The Pune Bench of the Income Tax Appellate Tribunal (ITAT) has held that a credit co-operative society is entitled to claim deduction under Section 80P(2)(d) of the Income Tax Act on interest income earned from investments made with other co-operative banks and societies.
The Bench of R.K. Panda (Vice President) and Vinay Bhamore (Judicial Member) while setting aside the order of the Commissioner of Income Tax (Appeals), directed the Assessing Officer to delete the addition of ₹71.70 lakh made by treating such interest as “Income from Other Sources.”
The appellant/assessee is a primary credit co-operative society registered under the Maharashtra Co-operative Societies Act and engaged in providing credit facilities to its members while accepting deposits from them. The society had not filed its income tax return for the relevant assessment year.
The Income Tax Department reopened the assessment under Section 147 after receiving information through the Statement of Financial Transactions (SFT) that the society had deposited substantial amounts with other co-operative banks and invested in time deposits, despite not filing a return of income. During the reassessment proceedings, the Assessing Officer obtained information directly from banks and ultimately assessed the society’s income at ₹71.70 lakh by treating the interest earned from investments with co-operative banks as income taxable under the head “Income from Other Sources.” The deduction claimed under Section 80P was denied by relying on the Supreme Court’s decision in Totgars Co-operative Sale Society Ltd.
The co-operative society contended that the interest income of ₹71.70 lakh had already been credited to its Profit and Loss Account and, after accounting for related expenditure, the society had disclosed a net profit of ₹34.54 lakh. Therefore, taxing the gross interest separately would effectively amount to double taxation.
The assessee also pointed out that it had inadvertently operated with two Permanent Account Numbers (PANs). While a new PAN had been allotted under the correct status of an Association of Persons (AOP), certain bank accounts continued to reflect the old PAN, resulting in the SFT reporting and the subsequent reassessment proceedings. It further submitted that for the immediately succeeding assessment year, the Assessing Officer had accepted the explanation regarding the duplicate PAN and had made no similar addition.
Additionally, the society argued that the interest income was earned from investments with other co-operative banks, which themselves are co-operative societies, making the income eligible for deduction under Section 80P(2)(d). It relied upon several judicial precedents, including the Supreme Court’s decision in Mavilayi Service Co-operative Bank Ltd., the Madras High Court’s ruling in Thorapaddi Urban Co-operative Credit Society Ltd., and multiple Pune Tribunal decisions distinguishing the Totgars judgment.
The Tribunal accepted the assessee’s contention that the facts of the present case were materially different from those in Totgars. It observed that the jurisdictional Pune Bench has consistently held that interest earned by a credit co-operative society from investments with other co-operative societies or co-operative banks qualifies for deduction under Section 80P(2)(d).
The Bench also referred to its earlier decision in Krushi Vibhag Karmchari Vrund Sahakari Pat Sanstha Maryadit, where it was held that even if a deduction under Section 80P is claimed during assessment proceedings rather than through the original return of income, such a claim cannot be rejected solely on procedural grounds. The Tribunal reiterated that while making the claim is mandatory, the timing of making the claim is directory in nature, provided it is raised before completion of the assessment proceedings.
After examining the facts and the applicable judicial precedents, the Tribunal concluded that the assessee was legally entitled to deduction under Section 80P(2)(d) on the interest income of ₹71.70 lakh earned from investments with other co-operative banks and societies.
Accordingly, it set aside the order of the Commissioner (Appeals) and directed the Assessing Officer to delete the addition of ₹71.70 lakh while granting the deduction under Section 80P(2)(d). Since the assessee did not press the remaining grounds relating to the validity of reassessment proceedings and other procedural issues, those grounds were dismissed as not pressed. Consequently, the appeal was partly allowed.
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