,057/- received from three Co-operative banks. Accordingly, the ground taken by the assessee is allowed.
9. Ground nos.2 & 3 are alternative grounds taken by the assessee and have become infructuous considering the fact that the ground no.1 has been allowed whereby the entire FDR interest of Rs.45,31,057/- is held as admissible for deduction under Section 80P(2)(d) of the Act. Therefore, ground nos.2 & 3 as taken by the assessee, are dismissed.
10. Ground nos.4, 5 & 6 being consequential grounds, are dismissed.
11. In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open Court on this 17th September, 2025.
