Sharadchandra Nagari Sahakari Patsanstha Maryadit Vs ITO (ITAT Pune)
The Pune Bench of the Income Tax Appellate Tribunal partly allowed the appeal of Sharadchandra Nagari Sahakari Patsanstha Maryadit for Assessment Year 2020-21, holding that interest earned by a cooperative credit society from deposits maintained with cooperative banks qualifies for deduction under Section 80P(2)(d) of the Income-tax Act, 1961. The Tribunal allowed a deduction of Rs.1,32,41,080 against the total disallowance of Rs.1,33,50,608 made by the Assessing Officer and sustained by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre. However, it confirmed the disallowance of Rs.1,09,529 relating to interest earned on deposits with Maharashtra State Electricity Distribution Company Limited (MSEDCL), as the assessee failed to establish the eligibility of that income for deduction.
The assessee was a cooperative society established to enrol and educate members, encourage cooperation, accept deposits under various schemes, pay interest on deposits and advance loans to its members. For Assessment Year 2020-21, it filed its income-tax return on 6 January 2021 declaring taxable income of Rs.3,92,570 after claiming deduction of Rs.1,33,50,608 under Section 80P. The return was selected for complete scrutiny, and an assessment order was passed on 22 September 2022 under Section 143(3) read with Section 144B. The Assessing Officer denied the deduction, observing that the principle of mutuality was not satisfied because the society admitted nominal or associate members without voting rights. The Assessing Officer further considered that the society’s activities resembled those of a banking institution and that interest earned from surplus funds deposited with cooperative banks and other banks was not eligible for deduction under Section 80P(2)(d). Consequently, the assessee’s total income was assessed at Rs.1,37,43,180.
After considering the rival submissions and examining the assessment records, the Tribunal noted that the assessee had earned total interest income of Rs.18,96,95,893 during the relevant financial year and incurred interest expenditure of Rs.13,78,57,308. It observed that the disputed assessment included interest income of Rs.4,15,27,813 earned from deposits with cooperative banks. Following its consistent approach in earlier decisions, including Samarth Nagari Shakari Path Sanstha Maryadit v. ITO and The Ugar Sugar Works Kamgar & Dr. Shirgaokar Shaikshanik Trust Nokar Co-op Credit Society v. ITO, the Tribunal held that cooperative banks are basically cooperative societies and that interest earned from deposits with such banks is eligible for deduction under Section 80P(2)(d).
Regarding interest of Rs.1,09,529 earned from deposits with MSEDCL, the Tribunal observed that the assessee’s counsel had failed to furnish any judicial precedent supporting the claim for deduction. Accordingly, the Tribunal sustained the disallowance to that extent. It therefore allowed deduction under Section 80P amounting to Rs.1,32,41,080 and confirmed the balance disallowance of Rs.1,09,529. The appeal was partly allowed by the order pronounced on 24 March 2025. The decision reiterates the Pune Tribunal’s position that interest earned by a cooperative credit society from deposits with cooperative banks is eligible for deduction under Section 80P(2)(d), while income from other deposits must independently satisfy the applicable statutory requirements.
Cases Discussed
- Samarth Nagari Shakari Path Sanstha Maryadit v. ITO — ITA No.1414/PUN/2023, ITAT Pune, order dated 03.05.2024. Followed: The Tribunal relied on this coordinate-bench decision to allow Section 80P(2)(d) deduction on interest earned from cooperative bank deposits.
- The Ugar Sugar Works Kamgar & Dr. Shirgaokar Shaikshanik Trust Nokar Co-op Credit Society v. ITO — ITA No.84/PAN/2018, order dated 27.05.2022. Followed: The Tribunal cited this decision as supporting the eligibility of interest earned from cooperative banks for deduction under Section 80P(2)(d).
FULL TEXT OF THE ORDER OF ITAT PUNE
This appeal filed at the instance of assessee is directed against the order of Ld. CIT(A)/NFAC dated 30.03.2024 which is arising out of the assessment order u/s 143(3) r.ws. 144B of the Act for Assessment Year 2020-21 framed on 22.09.2022 by the ITO, NFAC.
2. The sole grievance of the assessee that Ld. CIT(A)/NFAC erred in confirming the disallowance u/s 80P(2) (a)(i)/80P(2)(d) of the Act at Rs.1,33,50,608/-.
3. Brief facts of the case are that the assessee is a cooperative society established with the object to enroll the members, to educate the members, to effect cooperation, to accept deposits under various schemes and pay interest thereon and to lend money to members. Income of Rs.3,92,570/- declared in the e-return for assessment year 2020-21 filed on 06.01.2021 after claiming deduction u/s 80P of the Act at Rs.1,33,50,608/-. The case selected for complete scrutiny followed by validly serving notices u/s 143(2) and 142(1) of the Act. During the course of assessment proceedings, Ld. Assessing Officer observed that principle of mutuality cannot be invoked in the instant case as basic requirement of mutuality are missing. Ld. Assessing Officer also observed that the assessee has invested surplus funds with cooperative banks and other banks which are not eligible for deduction and such interest income from such investments are not allowable u/s 80P(2)(d) of the Act. Ld. Assessing Officer taking into consideration the fact that the assessee has admitted nominal/associate members who do not have voting rights, the principle of mutuality is violated and the nature of business of the assessee society bears the character of a banking institution. Accordingly, income assessed at Rs.1,37,43,180/-.
4. Aggrieved the assessee preferred an appeal before Ld. CIT(A)/NFAC but failed to succeed. Now the assessee is in appeal before this Tribunal.
5. Ld. Counsel for the assessee, at the outset, submitted that out of the total interest income earned from banks/cooperative banks/MSEDCL at Rs.4,16,37,342/-, interest income of Rs.4,15,27,813/- is earned from deposits with cooperative banks which are eligible for deduction u/s 80P(2)(d) of the Act. For this he relied on the decision of Co-ordinate Bench of this Tribunal in the case of Samarth Nagari Shakari Path Sanstha Maryadit vs. ITO in ITA No.1414/PUN/2023 dated 03.05.2024.
6. On the other hand, Ld. DR supported the orders of the lower authorities.
7. We have heard rival contentions and perused the records placed before us. We observe that the assessee which is a co- operative society has declared income of Rs.3,92,570/- after claiming deduction u/s 80P at Rs.1,33,50,608/-. We also observe that during the year the assessee society has earned interest income of Rs.18,96,95,893/- and has made interest payments of Rs.13,78,57,308/-. Further, the net total income of Rs.1,37,43,180/- has been assessed after considering the interest income earned from surplus funds deposited with cooperative banks at Rs.4,15,27,813/-. We observe that since the cooperative banks are basically cooperative societies, therefore, the interest earned from cooperative banks are clearly eligible for deduction u/s 80P(2)(d) of the Act and this view has been consistently followed by the Co-ordinate Bench of Tribunal in plethora of decisions including that of Samarth Nagari Shakari Path Sanstha Maryadit (supra) and The Ugar Sugar Works Kamgar & Dr. Shirgaokar Shaikshanik Trust Nokar Co-op Credit Society vs. ITO in ITA No.84/PAN/2018 order dated 27.05.2022. Therefore, in view of the above, the interest income from cooperative banks at Rs.4,15,27,813/- is eligible for deduction u/s 80P(2)(d) of the Act. However, deposit with MSEDCL at Rs.1,09,529/-, Ld. Counsel for the assessee failed to furnish any judicial precedent, therefore, disallowance to the extent of Rs.1,09,529/- is hereby confirmed. In view of the above, against the total disallowance u/s 80P of the Act at Rs.1,33,50,608/-, we allow the deduction u/s 80P of the Act to the extent of Rs.1,32,41,080/- and confirm the disallowance of Rs.1,09,529/-. Effecting grounds of appeal raised by the assessee are partly allowed.
8. In the result, the appeal of the assessee is partly allowed.
Order pronounced on 24 day of March, 2025.
