Panaji ITAT Allows 80P Deduction on Enhanced Business Income

Gokul Urban Co-op. Credit Society Limited Vs ACIT (ITAT Panaji)

Panaji ITAT: Credit Co-operative Society Entitled to Section 80P Deduction Even on Enhanced Business Income Arising From Disallowed Provisions

Summary: The assessee, a credit co-operative society engaged in accepting deposits from and providing credit facilities to its members, filed five appeals concerning Assessment Years 2013-14, 2014-15 and 2016-17 to 2018-19. In the lead appeal for AY 2013-14, the assessment was reopened under sections 147 and 148 after information regarding cash deposits of ₹3,94,45,000 and other credits of ₹7,45,000. The assessee returned nil income after claiming deduction of ₹48,24,658 under section 80P(2)(a)(i). The Assessing Officer added ₹1,86,71,000, representing provisions debited under various heads, and denied section 80P deduction on the resultant income. The CIT(A)/NFAC dismissed the appeal.

The Tribunal held that the assessee, being a credit co-operative society providing credit facilities to its members, was entitled to deduction under section 80P(2)(a)(i) on income attributable to its banking business. It distinguished Totgars Cooperative Sale Society Ltd. vs. ITO on the basis that the assessee in that case was engaged in marketing agricultural produce of its members, whereas the present assessee was engaged in providing credit facilities. The Tribunal also relied upon the decisions in Marathwada Krishi Vidyapeeth Karmachari Sahkari Patsanstha vs. PCIT & others and Mysore University Employees Co-op Credit Society Ltd. vs. Income-tax Officer concerning interest income and section 80P deductions.

On the enhanced income issue, the Tribunal relied upon CBDT Circular No. 37/2016 dated 02.11.2016, under which Chapter VI-A deduction is admissible on enhanced profits where the disallowance relates to the business activity against which the deduction is claimed. Since the ₹1,86,71,000 added back as provisions resulted in enhanced income attributable to the assessee’s credit business, the Tribunal held that the assessee was entitled to section 80P(2)(a)(i) deduction on that enhanced income and directed the Assessing Officer to allow the deduction of ₹1,86,71,000. However, it clarified that the assessee was not entitled to a refund of income tax and interest deposited under the IDS 2016 Scheme. The appeal for AY 2013-14 and the remaining four appeals were accordingly allowed.

The assessee, a credit co-operative society engaged in accepting deposits and providing credit facilities to its members, claimed deduction under Section 80P(2)(a)(i). For AY 2013-14, the Assessing Officer added ₹1.86 crore, representing provisions debited under different heads, and denied Section 80P deduction on the enhanced income. The assessee had separately disclosed certain income and paid tax under the Income Declaration Scheme, 2016.

The Panaji ITAT held that a primary credit co-operative society engaged in providing credit facilities to its members is entitled to deduction under Section 80P(2)(a)(i) on income attributable to such business. The decision in Totgars Co-operative Sale Society Ltd. was distinguishable because that assessee was engaged in marketing its members’ agricultural produce, whereas the present assessee was carrying on the business of providing credit facilities.

The Tribunal further held that interest earned by a credit co-operative society from temporary deployment of business funds with banks remains attributable to its business and qualifies for deduction under Section 80P(2)(a)(i). Interest from deposits with co-operative banks is also eligible under Section 80P(2)(d).

Relying on CBDT Circular No. 37/2016 dated 2 November 2016, the Tribunal observed that Chapter VI-A deduction must also be allowed on enhanced business income resulting from additions or disallowances. Since the provisions added back by the AO retained the character of income attributable to the assessee’s credit business, the enhanced income was eligible for Section 80P deduction.

Accordingly, the Tribunal directed the AO to allow deduction of ₹1.86 crore under Section 80P(2)(a)(i). However, it clarified that the assessee was not entitled to a refund of tax and interest paid under IDS 2016. All five appeals were allowed.

List of Cases Discussed / Relied Upon

• The Mavilayi Service Co-operative Bank Ltd. & Ors. Vs. CIT, Civil Appeal Nos. 7343-7350 of 2019 — considered on the applicability of section 80P(4) and eligibility of primary credit co-operative societies for section 80P(2)(a)(i).
• Totgars Cooperative Sale Society Ltd. vs. ITO, [2010] 188 Taxman 282 (SC) — distinguished because the assessee was engaged in providing credit facilities rather than marketing agricultural produce of its members.
• The Quepem Urban Co-operative Credit Society Ltd. Vs. ACIT, (2015) 377 ITR 272 (Bombay High Court at Goa) — relied upon in the assessee’s grounds concerning eligibility of a credit co-operative society for section 80P(2)(a)(i).
• GKN Drive Shafts (India) Ltd. vs. ITO, Supreme Court — cited by the assessee regarding disposal of objections to reassessment proceedings.
• Marathwada Krishi Vidyapeeth Karmachari Sahkari Patsanstha vs. PCIT & others, ITA No.102/PUN/2020 & others, order dated 21.12.2022 — relied upon concerning section 80P(2)(a)(i) and 80P(2)(d) deductions on interest income.
• Mysore University Employees Co-op Credit Society Ltd. vs. Income-tax Officer, [2026] 185 taxmann.com 709 (Bangalore – Trib.), order dated 15.04.2026 — relied upon concerning section 80P(2)(a)(i) deduction on interest from bank deposits of business funds.
• Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO, (2015) 230 Taxman 309 (Karnataka) — considered for the proposition concerning interest attributable to the business of a credit co-operative society.
• Sureshdada Jain Nagari Sahakari Patsanstha Maryadit Vs. The Pr.CIT, ITA No.713/PUN/2016, order dated 09.04.2019 — referred to regarding availability of section 80P deduction on interest income.
• Shri Laxmi Narayan Nagari Sahakari Pat Sanstha Maryadit Vs. ITO, ITA No.604/PN/2014, order dated 19.08.2015 — considered in relation to the view favouring section 80P deduction on interest income.
• Sant Motiram Maharaj Patsanstha Ltd. vs. ITO, 120 taxmann.com 10 — considered the divergent views concerning section 80P deduction on bank interest, including Tumkur Merchants, Mantola and Totgars.
• Mantola Cooperative Thrift Credit Society Ltd. Vs. CIT, (2014) 110 DTR 89 (Delhi) — cited as the contrary High Court view on section 80P deduction for interest income earned from banks.
• Income-tax Officer – Ward 5(1) vs. Keval Construction, Tax Appeal No.443 of 2012, dated 10.12.2012 (Gujarat High Court) — cited in CBDT Circular No.37/2016 concerning Chapter VI-A deduction on enhanced profits resulting from disallowance.
• Commissioner of Income-tax-IV, Nagpur vs. Sunil Vishwambharnath Tiwari, IT Appeal No.2 of 2011, dated 11.09.2015 (Bombay High Court) — cited in CBDT Circular No.37/2016 on deduction under Chapter VI-A on enhanced profits.
• Principal CIT, Kanpur vs. Surya Merchants Ltd., I.T. Appeal No.248 of 2015, dated 03.05.2016 (Allahabad High Court) — cited in CBDT Circular No.37/2016 concerning deduction on enhanced profits after disallowance under section 40A(3).

FULL TEXT OF THE ORDER OF ITAT PANAJI

These appeals filed by the assessee are directed against the separate orders dated 13.12.2022 passed by Ld. CIT(A)/NFAC for the assessment years 2013-14, 2014-15, 2016-17 to 2018-19 respectively.

2. Since identical facts and common issues are involved in all the above captioned five appeals of the assessee, therefore, we proceed to dispose of the same by this common order.

3. First, we shall take up the appeal of the assessee in ITA No.31/PAN/2023 for A.Y. 2013-14 for adjudication as the lead case.

ITA No.31/PAN/2023, A.Y. 2013-14:

4. The appellant has raised the following grounds of appeal:-

“1) GROUND 1

The learned Assessing Officer had erred in passing the order in the manner passed by him and the learned CIT (Appeals) of the National Faceless Appeal Centre erred in confirming the same and both the orders are against the facts of the case and the prevailing legal position.

2) GROUND 2

In any case, the objections raised by the appellant for reasons recorded were not disposed off by passing a speaking order which makes the entire reassessment proceedings bad in law and such order is liable to be quashed. The learned assessing officer did not pass any order on the objections of the appellant nor did the learned CIT (Appeals) consider the issue in correct perspective and in the light of the decision of the honourable Supreme Court in the case of GKN Drive Shafts.

3) GROUND 3

The learned assessing officer erred in disallowing the claim of deduction u/s 80P (2) (a) (i) of the appellant and the learned CIT (Appeals) of the National Faceless Appeals Centre erred in confirming the same despite being bound by the latest decision of the jurisdictional Bombay High Court in the case of Quepem Urban Co-operative Credit Society Ltd.

4) GROUND 4

The learned assessing officer erred in denying the claim of deduction u/s 80P (2) (a) (i) of the appellants on the sole ground that the appellants have themselves disallowed the claim while filing declaration under the Income Declaration Scheme 2016 which was wrongly confirmed by learned CIT (Appeals). The appellant had not claimed deduction u/s 80P (2) (a) (i) based on then prevailing uncertain legal position in 2016, now that the legal positions has well settled, the appellants are entitled to deduction u/s 80P (2) (a) (i) it ought to have been allowed by the learned assessing officer and learned CIT (Appeals)

5) GROUND 5

The learned assessing officer erred in disallowing the claim of deduction u/s 80 (P) (2) (a) (i)/ 80P (2) (d) in respect of interest earned from deposits with all banks/Co-operative banks and the learned CIT (Appeals) erred in confirming the same although the claim of deduction of the appellant is based on the decisions of the jurisdictional honourable ITAT Panaji which decision is binding on the learned assessing officer and the learned CIT (Appeals).

6) GROUND 6

Without prejudice to the above, the learned CIT(Appeals) erred in not considering submissions of the appellant that the appellant is entitled to deduction u/s 57 of the Income Tax Act in respect of the cost incurred towards earning the interest on deposits with banks which has been assessed u/s 56 of the income Tax Act.

7) GROUND 7

In any case, without prejudice, the authorities below have erred is not accepting the income as returned in response to notice u/s 148 of the Income Tax Act 1961 and erred in making/confirming the disallowances. The action of the authorities below being contrary to facts and law is to be negated and income as returned by the appellant is to be accepted.

8) GROUND 8

The appellant prays for leave to add, amend, alter or withdraw any of the above grounds of appeal at the time of hearing.

9) GROUND 9

The appellant also denies liability to pay interest levied under various sections, the interest having been levied erroneously needs to be deleted.

10) GROUND 10

In view of the above and on other grounds and arguments to be adduced at the time of hearing, it is prayed that the impugned order be quashed, deduction u/s 80P(2) (a)(i) be allowed to the appellant on entire income, the addition made under sec 56 in respect bank interest on deposits, disallowance of deduction u/s 80P (2) (a) (i) be deleted and the deduction u/s 80P (2) (d) on interest from co-operative banks on deposits be allowed and alternatively deduction u/s 57 towards cost for earing interest on deposits be allowed interest levied under various sections be deleted.”

5. Facts of the case, in brief, are that the assessee is a credit cooperative society engaged in the activities of providing credit facilities to its members and also accepting deposits from them and has not furnished its return of income for the year under consideration u/s 139(1) of the IT Act. On the basis of information that the assessee has deposited an amount of Rs.3,94,45,000/- and other credits of Rs.7,45,000/- totalling to Rs.4,01,90,000/- in its bank account and has not disclosed sources of above cash deposit by filing return of income u/s 139 of the IT Act, there was reasons to believe that the income has escaped assessment, therefore, the case of the assessee was reopened u/s 147 of the IT Act and notice u/s 148 of the IT Act was issued on 31.03.2021. The assessee furnished return in response to above notice on 22.08.2021 declaring total income at Rs.Nil after claiming deduction of Rs.48,24,658/- u/s 80P(2) (a)(i) of the IT Act. During the course of assessment proceedings, from the reply of the assessee it was observed by the Assessing Officer that the assessee has disclosed an amount of Rs.48,96,658/- (consisting of profit of Rs. 48,24,658/- as per audited P & L Account & rental income of Rs.72,000/-) under IDS 2016 Scheme and paid the taxes accordingly for which Form 4 was also issued by the concerned PCIT. However, the Assessing Officer was of the view that the assessee society has debited an amount of Rs.1,86,71,000/- as provisions under various heads which is not allowable, accordingly after following the judgement of Hon’ble Supreme Court in the case of Totagar’s Cooperative Sale Society Ltd. vs. ITO [2010] 188 Taxman 282 (SC) the same was added to the income of the assessee along-with profit of Rs.48,24,658/- as per profit & loss account and rental income of Rs.72,000/- disclosed by the assessee, however, the Assessing Officer allowed benefit of income of Rs.48,96,658/- already disclosed by the assessee under IDS 2016 Scheme. Accordingly, vide order dated 29.03.2022, the Assessing Officer completed the assessment proceedings u/s 147 r.w.s. 144B of the IT Act by determining the income of the assessee at Rs.1,86,71,000/- as against income of Rs.Nil returned by the assessee. The above assessed income includes addition of Rs.1,86,71,000/- being disallowance of deduction u/s 80P(2) (a)(i) of the IT Act.

6. Being aggrieved with the above assessment order, the assessee preferred an appeal before Ld. CIT(A)/NFAC. Not being satisfied with the reply and submissions of the assessee, Ld. CIT(A)/NFAC dismissed the appeal filed by the assessee.

7. It is the above order against which the assessee is in appeal before this Tribunal.

8. We have heard Ld. Counsels from both the sides and perused the material available on record including the paper book furnished by the assessee. In this regard, we find that the assessee is a credit cooperative society engaged in the activity of providing credit facilities in other words doing banking business and the income which is attributable to the banking business in the hands of a credit cooperative society is deductible u/s 80P(2) (a)(i) of the IT Act. We further find that the Assessing Officer while referring to the judgment of Hon’ble Supreme Court in the case of The Mavilayi Service Coop. Bank Ltd. & Ors. Vs. CIT, Civil Appeal Nos.7343-7350 of 2019 (SC) and also the judgement of Hon’ble Supreme Court in the case of Totgars Cooperative Sale Society vs. ITO [2010] 188 Taxman 282 (SC) disallowed the claim made by the assessee u/s 80P(2) (a)(i) of the IT Act. In this regard, we find that in the judgement of The Mavilayi Service Coop. Bank Ltd. & Ors. (supra), section 80P(4) of the IT Act has been referred, according to which, cooperative banks are not entitled to claim deduction u/s 80P(2) (a)(i) of the IT Act with regard to banking business income, however, primary credit cooperative society are entitled to claim deduction u/s 80P(2) (a)(i) of the IT Act with regard to banking business income and also entitled to claim deduction u/s 80P(2)(d) of the IT Act with regard to interest income earned from its investments with other cooperative banks, which are also cooperative societies.

Regarding reliance of the Assessing Officer in the case of Totgars Cooperative Sale Society (supra), we find that the facts are distinguishable and not applicable to the instant case in hand, since the Totgars Cooperative Sale Society was engaged in the activity of sale of agricultural produce of its members whereas in the instant case in hand, the assessee is a credit cooperative society engaged in the activity of providing credit facilities to its members and this issue is no more res integra in the light of various coordinate bench decisions passed in the case of various other credit cooperative societies including the case of Marathwada Krishi Vidyapeeth Karmachari Sahkari Patsanstha vs. PCIT & others in ITA No.102/PUN2020 & others order dated 21.12.2022 wherein the Tribunal held that the assessee credit cooperative societies are entitled to claim deduction u/s 80P(2) (a)(i) and 80P(2)(d) of the IT Act with regard to interest income arising from its investment with nationalized banks and from cooperative banks by observing as under:-

“All the above appeals have been preferred by different assessees in relation to the A.Yrs.2014-15, 2017-18 & 2018-19 agitating the passing of the order by the ld. Principal Commissioner of Income- tax (PCIT) u/s.263 of the Income-tax Act, 1961 holding that the grant of deduction u/s.80P by the Assessing Officer (AO) in respect of interest income earned from other credit cooperative societies or Nationalised banks led to the passing of erroneous assessment orders prejudicial to the interest of the Revenue. Because of the commonness of the issue, we are proceeding to dispose of all the appeals by the consolidated order for the sake of convenience.

xxxxx

4. Succinctly, the facts common in all these cases are that the assesses filed returns claiming deduction u/s.80P in respect of interest income which was allowed by the respective AOs. The ld. PCIT(s) invoked the jurisdiction u/s 263 of the Act and disputed the allowability of the claim of deduction u/s.80P(2) (a)(i) in some cases and under 80P(2)(d) in others, thereby holding the assessment orders to be erroneous and prejudicial to the interest of the Revenue. Aggrieved thereby, the assessees have approached the Tribunal.

5. We have heard the rival submissions and gone through the relevant material on record. It is seen that all the cases are based on the ld. PCIT(s)’ understanding that the allowing of the deduction u/s.80P is contrary to law. Insofar as the allowability of deduction u/s.8P(2) (a)(i) is concerned, we find that the Pune Tribunal in Sureshdada Jain Nagari Sahakari Patsanstha Maryadit Vs. The Pr.CIT (ITA No.713/PUN/2016) has decided the question of availability of deduction u/s 80P on interest income by noticing that the Pune Bench in an earlier case of Shri Laxmi Narayan Nagari Sahakari Pat Sanstha Maryadit Vs. ITO (ITA No.604/PN/2014) has allowed similar deduction. In the said case, the Tribunal discussed the contrary views expressed by the Hon’ble Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO (2015) 230 Taxman 309 (Kar.) allowing deduction u/s. 80P on interest income and that of the Hon’ble Delhi High Court in Mantola Cooperative Thrift Credit Society Ltd. Vs. CIT (2014) 110 DTR 89 (Delhi) not allowing deduction u/s.80P on interest income earned from banks. Both the Hon’ble High Courts took into consideration the ratio laid down in the case of Totgar’s Cooperative Sale Society Ltd. (supra). No direct judgment from the Hon’ble jurisdictional High Court on the point having been pointed out, the Tribunal in Shri Laxmi Narayan Nagari Sahakari Pat Sanstha Maryadit (supra) preferred to go with the view in favour of the assessee by the Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra). The position continues to remain the same before this Tribunal also. We thus hold that no exception can be taken to the granting of deduction on interest income by the AO u/s 80P(2) (a)(i) of the Act.

6. Coming to the other cases involving deduction u/s.80P(2)(d) of the Act, it is crystal clear from the language of the provision that though co-operative banks, other than primary agricultural credit society or a primary co-operative agricultural and rural development bank, are not eligible for deduction pursuant to insertion of section 80P(4) w.e.f. 1.4.2007, but this provision does not dent the otherwise eligibility u/s 80P(2)(d) of the Act of a co- operative society on interest income on investments/deposits parked with a co-operative bank, which is a registered co-operative society as per section 2(19) of the Act, defining co-operative society to mean a cooperative society registered under the Co-operative Societies Act, 1912 or under any law for the time being in force. The assessees are also Co-operative society registered under the Act and hence qualify for the grant of the deduction. Similar view has been taken by the Pune Tribunal in several cases including The Sesa Goa Employees Coop. Credit Society Ltd. Vs. ACIT (ITA No.203/PUN/2019) vide order dated 16-11-2022).

7. In view of the foregoing, we hold that the impugned orders questioning the deduction u/s.80P(2) (a)(i)/80P(2)(d) in respect of interest income, cannot be sustained.

8. In the result, all the appeals are allowed.”

9. Apart from above decision, we also find support from another coordinate bench decision passed in the case of Mysore University Employees co-op Credit Society Ltd. vs. Income-tax Officer [2026] 185 taxmann.com 709 (Bangalore – Trib.) [15-04-2026] wherein the Tribunal allowed the deduction u/s 80P(2) (a)(i) of the IT Act with regard to interest income earned from deposits with banks by observing as under:-

“11.7 Thus, under the constitutional scheme and the doctrine of judicial discipline, the decision of the Hon’ble jurisdictional High Court is binding on the Tribunal, while decisions of other Hon’ble High Courts carry persuasive value and may be followed in the absence of a contrary jurisdictional precedent. Hence in our considered view, while deciding the issue of deductibility of interest income from deposit of surplus/idle fund by the cooperative societies engaged in providing credit facilities, we are bound to follow the principles laid down in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra), unless material brought on record that the said principle/finding has been overruled by the Hon’ble Supreme Court or the larger bench of the Hon’ble Karnataka High Court or disturbed by the Hon’ble Karnataka High Court in subsequent case.

11.8 Coming to facts of the case on the hand, the assessee is engaged solely in the business of providing credit facilities to its members. The interest income of Rs. 6,25,661/- has been earned on deposits made out of funds arising from business operations, which were not immediately required for lending. Such deposits are part of normal business activity and cannot be treated as independent investment activity.

11.9 Before parting, it is equally important to note that in several earlier decisions, this Tribunal had taken a view that interest income earned by a co-operative society from deposits placed with banks would not qualify for deduction under section 80P(2) (a)(i) of the Act and the same was liable to be taxed under the head “Income from other sources”. Accordingly, the claim of deduction under section 80P(2) (a)(i) in respect of such interest income was rejected in those cases. However, the legal position now stands clarified by the judgment of the Hon’ble jurisdictional High Court of Karnataka in Tumkur Merchants Souharda Credit Cooperative Ltd. (supra), and other case laws as discussed in preceding paragraphs wherein it has been held that where a cooperative society, engaged in the business of providing credit facilities to its members, temporarily parks its surplus funds with banks, the interest earned therefrom is attributable to the business of the society and is therefore eligible for deduction under section 80P(2) (a)(i) of the Act.

12. Since the decision of the Hon’ble Jurisdictional High Court is binding on this Tribunal, judicial discipline requires that the same be followed. Therefore, to the extent of our earlier decisions where we have taken a contrary view, we respectfully depart from the earlier stand and follow the ratio laid down by the Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra). Accordingly, the issue is now decided in favour of the assessee by granting deduction under section 80P(2) (a)(i) of the Act in respect of the interest income in question. Hence, the ground of appeal of the assessee is allowed.

13. In the result, the appeal of assessee is hereby allowed.”

10. Respectfully following the above decision of coordinate bench of this Tribunal passed in the case of Marathwada Krishi Vidyapeeth Karmachari Sahkari Patsanstha vs. PCIT & others in ITA No.102/PUN2020 order dated 21.12.2022 and another coordinate bench decision passed in the case of Mysore University Employees co-op Credit Society Ltd. vs. Income-tax Officer [2026] 185 taxmann.com 709 (Bangalore – Trib.) [15-04-2026], we are of the considered opinion that the assessee cooperative society is also entitled to claim deduction u/s 80P(2) (a)(i) of the IT Act with regard to its income which is attributable to banking business.

11. Apart from above, we also find that the Assessing Officer has disallowed various provisions and added to the income of the assessee and benefit of deduction u/s 80P(2) (a)(i) of the IT Act has not been allowed on the resultant enhanced income. In this regard, we find that CBDT issued Circular No.37/2016 dated 02.11.2016 wherein directions were issued to allow benefit of deduction under Chapter VI-A of the IT Act on enhanced business income. The relevant circular is reproduced as under:-

CIRCULAR NO. 37/2016

F.No.279/Misc./140/2015/ITJ
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes

New Delhi, Dated 2nd November 2016

Subject: Chapter VI-A deduction on enhanced profits- Reg.

Chapter VI-A of the Income-tax Act, 1961 (“the Act”), provides for deductions in respect of certain incomes. In computing the profits and gains of a business activity, the Assessing Officer may make certain disallowances, such as disallowances pertaining to sections 32, 40(a)(ia), 40A(3), 43B etc., of the Act. At times disallowance out of specific expenditure claimed may also be made. The effect of such disallowances is an increase in the profits. Doubts have been raised as to whether such higher profits would also result in claim for a higher profit-linked deduction under Chapter VI-A.

2. The issue of the claim of higher deduction on the enhanced profits has been a contentious one. However, the courts have generally held that if the expenditure disallowed is related to the business activity against which the Chapter VI-A deduction has been claimed, the deduction needs to be allowed on the enhanced profits. Some illustrative cases upholding this view are as follows:

(i) If an expenditure incurred by assessee for the purpose of developing a housing project was not allowable on account of non-deduction of TDS under law, such disallowance would ultimately increase assessee’s profits from business of developing housing project. The ultimate profits of assessee after adjusting disallowance under section 40(a)(ia) of the Act would qualify for deduction under section 80-IB of the Act. This view was taken by the courts in the following cases:

• • • Income-tax Officer – Ward 5(1) vs. Keval Construction, Tax Appeal No. 443 of 2012, December 10, 2012, Gujarat High Court.¹
    • Commissioner of Income-tax-IV, Nagpur vs. Sunil Vishwambharnath Tiwari, IT Appeal No. 2 of 2011, September 11, 2015, Bombay High Court.²

(ii) If deduction under section 40A(3) of the Act is not allowed, the same would have to be added to the profits of the undertaking on which the assessee would be entitled for deduction under section 80-IB of the Act. This view was taken by the court in the following case:

• • • Principal CIT, Kanpur vs. Surya Merchants Ltd., I.T. Appeal No. 248 of 2015, May 03, 2016, Allahabad High Court.³

The above views have attained finality as these judgments of the High Courts of Bombay, Gujarat and Allahabad have been accepted by the Department.

1. In view of the above, the Board has accepted the settled position that the disallowances made under sections 32, 40(a)(ia), 40A(3), 43B, etc. of the Act and other specific disallowances, related to the business activity against which the Chapter VI-A deduction has been claimed, result in enhancement of the profits of the eligible business, and that deduction under Chapter VI-A is admissible on the profits so enhanced by the disallowance.

2. Accordingly, henceforth, appeals may not be filed on this ground by officers of the Department and appeals already filed in Courts/ Tribunals may be withdrawn/ not pressed upon. The above may be brought to the notice of all concerned.

(K. Vamsi Krishna)
ACIT (OSD)(ITJ),
CBDT, New Delhi.

Copy to:

1. The Chairman, Members and officers of the CBDT of the rank of Under Secretary and above.

2. OSD to Revenue Secretary.

3. All Pr. Chief Commissioners of Income-Tax & All Directors General of Income-Tax with a request to bring to the attention of all officers.

4. The Pr. Director General of Income-Tax, NADT, Nagpur.

5. The Pr. DGIT (Systems), ARA Centre, Jhandewalan Extension, New Delhi.

6. The Pr. DGIT (Vigilance), New Delhi.

7. The ADG (PR, PP & OL), Mayur Bhawan, New Delhi for printing in the quarterly tax bulletin and for circulation as per usual mailing list.

8. The Comptroller and Auditor General of India.

9. The ADG-4 (Systems) for uploading on ITD website.

10. Data Base Cell for uploading on irs officers online.

11. Guard file.

(K. Vamsi Krishna)
ACIT (OSD)(ITJ),
CBDT, New Delhi.

¹ NJRS-2012-LL-1210-45
² NJRS-2015-LL-0911-22
³ NJRS-2016-LL-0503-77

12. Admittedly, in the instant case in hand, the Assessing Officer has enhanced the business income by adding back the provisions debited in profit & loss account and the resultant enhanced income remains income attributable to the banking business which qualifies for deduction u/s 80P(2) (a)(i) of the IT Act in the light of above circular dated 02.11.2016 issued by CBDT. Accordingly, we are of the considered opinion that the assessee credit cooperative society is entitled for deduction u/s 80P(2) (a)(i) of the IT Act, which is a Chapter VI-A deduction, on its enhanced income. Accordingly, we deem it appropriate to set- aside the order passed by Ld. CIT(A)/NFAC and direct the Assessing Officer to allow deduction of Rs.1,86,71,000/- u/s 80P(2) (a)(i) of the IT Act, since even after addition of above provisions to the income of the assessee, the resultant/enhanced income remains income attributable to banking business which qualifies for deduction u/s 80P(2) (a)(i) of the IT Act in the light of Circular No.37/2016 dated 02.11.2016 issued by CBDT.

However, we make it clear that the assessee credit cooperative society is not entitled to get refund of the income tax and interest, which was deposited by the assessee under IDS 2016 Scheme. Thus, the grounds of appeal raised by the assessee are allowed.

13. In the result, the appeal filed by the assessee in ITA No.31/PAN/2023 for A.Y. 2013-14 is allowed.

ITA Nos.32 to 35/PAN/2023, A.Ys. 2014-15, 2016-17 to 2018-19 :

14. Since the facts and issues involved in the remaining appeals of the assessee in ITA Nos.32 to 35/PAN/2023, for A.Ys. 2014-15, 2016-17 to 2018-19 are identical to the appeal of the assessee in ITA No.31/PAN/2023 for A.Y. 2013-14, therefore, our decision in ITA No.31/PAN/2023 for A.Y. 2013-14 shall apply mutatis mutandis to the remaining appeals of the assessee in ITA Nos.32 to 35/PAN/2023, for A.Ys. 2014-15, 2016-17 to 2018-19. Accordingly, the remaining appeals of the assessee in ITA Nos.32 to 35/PAN/2023, for A.Ys. 2014-15, 2016-17 to 2018-19 are also allowed.

15. To sum up, all the above captioned five appeals filed by the assessee are allowed, as indicated above.

Order pronounced on this 21st day of August, 2026.