Pune ITAT Allows Section 80P Deduction to Employees’ Credit Society – Interest from Bank Deposits Held Eligible for Deduction

Dapodi Workshop Employees Cooperative Credit Society Limited Vs ITO (ITAT Pune)

Pune ITAT Allows Section 80P Deduction to Employees’ Credit Society – Interest from Bank Deposits Held Eligible for Deduction

Summary: The ITAT Pune allowed the assessee’s claim for deduction under Section 80P(2)(a)(i) of the Income-tax Act, 1961 in respect of interest income earned by an employees’ co-operative credit society from bank deposits. The Tribunal noted that the assessee, a co-operative credit society providing loans and credit facilities exclusively to its members, had claimed deduction of ₹32,97,192, which was disallowed by the Assessing Officer and upheld by the CIT(A)/NFAC. Relying on its own decision in the assessee’s case for AY 2020-21 and other judicial precedents, the Tribunal held that interest earned on bank deposits qualified for deduction under Section 80P(2)(a)(i). It observed that the identical issue had already been decided in the assessee’s favour and that no contrary material had been produced by the Revenue. Accordingly, the Tribunal set aside the order of the CIT(A)/NFAC, directed the Assessing Officer to allow the deduction under Section 80P(2)(a)(i), allowed the grounds of appeal, and allowed the assessee’s appeal.

The Pune Bench of the Income Tax Appellate Tribunal held that a salary earners’ co-operative credit society engaged exclusively in providing credit facilities to its members is entitled to deduction under section 80P(2)(a)(i), including in respect of interest earned on deposits maintained with banks, and directed the Assessing Officer to allow the deduction in full.

The assessee, a co-operative credit society registered under the Maharashtra Co-operative Societies Act, claimed deduction of ₹32.97 lakh under section 80P(2)(a)(i) for AY 2018-19. The Assessing Officer disallowed the claim, which was affirmed by the CIT(A), prompting the assessee to approach the Tribunal.

Before the Tribunal, the assessee pointed out that an identical issue in its own case for AY 2020-21 had already been decided in its favour. Reliance was also placed on several judicial precedents, including the Supreme Court’s decision in PCIT v. Annasaheb Patil Mathadi Kamgar Sahakari Patpedhi Maryadit Ltd., Mavilayi Service Co-operative Bank Ltd., and various Pune Bench decisions recognising the eligibility of co-operative credit societies for deduction under section 80P.

The Tribunal observed that in the assessee’s own earlier case, it had already held that interest earned on deposits maintained with co-operative banks and scheduled banks, which were made in the course of carrying on the business of providing credit facilities to members and in compliance with statutory requirements, constituted income attributable to the business of the society. It further noted that the earlier decision had relied upon the judgment of the Andhra Pradesh & Telangana High Court in Vavveru Co-operative Rural Bank Ltd., which distinguished the Supreme Court’s ruling in Totgars Co-operative Sale Society Ltd. and held that investment of a society’s own business funds in fixed deposits does not alter the character of the income for the purposes of section 80P.

Finding that the facts of the present year were identical and that the Revenue had not brought any contrary material on record, the Tribunal followed its earlier order in the assessee’s own case and directed the Assessing Officer to allow the deduction under section 80P(2)(a)(i). The appeal of the assessee was accordingly allowed.

Cases Discussed

Dapodi Workshop Employees Cooperative Credit Society Limited Vs ITO (ITAT Pune)

Ketankumar Thakorbhai Patel vs. ITO, ITA No. 2152/Ahd/2025, order dated 03.03.2026, Assessment Year 2011-12.

Narayandas Ramdas Sevak Sahakari Patsanstha Maryadit vs. ITO, ITA Nos. 2861 & 2862/PUN/2025, order dated 23.01.2026, Assessment Years 2018-19 & 2020-21.

Maharshi Karve Stree Shikshan Sansthas Employees Co-Op. Society Ltd. vs. ITO, ITA No. 668/PUN/2025, order dated 05.01.2026, Assessment Year 2018-19.

Dapodi Workshop Employees Cooperative Credit Society Limited vs. ITO, ITA No. 824/PUN/2025, order dated 16.05.2025, Assessment Year 2020-21.

Baner Nagari Sahakari Pat Sanstha Maryadit vs. ITO, ITA No. 549/PUN/2024, order dated 30.04.2024, Assessment Year 2018-19.

Ruby Hall Clinic Karmchari Sahakari Patsanstha Maryadit vs. ITO, ITA No. 49/PUN/2024, order dated 25.04.2024, Assessment Year 2017-18.

Ruby Hall Clinic Karmchari Sahakari Patsanstha Maryadit vs. ITO, ITA No. 32/PUN/2024, order dated 25.04.2024, Assessment Year 2020-21.

Yashwant Nagari Sahakari Patsanstha Maryadit vs. ITO, ITA No. 644/PUN/2024, order dated 04.06.2024.

PCIT vs. Annasaheb Patil Mathadi Kamgar Sahakari Patpedhi Maryadit Ltd., (2023) 150 com173 (SC).

Kolhapur District Central Co-op. Bank Kanista Sevakanchi Sahakar Pat Sanstha Ltd. Vs. Income-tax Officer, 158 taxmann.com 322 (Pune Tribunal).

The Mavilayi Service Co-operative Bank Ltd. & Ors vs. CIT & Anr, (2021) 431 ITR 1 (SC).

Vavveru Co-operative Rural Bank Ltd., [2017] 396 ITR 371.

CIT vs. Virgin Securities & Credits (P) Ltd., (2011) 332 ITR 396 (Delhi).

Prabhavati S. Shah vs. CIT, (1998) 231 ITR 1.

CIT v. Andhra Pradesh State Cooperative Bank Ltd., [2011] 12 taxmann.com 66/200 Taxman 200/336 ITR 516.

Totgar’s Co-operative Sale Society Ltd. v. ITO, [2010] 188 Taxman 282/322 ITR 283.

PCIT Vs. Totagars Co-operative Sales Society.

FULL TEXT OF THE ORDER OF ITAT PUNE

This appeal filed by the assessee is directed against the order dated 16.01.2026 of the Ld. CIT(A) / NFAC, Delhi relating to assessment year 2018-19.

2. The only issue raised by the assessee in the grounds of appeal relates to the disallowance of claim of deduction u/s 80P(2)(a)(i) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) amounting to Rs.32,97,192/- by the Assessing Officer which has been upheld by the Ld. CIT(A) / NFAC.

3. Facts of the case, in brief, are that the assessee is a salary earners’ Co-operative Credit Society registered under Maharashtra Co-Operative Societies Act, 1960. It is engaged in the business of providing loans and credit facilities exclusively to its members. It filed its return of income on 03.10.2018 declaring total income at Nil after claiming deduction u/s 80P(2)(a)(i) of the Act at Rs.32,97,192/-. The Assessing Officer disallowed the claim of deduction u/s 80P of the said amount which was upheld by the Ld. CIT(A) / NFAC.

4. Aggrieved with such order of the Ld. CIT(A) / NFAC the assessee is in appeal before the Tribunal.

5. The Ld. Counsel for the assessee at the outset filed a copy of the order of the Tribunal in assessee’s own case vide ITA No.824/PUN/2025 order dated 16.05.2025 for assessment year 2020-21 and submitted that the Tribunal under identical circumstances has allowed the claim of deduction u/s 80P(2)(a)(i) of the Act. Relying on various other decisions placed in the paper book, he submitted that the claim of deduction u/s 80P(2)(a)(i) of the Act has also been allowed in the following decisions:

i) PCIT vs. Annasaheb Patil Mathadi Kamgar Sahakari Patpedhi Maryadit Ltd reported in (2023) 150 com173 (SC)

ii) Ruby Hall Clinic Karmchari Sahakari Patsanstha Maryadit vs. ITO vide ITA No.49/PUN/2024 order dated 25.04.2024 for assessment year 2017-18

iii) Baner Nagari Sahakari Pat Sanstha Maryadit vs. ITO vide ITA No.549/PUN/2024 order dated 30.04.2024 for assessment year 2018-19

iv) Ruby Hall Clinic Karmchari Sahakari Patsanstha Maryadit vs. ITO vide ITA No.32/PUN/2024 order dated 25.04.2024 for assessment year 2020-21

v) State Bank of India Employees Co-Op. Credit Society Ltd vs. ITO vide ITA No.306/PUN/2022 order dated 29.08.2022 for assessment year 2018-19

vi) The Mavilayi Service Co-operative Bank Ltd. & Ors vs. CIT & Anr reported in (2021) 431 ITR 1 (SC)

vii) Narayandas Ramdas Sevak Sahakari Patsanstha Maryadit vs. ITO vide ITA Nos.2861 & 2862/PUN/2025 order dated 23.01.2026 for assessment years 2018-19 & 2020-21

viii) Maharshi Karve Stree Shikshan Sansthas Employees Co-Op. Society Ltd. vs. ITO vide ITA No.668/PUN/2025 order dated 05.01.2026 for assessment year 2018-19

ix) Prabhavati S. Shah vs. CIT reported in (1998) 231 ITR 1

x) CIT vs. Virgin Securities & Credits (P) Ltd reported in (2011) 332 ITR 396 (Del)

xi) Ketankumar Thakorbhai Patel vs. ITO vide ITA No.2152/Ahd/2025 order dated 03.03.2026 for assessment year 2011-12

6. The Ld. DR on the other hand heavily relied on the orders of the Assessing Officer and the Ld. CIT(A) / NFAC.

7. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and the Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find an identical issue had come up before the Tribunal in assessee’s own case for assessment year 2020-21. We find the Tribunal vide ITA No.824/PUN/2025 order dated 16.05.2025 has allowed the claim of deduction u/s 80P(2)(a)(i) of the Act by observing as under:

“3. We have heard both the parties and perused the records. Assessee is a Co-operative Credit Society engaged in the business of providing credit facility to its members. Assessee filed Return of Income for A.Y.2020-21 showing Gross Total Income of Rs.39,43,019/- and total income of Rs.Nil after claiming deduction of Rs.39,43,019/- under section 80P of the Income Tax Act, 1961. Assessee is duly registered with Assistant Registrar, Co-operative Societies. In the assessment order, Assessing Officer noted that Assessee has earned interest income from PDCC Bank and Other Commercial Banks. The Assessing Officer in para 4.5.10 held that since the interest income has been earned from Deposits it is directly linked to the business of the assessee of providing credit facilities to members, therefore, AO held that Assessee is not eligible for deduction u/s.80P(2)(a)(i) of the Act. The AO further held that Assessee is not eligible for 80P(2)(d) of the Act, relying on the decision of Hon’ble Karnataka High Court in the case of PCIT Vs. Totagars Co-operative Sales Society. Aggrieved by the assessment order, Assessee filed appeal before the ld.CIT(A).

3.1 Ld.CIT(A) upheld the assessment order.

4. Aggrieved by the order of the ld.CIT(A), Assessee filed appeal before this Tribunal.

4.1 As per Maharashtra State Co-operative Societies Act, Assessee has to mandatorily maintain fixed deposits.

4.2 Thus, the issue before us is whether assessee is eligible for deduction under section 80P(2)(a) of the Act, on the interest earned from Co-operative Banks or not!

4.3 This issue has been dealt in various decisions of ITAT Pune in favour of assessee.

5. The Hon’ble High Court of Andhra Pradesh and Telangana in the case of Vavveru Co-operative Rural Bank Ltd. [2017] 396 ITR 371 analysed the provisions of Section 80P, succinctly distinguished the decision of Hon’ble Supreme Court in the case of Totagars Cooperative Sale Society, and held as under :

Quote,“8. Therefore, the real controversy arising in these writ petitions is as to whether the income derived by the petitioners by way of interest on the fixed deposits made by them with the banks, is to be treated as profits and gains of business attributable to any one of the activities indicated in sub-clauses (i) to (vii) of clause (a) of sub-section (2) of section 80P or not.

9. While the petitioners place strong reliance upon a decision of the Division Bench of this court in CIT v. Andhra Pradesh State Cooperative Bank Ltd. [2011] 12 taxmann.com66/200 Taxman 200/336 ITR 516, the Revenue places strong reliance upon the decision of the Supreme Court in Totgar’s Co-operative Sale Society Ltd. v. ITO [2010] 188 Taxman 282/322 ITR 283.

……………………

34. The case before the Supreme Court in Totgar’s Co-operative Sale Society Ltd.’s case (supra) was in respect of a co-operative credit society, which was also marketing the agricultural produce of its members. As seen from the facts disclosed in the decision of the Karnataka High Court in Totgars, from out of which the decision of the Supreme Court arose, the assessee was carrying on the business of marketing agricultural produce of the members of the society. It is also found from paragraph-3 of the decision of the Karnataka High Court in Totgar’s Co-operative Sale Society Ltd.’s case (supra) that the business activity other than marketing of the agricultural produce actually resulted in net loss to the society. Therefore, it appears that the assessee in Totgars was carrying on some of the activities listed in clause (a) along with other activities. This is perhaps the reason that the assessee did not pay to its members the proceeds of the sale of their produce, but invested the same in banks. As a consequence, the investments were shown as liabilities, as they represented the money belonging to the members. The income derived from the investments made by retaining the monies belonging to the members cannot certainly be termed as profits and gains of business. This is why Totgar’s struck a different note.

35. But, as rightly contended by the learned senior counsel for the petitioners, the investment made by the petitioners in fixed deposits in nationalised banks, were of their own monies. If the petitioners had invested those amounts in fixed deposits in other co-operative societies or in the construction of godowns and warehouses, the respondents would have granted the benefit of deduction under clause (d) or (e), as the case may be.

36. The original source of the investments made by the petitioners in nationalised banks is admittedly the income that the petitioners derived from the activities listed in sub-clauses (i) to (vii) of clause (a). The character of such income may not be lost, especially when the statute uses the expression “attributable to” and not any one of the two expressions, namely, “derived from” or “directly attributable to”.

37. Therefore, we are of the considered view that the petitioners are entitled to succeed. Hence, the writ petitions are allowed, and the order of the Assessing Officer, in so far as it relates to treating the interest income as something not allowable as a deduction under section 80P(2)(a), is set ” Unquote.

5.1 Thus, the Hon’ble High Court of AP & TS held that Interest Income earned by investing Income derived from Business and Profession by a Co-Operative Society was eligible for deduction u/sec.80P(2)(a) of the Act.

5.2 No contrary decision of the Hon’ble jurisdictional High Court has been brought to our notice. Therefore, as per rule of precedence, the proposition of law laid down by the Hon’ble High Court of AP & TS (supra) are binding precedents for us.

6. The Hon’ble ITAT Pune Bench in the case of Kolhapur District Central Co-op. Bank Kanista Sevakanchi Sahakar Pat Sanstha Ltd. Vs. Income-tax Officer 158 taxmann.com322 (Pune Tribunal) has held as under :

Quote “7………………………I am of the considered opinion that even the interest income earned by cooperative society on deposits made out of surplus funds with cooperative banks as well as schedule bank qualifies for deduction both under the provisions of section 80P(2)(a)(i) and section 80P(2)(d) of the Act, therefore, the reasoning given by the lower authorities on this issue cannot be accepted. Therefore, I direct the Assessing Officer to allow deduction u/s 80P(2)(a)(i) and 80P(2)(d) in respect of interest income earned from cooperative bank/scheduled bank. Thus, the ground of appeal filed by the assessee stands allowed.” Unquote

7. The Hon’ble ITAT Pune Bench in the case of Yashwant Nagari Sahakari Patsanstha Maryadit Vs. ITO in ITA No.644/PUN/2024 dated 04.06.2024 held that the assessee was eligible for deduction u/sec.80P(2)(a) of the Act on the Interest earned by assessee.

8. Respectfully following the judicial precedent, we direct the Assessing Officer to allow deduction u/sec.80P(2)(a)(i) of the Act on the interest amount of Rs.39,43,019/-. Accordingly, Grounds of appeal raised by the assessee are allowed.”

8. Since the issue has already been decided by the Co-ordinate Bench of the Tribunal in assessee’s own case for assessment year 2020-21, therefore, in absence of any contrary material brought on record by the Ld. DR, we set aside the order of the Ld. CIT(A) / NFAC and direct the Assessing Officer to allow the claim of deduction u/s 80P(2)(a)(i) of the Act. The grounds raised by the assessee are accordingly allowed.

9. In the result, the appeal filed by the assessee is allowed.

Order pronounced in the open Court on 6^thJuly, 2026.