Shiddhanath Nagari Sahakari Patsanstha Maryadit Vs ITO (ITAT Pune)
Pune ITAT Slams Revenue for Denying Wrong Deduction: Interest from Bank Deposits Eligible for Section 80P(2)(a)(i)
The Pune ITAT allowed the appeals of a co-operative credit society and held that interest earned from deposits placed with banks by a co-operative credit society engaged in providing credit facilities to its members remains eligible for deduction under Section 80P(2)(a)(i). The Tribunal also criticized the authorities for denying a deduction under a provision which the assessee had never claimed.
The assessee, a co-operative credit society registered under the Maharashtra Co-operative Societies Act, was engaged in accepting deposits from members and providing loans to them. It had claimed deduction of ₹32.68 lakh under Section 80P(2)(a)(i). However, the Assessing Officer disallowed the claim on the ground that the society had earned interest from a co-operative bank and therefore was not eligible for deduction under Section 80P(2)(d).
The Tribunal noted the fundamental error committed by both the Assessing Officer and the CIT(A). While the assessee had claimed deduction under Section 80P(2)(a)(i), the authorities proceeded to examine and reject eligibility under Section 80P(2)(d), a provision that was never invoked by the assessee at all. The ITAT described this approach as wholly unsustainable.
Relying upon the decisions of the Supreme Court in Karnataka State Co-operative Apex Bank, the Bombay High Court in Annasaheb Patil Mathadi Kamgar Sahakari Pathpedhi Ltd., the Andhra Pradesh & Telangana High Court in Vavveru Co-operative Rural Bank Ltd., and the Kerala High Court in Sahyadri Co-operative Credit Society Ltd., the Tribunal held that interest earned on funds deposited with banks out of business funds of a co-operative credit society retains the character of business income attributable to the activity of providing credit facilities to members.
The ITAT emphasized that a co-operative credit society is not a co-operative bank merely because it carries on credit activities, and unless it possesses a banking licence from the RBI, it continues to remain eligible for the deduction available under Section 80P(2)(a)(i). The Tribunal further observed that prudent deployment of surplus business funds in bank deposits does not alter the character of the income earned therefrom.
Accordingly, the Tribunal held that the assessee was fully entitled to deduction under Section 80P(2)(a)(i) on the interest income earned from bank deposits and allowed the appeals for both AYs 2018-19 and 2019-20. The Revenue’s objection based on Section 80P(2)(d) was rejected as entirely misplaced since that provision had never formed the basis of the assessee’s claim.
FULL TEXT OF THE ORDER OF ITAT PUNE
These are two appeals filed by the Assessee against the separate orders of the Learned Additional/Joint Commissioner of Income Tax (Appeals)-3, Delhi [Ld. Addl./JCIT(A)], passed u/s. 250 of the Income Tax Act, 1961 (‘the Act’) for AYs 2018-19 and 2019-20 on 07/02/2026 and 06/02/2026, respectively.
