Income Tax Appellate Tribunal - Pune
Osmanabad Zilla Prathamik Shikshak ... vs Ito Ward 1 Latur, Latur on 26 February, 2026
आयकर अपीलीय अधिकरण "एस एम सी" न्यायपीठ पुणे में।
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCHES "SMC" :: PUNE
BEFORE DR.DIPAK P. RIPOTE, ACCOUNTANT MEMBER
AND
SHRI VINAY BHAMORE, JUDICIAL MEMBER
आयकर अपऩल सं. / ITA Nos.17 & 18/PUN/2025
निर्धारण वषा / Assessment Years: 2018-19 & 2020-21
Osmanabad Zilla Prathamik V Income Tax Officer,
Shikshak Sahakari Patsanstha s Ward-1, Latur.
M TER,
26/415/740, Main Road, Bank
Colony, Osmanabad - 413501.
PAN: AAAAO1441J
Appellant/ Assessee Respondent /Revenue
Assessee by Shri Girish Ladda
Revenue by Shri Milind Debaje - JCIT(Virtual)
Date of hearing 25/02/2026
Date of pronouncement 26/02/2026
आदेश/ ORDER
PER DR. DIPAK P. RIPOTE, AM:
These are two appeals filed by the Assessee against the separate orders of ld.Commissioner of Income Tax(Appeal)[NFAC], passed under section 250 of the Income Tax Act, 1961 for the A.Y.2018-19 & A.Y.2020-21 both dated 28.11.2025 emanating from the Assessment Order passed under section 143(3) r.w.s 143(3A) & 143(3B) of the Income Tax Act and 143(3) r.w.s 144B of ITA Nos.17 & 18/PUN/2026 [A] the Income Tax Act, dated 07.04.2021 and 22.09.2022 respectively. For the sake of convenience, these two appeals were heard together and are being disposed of by this common order. We treat appeal in ITA No.18/PUN/2026 as "Lead Appeal". The Assessee has raised the following grounds of appeal :
"1. On the facts of the case and in law the learned Assessing Officer erred in disallowing the deduction u/s 80P(2)(a)(i) or alternatively u/s 80P(2)(d) of the Income Tax Act 1961 of Rs. 18,91,508/ in respect of Interest Income earned on Fixed Deposits kept with co-operative society namely Osmanabad District Central Co-operative Bank Ltd. The addition may please be deleted as the issue is covered in favor of appellant by series of decisions of Hon PUNE ITAT.
2. The Id. CIT(A) erred in not following the binding decisions of Jurisdictional PUNE ITAT in case of Mhasimata Mahila Gramin Bigar Sheti Sahakari Pathsanstha Limited ITA 881/PUN/2024.
2. Appellant prays to add, alter, amend and / or withdraw the ground/s during the appellate proceedings."
Findings & Analysis :
2. We have heard both the parties and perused the records. In this case, Assessing Officer has disallowed Assessee's claim for deduction u/s.80P(2)(a)(i) of Rs.16,09,674/-.2
ITA Nos.17 & 18/PUN/2026 [A] 2.1 The relevant paragraph of assessment order is reproduced here as under :
"4. The return of income for A.Y. 2020-21 has been filed on 28-03-2021 declaring total at Rs Nil/- after claiming deduction U/s 80P(2)(a)(i) of Rs.2,00,20,266/-. The case was selected for Limited Scrutiny assessment, notice u/s. 143(2) of the Act was sent on 29/06/2021 and subsequently notices u/s. 142(1) of the Act were sent through e-mail/e- filing portal which was duly served upon the assessee.
5. The assessee is a Credit Co-operative Society registered under Maharashtra Cooperative societies Act, 1960. The credit society is of primary school teachers of Osmanabad district. Assessee stated that the society is engaged with business of providing credit facilities to its members include acceptance of deposit and granting loans to members.
6. During the year under consideration, assessee has claimed total amount of Rs. 2,00,20,266/- as deduction u/s 80P(2)(a) (i) under Chapter VI-A which includes the interest income of Rs. 18,91,508/- earned on term deposit with SBI and Dist. co-operative bank. The assessee submission has been carefully examined. It is seen that the assessee has earned interest income to the tune of Rs. 18,91,508/-from its investments made in Co-operative Banks other than co-op societies. The assessee society has included the above interest income under head income from business or profession (Shown in total of credits to profit and loss account by Sales/ Gross receipts of business) as business income for the purpose and thereafter has claimed deduction of Rs. 2,00,20,266/- under section 80P. However, it is seen that interest income to the tune of Rs. 18,91,508/- earned from its investments made in Cooperative Banks other than co-op societies has also been included in the amount of deduction claimed u/s 80P. The assessee should have treated the impugned earned interest income to the tune of Rs. 18,91,508/-from its investments made in Nationalized Bank and Cooperative Banks other than co-op societies in accordance with the section 56 separately as income from other sources. Since the interest income has to be assessed under the head income from other sources and no deduction should have been allowed u/s 80P(2)(a)(i)"3
ITA Nos.17 & 18/PUN/2026 [A]
3. Aggrieved by the assessment order, Assessee filed appeal before the ld.CIT(A). Ld.CIT(A) confirmed the addition relying on the case of Totagar's Co-operative Sale Society Ltd., Vs. ITO 322 ITR 283 (SC).
4. Admittedly, Assessee is a Co-operative Credit Society registered under Maharashtra Co-operative Societies Act, 1960. It has been specifically mentioned by Assessing Officer that Assessee is in the business of providing Credit Facilities, Loans to its Members. Assessee has earned interest income from State Bank of India and District Co-operative Bank. Ld.AR submitted that as per the Maharashtra Co-operative Societies Act and RBI Guidelines, Assessee has to maintain certain deposits with specified banks. Accordingly, Assessee had maintained those deposits during its business of providing credit facilities. Ld.AR submitted that hence, the interest income earned by Assessee from those deposits pertains to business of the Assessee and hence, it is eligible for deduction u/s.80P of the Act.
5. The issue is squarely covered in favour of Assessee. 4
ITA Nos.17 & 18/PUN/2026 [A]
6. Hon'ble Supreme Court in the case of CIT vs Karnataka State Co-operative Apex bank [2001] 251 ITR 194 (SC) observed as under :
Quote,"The question in appeal reads : "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the interest income arising from the investment made out of reserve fund is exempt under section 80P(2)(a)(i ) of the Income-tax Act, 1961 ?"
7. While deciding the above question of Law raised by Revenue, the Hon'ble Supreme Court observed as under :
Quote, "......There is no doubt, and it is not disputed, that the assessee-co-operative bank is required to place a part of its funds with the State Bank or the Reserve Bank of India to enable it to carry on its banking business. This being so, any income derived from funds so placed arises from the business carried on by it and the assessee has not, by reason of section 80P(2)(a)( i), to pay income-tax thereon. The placement of such funds being imperative for the purposes of carrying on the banking business, the income derived therefrom would be income from the assessee's business......" Unquote.
8. The Hon'ble Supreme Court in the above case answered the question in favour of Assessee and against Revenue. 8.1 Thus, the proposition of law emanating from the above decision is that Interest earned from Funds deposited with State bank of India by Co-Operative Bank is business income and eligible for deduction u/s 80P(2)(a) of the Act.
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ITA Nos.17 & 18/PUN/2026 [A]
9. 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 Totagar's 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 Co- operative Bank Ltd. [2011] 12 taxmann.com 66/200 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 6 ITA Nos.17 & 18/PUN/2026 [A] 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 aside."Unquote.
9.1 Thus, 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/s.80P(2)(a) of the Act.
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ITA Nos.17 & 18/PUN/2026 [A]
10. In the case of Sahyadri Co-operative Credit Society Limited, the Sahyadri Co-operative Credit Society had deposited excess funds in the Banks or Institutions permitted by the Co-operative Societies Act. In that context, the Hon'ble Kerala High Court in the case of Pr.CIT Vs. Sahyadri Co-operative Credit Society Ltd., [2024] 301 Taxman 36 (Kerala) vide order dated 04.09.2024 has held as under :
Quote "7. On a consideration of the rival submissions, we are of the view that for the reasons stated hereinafter, the question of law that arises for consideration before us must be answered against the Revenue and in favour of the assessee. The permissible deduction that is envisaged under Section 80P(2) of the I.T. Act for a Co-operative Society that is assessed to tax under the head of 'Profits and Gains of Business or Profession' is of the whole of the amount of profits and gains of business attributable to any one or more of its activities. Thus, all amounts as can be attributable to the conduct of the specified businesses by a Co-operative Society will be eligible for the deduction envisaged under the statutory provision. The question that arises therefore is whether, merely because the assessee chooses to deposit its surplus profit in a permitted bank or financial institution, and earns interest on such deposits, such interest would cease to form part of its profits and gains attributable to its business of providing credit facilities to its members? In our view that question must be answered in the negative, since we cannot accept the contention of the Revenue that the interest earned on those deposits loses its character as profits/gains attributable to the main business of the assessee. It is not as though the assessee in the instant case had used the surplus amount [the profit earned by it] for an investment or activity that was unrelated to its main business, and earned additional income by way of interest or gain through such activity. The assessee had only deposited the profit earned by it in the manner mandated under Section 63 of the Multi-State Co- operative Societies Act, or permitted by Section 64 of the said Act. In other words, it dealt with the surplus profit in a manner envisaged under the regulatory Statute that regulated, and thereby legitimized, its 8 ITA Nos.17 & 18/PUN/2026 [A] business of providing credit facilities to its members. Under those circumstances, if the assessee managed to earn some additional income by way of interest on the deposits made, it could only be seen as an enhancement of the profits and gains that it made from its principal activity of providing credit facilities to its members. The nature and character of the principal income [profits earned by the assessee from its lending activity] does not change merely because the assessee acted in a prudent manner by depositing that income in a bank, instead of keeping it in hand. The provisions of the I.T. Act cannot be seen as intended to discourage prudent financial conduct on the part of an assessee." Unquote (emphasis supplied) 10.1 What emerges from the above referred decisions of Hon'ble Supreme Court and Hon'ble High Courts is that Interest earned by Cooperative Credit Society registered under state cooperative society Act, which is engaged in the business of providing credit facilities to its members, from funds deposited with Cooperative Bank or Bank is eligible for deduction u/s 80P(2)(a) (i) of the Act.
10.2 Similar view has been taken by ITAT Pune Bench in the case of ITO Vs. Dhanshri Multi State Cooperative Society Ltd in ITA No.463/PUN/2024, Arth Nagari Sahakari Patsanstha Limited vs ITO Arth Nagari Sahakari Patsanstha Limited.
11. No contrary decision has been brought to our notice by ld.DR for the Revenue.9
ITA Nos.17 & 18/PUN/2026 [A] 11.2 In these facts and circumstances of the case, we direct ld.Assessing Officer to allow the deduction u/s.80P(2)(a)(i) of the Act. Accordingly, grounds of appeal raised by the Assessee are allowed.
12. In the result, appeal of the Assessee is allowed. ITA No.17/PUN/2026
13. After hearing both sides, we find the grounds raised by the Assessee in ITA No.17/PUN/2026 are identical to the grounds raised in ITA No.18/PUN/2026. We have already decided the issue and allowed the grounds raised by the Assessee. Following similar reasonings, "Lead Appeal" of the Assessee shall apply mutatis- mutandis to this appeal ITA No.17/PUN/2026 also, accordingly, grounds of appeal raised by the Assessee are allowed.
14. To sum up, both appeals of the assessee are allowed.
Order pronounced in the open Court on 26 February, 2026.
Sd/- Sd/-
VINAY BHAMORE Dr.DIPAK P. RIPOTE
JUDICIAL MEMBER ACCOUNTANT MEMBER
पपणे / Pune; ददिधंक / Dated : 26 Feb, 2025/ SGR
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ITA Nos.17 & 18/PUN/2026 [A]
आदेशकीप्रनिनलनपअग्रेनषि / Copy of the Order forwarded to :
1. अपऩलधर्थी / The Appellant.
2. प्रत्यर्थी / The Respondent.
3. The CIT(A), concerned.
4. The Pr. CIT, concerned.
5. नवभधगऩयप्रनिनिनर्, आयकर अपऩलऩय अनर्करण, "एस एम सऩ" बेंच, पपणे / DR, ITAT, "SMC" Bench, Pune.
6. गधर्ाफ़धइल / Guard File.
आदेशधिपसधर / BY ORDER, / / TRUE COPY / / सहधयक रनिस्ट्रधर /Assistant Registrar आयकर अपऩलऩय अनर्करण, पपणे/ITAT, Pune.
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