TaxTMI 
TaxTMI 
2026 (1) TMI 965
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....e prevailing circumstances of the case, respected PCIT Pune 1 erred passing the impugned Revision Order under section 263 without appreciating the submission made by the assessee society and the judgments of Hon'ble Jurisdictional Pune ITAT. Hence, the impugned order under section 263 may please be squashed. 3. The Appellate craves the permission to add, amend, modify, alter, revise, substitute, delete any or all grounds of the appeal, if deemed necessary at the time of hearing of the appeal." 3. Briefly stated, the facts of the case are that the assessee is a cooperative credit society registered under the Maharashtra Co-operative Societies Act, 1950 and engaged in providing credit facilities to its members and accepting deposits. For AY 2020-21, the assessee e-filed its return of income on 22.01.2021 declaring a total income of Rs. 65,570/- after claiming a deduction u/s 80P(2) of the Income Tax Act, 1961 (the "Act") of Rs. 49,84,373/-. The case of the assessee was selected for scrutiny under CASS to verify the following issues: (i) High Creditors/liabilities; (ii) Investments/Advances/Loans and (iii) Deduction from Total Income under Chapter VI-A. Accordingly, st....
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....ingly, the Ld. PCIT issued notice to the assessee involving the provisions of section 263 of the Act on 03.12.2024, followed by another notice issued on 17.02.2025. The assessee filed its reply to the said notice(s) on 22.02.2025 a copy of which is placed at pages 53 to 66 of the paper book. However, the Ld. PCIT not being satisfied with the reply/submission made by the assessee held the order passed by the Ld. AO as erroneous in so far as it is prejudicial to the interest of Revenue by observing as under: "5. I have carefully considered the entire written submission of the assessee. It is seen that the assessee has made following investments with other cooperative banks, as appearing in its balance sheet as on 31/03/2020. Sr. No. Name of the Bank Amount (Rs. ) 1 Ahmednagar DCC Bank Ltd. (FD) 1,23,11,262/- 2 Ahmednagar DCC Bank Ltd. (Shares) 1,50,00,000/- The assessee has earned interest income of Rs. 8,58,563/- and dividend income of Rs. 9,00,000/- during the year under consideration. The assessee has claimed total deduction of Rs. 17,58,563/- u/s. 80P(2)(d) on the said income which was prima facie found to be not verified by the FAO. T....
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.... total income and tax thereon as per system generated sheets, Copy of order and Demand Notice issued to the assessee." Even a cursory look on the assessment order shows that the FAO has not confirmed any verification or inquires made by him in respect of the assessee's submission. In para (3) of the order, the FAO has made only a general remark that the returned income is accepted based on the records available and submission of the assessee during the assessment proceedings. The FAO has not given any details as to what were the documents/evidences submitted by the assessee; what verifications were made; how they were related to the issues for which the case was selected for scrutiny, the reason and basis of the conclusion etc.. Considering the above facts revealed from the assessment order, the assessee's contention that the FAO had made proper inquiries and verification is totally ill-founded. The assessee has relied upon various decisions in support of its above contention, without giving any citation, in this regard viz. CIT vs. Smt. Sneh Lata (2015)-Delhi High Court, CIT vs. Haryana Acrylic Manufacturing Co. (2014)-Panjab & Haryana High Court, CIT vs. Jyoti Lt....
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....n as to whether such investment is out of surplus funds or a temporary investment out of available liquid funds. The FAO has not made any inquiries in this regard. The FAO ought to have made further inquiries to determine whether they are organically emerged from assessee's business of providing credit facilities to its members or a result of investment of surplus funds/profits made primarily to earn interest, whether it is an activity of temporary parking of funds as a part and parcel of banking operations or an investment activity. Such an exercise was not carried out by the FAO. If the investments made by the assessee are in excess of the statutory requirement as contended by it, the FAO has to conduct necessary examinations and enquiries to find out the intent of the assessee in making such investments and also the correct nature of these activities. 6.3 In case such interest income doesn't constitute the operational income of the assessee society then the ratio of the decision of the Apex Court, which is the law of land, becomes fully applicable to the case of the assessee and such income will fall in the category of 'other income' which needs to be ta....
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....derived by the Cooperative society from its investments with any other co-operative society the whole of such income" On a plain reading of the above provision, it is clear that the section refers to interest and dividends earned from investments in another co-operative society only. Thus, this deduction cannot be extended to the interest income earned from the investment in any co-operative bank. It is well-settled rule of interpretation that the Legislative mandate should be so read that no word used by the Parliament should be rendered nugatory. If the word "co operative society" is to read as "Co operative bank" the same would render the entire provision redundant, otiose and nugatory, an outcome which the Parliament could surely not have intended. It has also been further clarified in Oswal Agro Mills case reported in 1993 (66) ELT 37 (S.C.) that "where the words of the statute are plain and clear, there is no room for applying any of the principles of interpretation which are merely presumption in cases of ambiguity in the statute. The Court would interpret them as they stand. The object and purpose has to be gathered from such words themselves. Words should....
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....d) of the Act. From a plain reading of section 80P(2)(d) of the I.T. Act it is apparent that to claim deduction under the said section, the income must have been earned by way of interest or dividends and the income must be derived from investment with any other co-operative society only. Hon'ble Karnataka High Court in the case of PCIT, Hubballi vs. Totagars Co-operative Sale Society [(2017) 395 ITR 611 dated 16.06.2017] (supra) held at para 23 as under: "The character of income depends upon the nature of activity for earning the income and though on the face of it, the same may appear to be falling in any of the specified clauses of section 80P(2) of the Act, but on a deeper analysis of the facts, it may become ineligible for deduction under section 80P(2) of the Act. Hence, the income by way of interest earned by deposit or investment of idle or surplus funds does not change its character irrespective of the fact whether such income of interest is earned from a scheduled bank or a co-operative bank and, thus, clause (d) of section 80P(2) of the Act would not apply in the facts and circumstances of the present case. The person or body corporate from which such intere....
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....ct altogether to any co-operative bank and to exclude the normal business banking income from such exemption/deduction category. 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." Thus, the intention of Legislature is to keep the co-operative banks out of the scope of section 80P of the Income Tax Act, 1961. Once the provisions of section 80P are not applicable to Co-operative Banks, for all purposes they have to be kept out of the scope of the section. Wherever the word 'cooperative society' is used in section 80P, it will not be applicable for cooperative banks. This means that the interest income derived from deposits / investments in co-operative banks are not eligible for deduction u/s. 80(P)(2)(d) of Income Tax Act, 1961 1961. As held by Hon'ble Karnataka High Court in PCIT, Hubballi vs. Totagars Cooperative Sale Society [(2017) 395 ITR 611 dated 16.06.2017] (supra), the amendment of Section 194A(3)(v) of the Act excluding the Co-operative Banks from the definition of "Co-operativ....
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....duction u/s. 80P of the Act without considering the aspects discussed above; without making proper verification in this regard with regard to the contentions put forth by the assessee during the source of assessment proceedings and without examining the facts of the case. Failure on the part of the FAO rendered the assessment order dated 20/09/2022 under section 143(3) read with section 144B of the Act as erroneous and also prejudicial to the interests of revenue. 9. In the light of the facts discussed in the foregoing paragraphs, the order passed on 20/09/2022 under section under section 143(3) read with section 144B of the Act is erroneous and prejudicial to the interests of revenue. Thus, both the conditions specified under section 263 of the Act are satisfied in this case and it is a fit case to invoke provisions of the said section. In view of the above, the assessment order dated 20/09/2022 for the A.Y. 2020-21 is hereby set aside to the file of the Assessing Officer for proper verification of fact and to re-examine the issue considering the aspects discussed in the foregoing paragraphs and decide the issues afresh. However, before arriving at any conclusion, the Ass....
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....o which the assessee replied and accordingly, he accepted the income returned by the assessee. Hence, in our view, since the Ld. AO in the instant case has in fact made enquiry on the issue and taken a plausible view, therefore, the same cannot be considered as erroneous although it may be prejudicial to the interest of the Revenue. 12. Admittedly, the assessee has earned interest and dividend income from investments made with Co-operative Bank during the relevant AY under consideration. We find that the impugned issue in respect of which the Ld. PCIT has invoked the provisions of section 263 of the Act is covered in favour of the assessee by catena of decisions of the Co-ordinate Bench(es) of the Tribunal including the decision of the Pune Bench in assessee's own case in Ahmednagar Zilla Gramsevakanchi Sahakari Patsanstha Maryadit Vs. ITO in ITA No. 1592/PUN/2025 for AY 2022-23 dated 21.07.2015 wherein a consistent view has been taken that the income earned by a co-operative society from investments made with the co-operative banks qualify for deduction under the provisions of section 80P(2)(a)(i)/80P(2)(d) of the Act. 13. The Co-ordinate Bench in the assessee's own case for....
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....s 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 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 senio....
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....butable 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 Cooperative Societies Act, or permitted by Section 64 of the said Act. In other words, it dealt....
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.... favour of the Assessee." Unquote 6.1 The above order of Hon'ble Supreme Court was rendered in the context of the appeal filed by the Revenue against the order dated 14-10-2019 passed by the Hon'ble High Court of Judicature at Bombay in ITA No.933/2017, by which the High Court has dismissed the said appeal preferred by the Revenue. 7. The Hon'ble Bombay High Court's order in ITA No.933/2017 dated 14.10.2019 in the case of Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd., emanates from the ITAT order in ITA No.2515/MUM/2014 dated 20.05.2016. The facts recorded in the ITAT order in ITA No.2515/MUM/2014 are that Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd., is a Co-operative CreditSociety registered under the Maharashtra Co-operative Society Act, had claimed deduction under section 80P(2)(d) of the Income Tax Act, 1961 as well as Rs. 5,85,57,676/- claimed under section 80P(2)(a)(i) of theAct. The Assessing Officer disallowed the claim of deduction u/s.80P(2) in the case of Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd. The Revenue in the appeal filed before ITAT in ITA No.2515/MUM/2014 has raised following questions: "(i) On the facts an....
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.... PCIT is not justified in invoking the provisions of section 263 of the Act. We, therefore, set aside the order of the Ld. PCIT. The grounds of appeal raised by the assessee are accordingly allowed. 15. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 25th November, 2025. ============= Document 1 Notice under section 143(2) of the Income-tax Act, 1961 PAN: AAAAA6582G JA777436326IN Name: AHMEDNAGAR ZILLA GRAMSEVAKANCHI SAHAKARI PATSANSTHA MARYADIT AHMEDNAGAR DIN: ITBA/AST/S/143(2)/2021-22/1033764253(1) Date: 29/06/2021 Assessment Year: 2020-21 Financial Year: 2019-20 Address: 1 OPP SARDAR PATEL KARYALAY , BEHIND DR.KETKAR HOSPITAL AHMEDNAGAR AHMEDNAGAR 414001 , Maharashtra आपको यह संचार कà¥à¤¯à¥‹à¤‚ मिल रहा है? Why are you getting this communication? पà¥à¤°à¤¿à¤¯ करदाता, Dear Taxpayer, पà¥à¤°à¤¾à¤°à¤®à¥à¤ में आयकर विà¤à¤¾à¤— आपकà....
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....¤à¤¾ है? What is/are the Issue(s) on which further clarification is required initially ? S No Issue i. High Creditors/ liabilities ii. Investments/Advances/Loans Deduction from Total Income under Chapter VI-A चूंकि यह समà¥à¤ªà¥‚रà¥à¤£ संवीकà¥à¤·à¤¾ है, निरà¥à¤§à¤¾à¤°à¤£ पà¥à¤°à¤•à¥à¤°à¤¿à¤¯à¤¾ के दौरान और पà¥à¤°à¤¶à¥à¤¨ किठजा सकते हैं। Since it is a complete scrutiny, further queries may arise during the course of assessment proceedings. आपको कà¥à¤¯à¤¾ करने की आवशà¥à¤¯à¤•à¤¤à¤¾ है? What you need to do? आप ई-फाइलिंग वेबसाइट (www.incometax.gov.in) में इलेकà¥à¤Ÿà¥à¤°à¥‰à¤¨à¤....
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....nt represent Equity share of Ahmednagar District Central Co-operative Bank. 2 Non Refund Saving 1,23,11,262.54/- This amount represent investment in non refund saving in Ahmednagar District Central Co- operative Bank. Total 2,73,11,262.54/- 2) Loans & Advances Sr.No Head Amount Particular 1 Loans & Advances 18,87,13,749.00/- This amount Represent loan given to members of the said society. Total 18,87,13,749.00/- B) Deduction From total Income under chapter VI-A a) Profit form Providing Credit facility to Members U/S 80P(2)(al) RS 31,75,810/- The assesse is co-operative society registered under the Maharashtra state co-operative societies Act 1960 formed for the benefit of Gramsevak i.e employees of Grampanchayat and Zilha Parishad Servants in the Ahmednagar District. The members of the society are only Government servants. As per the Registration Certificate, the Co-operative society has been classified as Resource Society and sub- classified as loan giving Credit Resource Society. The Main Objective & business of Society is accepting deposits from members and lending money to the members of the society. The Assessee Society providing credit faciliti....
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....-section (2) gives exemption of whole of the amount of profits and gains of business attributable to anyone or more of such activities which are mentioned in sub-section (2). S. NAIK Resi: SA, Shrirampur Hisg. Society, Opp. German Hospital, Shrirampur-413709, Tel:225753, 225754 Document 3 N.S.Naik & Co. CHARTERED ACCOUNTANTS nc Continuation Sheet Similar view taken by respective Courts & authorities in following cases i) Daee Coop T&C Society Vs ACIT (ITAT Chennai) ITA No .: 3047/CHNY/2019 Hi)Jai Mataji Co-operative Credit Society Lad VIS ITO. ITA No.3334/Mum./2017 ITAT Mumbai HIJCIT Vs Kanchangauri Mahila Sahakari Patpedhi Maryadit (ITAT Mumbai) ITA No. 780/Mum/2018 Therefore as the assessee is a co-operative society registered under the Maharashtra state co-operative societies Act 1960, engaged in providing credit facilities to its members, filed Return of Income & claimed the deduction U/S 80P(2)(a)(i) of Rs 31,75,810.44/- derived from the above activity while computing the total income of the assessee. b) Co-operative Bank Interest & Divident U/S 80P(2)(d) Rs 17.58.563.00/- As per the wording of Sec 80P(2)(d) .... (1) Where in the case of an as....
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....3/2021 (g) Pr. Commissioner of Income Tax and Anr. Vs. Totagars Cooperative Sale Society (2017) 392 ITR 74 (Karn) Hon'ble High Court of Karnataka (h) State Bank Of India Vs. CIT (2016) 389 ITR 578 (Guj) Hon'ble High Court of Gujarat In all the above cases the respected authorities mention that the interest income earned by the assessee on its investments with a co-operative bank would be eligible for claim of deduction under Sec. 80P(2)(d) of the Act. Once the assessee has earned interest income as a part of its business activity and S. NAD · Resi: 5A, Shrirampur Hig, Society, Opp. German Hospital, Shrirampur-413709,Tel:225753, 225754 CO 65 Document 4 N.S.Naik & Co. CHARTERED ACCOUNTANTS 7 n Continuation Sheet such interest income is earned out of the funds belonging to its members, then the assessee is entitled for deduction u/s 80P(2)(d) of the Act in respect of such interest income Similarly In M/s Solitaire CHS Ltd. Vs, Pr.CIT-26 ITA No.3155/Mum/2019 dated 29/11/2019 Hon ITAT Mumbai mention that- "We are of the considered view, that though the co-operative banks pursuant to the insertion of subsection (4) to Sec. 80P would no more b....
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.... 5. Detailed note on objectives of the entity. 6. Detailed note on the income earned under the different heads. 7. Documentary evidence in respect of investment/ expenditure/ payment etc. made to claim the deductions. B ) With respect to Investments / Loans appearing in balance sheet during the year, kindly provide the following details: i) With respect to investments in preferential shares, provide the following details: a) Name and quanity of the shares held b) Purchase price per unit and total purchase consideration c) Date of purchase d) Source of funds for investment e) Date of sale, sale consideration and calculation of capital gains/loss on sale ii) Provide the details of Long term Investments 'Others' amounting to Rs. 12311263/- C) i) Furnish the details of Loans from others in the following table :- Page 2 of 3 1 Document 6 N.S.Naik &Co CHARTERED ACCOUNTANTS Nishikant Complex, Shivaji Road Shrirampur Dist Ahmednagar-413709 Tel: 225755, 225756 CA Ref :- IT-4/1/2019-20 Date : 23/03/2022 To. Assistant Commissioner of Income Tax NAFAC-1(1)(2) Delhi Respected Sir, Sub. - Reply to your notice of under section 142(1) o....
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....2017 mention that there cannot be any dispute to the proposition that Section 80P of the Act is a benevolent provision which is enacted by the Parliament in order to encourage and promote growth of co-operative sector in the economic life of the country. It was done pursuant to declared policy of the Government. Therefore, such a provision has to be read liberally, reasonably and in favor of the assessee. It is also trite that such a provision has to be construed as to effectuate the object of the Legislature and not to defeat it. Therefore, it hardly needs to be emphasized that all those co-operative societies which fall within the purview of Section 80P of the Act are entitled to deduction in respect of any income referred to in sub-section (2) thereof. Clause (a) of sub-section (2) gives exemption of whole of the amount of profits and gains of business attributable to anyone or more of such activities which are mentioned in sub-section (2). Similar view taken by respective Courts & authorities in following cases i) Dace Coop T&C Society Vs ACIT (ITAT Chennai) ITA No .: 3047/CHNY/2019 il)Jai Mataji Co-operative Credit Society Ltd VIS ITO. ITA No.3334/Mum./2017 ITAT Mumbai ili)....
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....y requirement & earned interest on the said deposits. Similarly the assessee Society has taken loan from Ahmednagar District Central co-operative banks (ADCC Bank) to grant loans to members. For taking loan the Assessee Society has to Resi: 5A, Shrirampur Hsg. Society, Opp. German Hospital, Shrirampur-413709,Tel:225753, 225754 · Resi: 5A, Shrirampur Hsg. Society, Opp. German Hospital, Shrirampur-413709,Tel:225753, 225754 2 Shrirampu" 41370% 1. FRED A Document 8 3 N.S.Naik & Co. CHARTERED ACCOUNTANTS Continuation Sheet become member of ADCC Bank & has to subscribe for Shares each & every time while taking loan. The society received the Dividend on the said shares amount. Following cases are resolved on the same lines 1. State Bank Of India Vs. CIT (2016) 389 ITR 578 (Guj) Hon'ble High Court of Gujarat 2. Pr. Commissioner of Income Tax and Anr. Vs. Totagars Cooperative Sale Society (2017) 392 ITR 74 (Karn) Hon'ble High Court of Karnataka 3. M/s Solitaire CHS Ltd. Vs. Pr. Commissioner of Income-tax-26 ITA No.3155/Mum/2019 dated 29/11/2019 Therefore Once the assessce has earned interest income as a part of its business activity and....
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....lculation of capital gain / loss. No Sale. Hence not applicable. il) Long Term Investment of Rs. 1,23,11,263/- - This amount represent reserve fund saving account in ADCC bank. As per Maharashtra Co- operative Society Act, 1960 every co-operative society has to keep 25% of his current profit as reserve fund in District central co-operative bank . This amount represent cumulative balance of profit deposited every year in ADCC bank . C) i. Loan From Other- This amount represent members deposit as on 31" March, 2020.Assesse collect specific percentage of amount from members while granting loan to them . This amount will be refunded at the time of retirement of member or resignation from membership by member. Assesse has total 757 members.All are employee of Ahmednagar Zilha Parishad. The details regarding member wise PAN, opening balance, loan repayment are not readily available. But the details regarding name of the members, interest paid and closing balance are available and the list of the same is attach for your reference. The summery of members deposit are as below- Sr. No Name. PAN Opening Balance Loan Taken Repayment Interest paid Closing Balance As per Li....