Auto Nirvahakara Credit Co-operative Society Ltd. Vs ITO (ITAT Bangalore)
U/s 80P wins despite disallowance: ITAT calls interest provision issue tax-neutral for co-op society
The ITAT Bangalore dealt with disallowance of ₹14.20 lakh being provision for interest payable to members, made by the AO on the ground that the assessee followed a hybrid system of accounting—recognising interest income on cash basis while claiming interest expenditure on accrual basis.
The Tribunal did not go deep into the validity of the accounting method but accepted the assessee’s alternative argument that even if the disallowance is sustained, the resulting addition would only enhance business income. Since the assessee is a co-operative society engaged in providing credit facilities to its members, such enhanced income would still qualify for deduction under section 80P(2)(a)(i).
Accordingly, the Tribunal held that the entire exercise becomes revenue neutral, as the addition would be fully absorbed by the eligible deduction, leaving no taxable income. On this reasoning, the disallowance effectively does not survive.
On the second issue relating to interest earned from deposits with scheduled banks, the Tribunal noted that the key question is whether such deposits were made out of statutory reserves (mandated under the Karnataka Co-operative Societies Act) or from surplus funds. Since this factual aspect was not properly examined, the matter was remanded to the AO for fresh verification.
The appeal was thus partly allowed, with the primary disallowance rendered tax-neutral and the bank interest issue sent back for reconsideration.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
The present appeal has been instituted by the assessee against the order of the Ld. CIT(A) passed u/s 250 of the Act dated 31.07.2025.
