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6. Before us, the ld. AR, Shri Pramod Shingte submits that the Pr. CIT held that the deduction u/s. 80P2(d) of the Act is not allowable for assessee as such the interest and dividend has not earned from Co- operative Society, further, that there was lack of enquiry by the AO in terms of principle laid down by the Hon'ble Supreme Court in the case of Totgar's Co-operative Sale Society Ltd. (supra). The assessee is not entitled to claim the interest and dividend earned as deduction as the same were earned from Co-operative Bank. The ld. AR referred to page 102 of the paper book and submitted that the case of assessee was selected for scrutiny on the basis of reasons contained therein. He argued that the assessee submitted all the requirements as sought by the AO in assessment proceedings in terms of reason No. 1 relating to claims under Chapter VI-A. Further, he referred to page 99 and submitted the AO issued questionnaire, the relevant question being at Sl. No. 18 in page 99 wherein the assessee submitted all the details of tax free income earned. The relevant details are placed at page 91 of the paper book. Further, he referred to page 81 regarding the claim made u/s. 80P of the Act for an extent of Rs.3,78,00,559/-. He argued all the details as required by the AO in the assessment proceedings submitted for its consideration and by verification the AO allowed deduction u/s. 80P of the Act, argued that there was no lack of enquiry as found by the Pr. CIT. The interest income and dividend earned thereon were rooted to the reserve account without crediting in the profit and loss account and referred to pages 30 and 31 of the paper book and submitted that the same was added and computed in the return of income as income and offered to tax. Further, holding the Co-operative Bank is different from Co-operative Society and the income earned from Co-operative Bank on fixed deposits towards interest is not business income as held by the Pr. CIT is highly debatable issue. He submits that the Co-operative Banks also registered as Co-operative Society under Maharashtra State Co-operative Societies Act but whatever the name it may suggest, but in actual fact they are Co-operative Societies. The Pr. CIT pointed no error in the assessment order and prayed to set aside the order passed by the Pr. CIT.

"13. What Section 80P(2)(d) of the Act, which was though not specifically argued and canvassed before the Hon'ble Supreme Court, envisages is that such interest or dividend earned by an assessee co- operative society should be out of the investments with any other co- operative society. The words 'Co-operative Banks' are missing in clause (d) of subsection (2) of Section 80P of the Act. Even though a co- operative bank may have the corporate body or skeleton of a co- operative society but its business is entirely different and that is the banking business, which is governed and regulated by the provisions of the Banking Regulation Act, 1949. Only the Primary Agricultural Credit Societies with their limited work of providing credit facility to its members continued to be governed by the ambit and scope of deduction under Section 80P of the Act.

14. The banking business, even though run by a Co-operative bank is sought to be excluded from the beneficial provisions of exemption or deduction under Section 80P of the Act. The purpose of bringing on the statute book sub-section (4) in Section 80P of the Act was to exclude the applicability of Section 80P of the Act altogether to any co-operative bank and to exclude the normal banking business income from such exemption/deduction category. The words used in Section 80P(4) are significant. They are: "The provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society .....". The words "in relation to" can include within its ambit and scope even the interest income earned by the respondent- assessee, a co-operative Society from a Co-operative Bank. This exclusion by Section 80P(4) of the Act even though without any amendment in Section 80P(2)(d) of the Act is sufficient to deny the claim of the respondent assessee for deduction under Section 80P(2)(d) of the Act. The only exception is that of a primary agricultural credit society. The depository Kanara District Central Bank Limited in the present case is admittedly not such a primary agricultural credit society.

10. On perusal of para 14 above, the Hon'ble High Court Karnataka held that the words 'Co-operative Banks' are missing in clause (d) of subsection (2) of Section 80P of the Act. Even though a co- operative bank may have the corporate body or skeleton of a co-operative society but its business is entirely different and that is the banking business, which is governed and regulated by the provisions of the Banking Regulation Act, 1949. Therefore, it is clear the interest income earned from Co-operative Bank is sought to be excluded as exemption or deduction u/s. 80P(2)(d) of the Act. In the present case, the assessee is a Co-operative Society engaged in the business of manufacturing of sugar and by-products. As rightly argued by Shri Deepak Garg that the assessee is not under the activities of specified under Clause (d) or (b) of section 80P, but under Clause (c), as discussed above the assessee earned interest and dividend income from Latur District Central Co-operative Bank and Vikas Sahakari Bank Ltd. clearly shows the interest and dividend earned by the assessee are not from Co-operative Society. Therefore, in our opinion the AO on incorrect assumptions of facts without applying correct application of law allowed deduction u/s. 80P2(d) of the Act which clearly reflects non application of mind.