TaxTMI 
TaxTMI 
2026 (8) TMI 197
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....section 143(3), are opposed to law, facts, equity, principles of natural justice, and probabilities of the case, and are therefore liable to be quashed in entirety. The appellant denies each and every addition, disallowance, and adverse inference drawn therein. 2. The learned CIT(A) erred in disallowing the deduction claimed under section 80P(2)(a)(i), despite the appellant being a duly registered credit co-operative society engaged exclusively in providing credit facilities to its members. All statutory conditions prescribed for availing deduction under section 80P(2)(a)(i) are fully satisfied. 3. Interest income of 251,68,727 pertains to statutory/reserve fund deposits, which the appellant is mandatorily required to maintain under the Karnataka Co-operative Societies Act, 1959, and the Rules framed thereunder. Such interest income is wholly eligible for deduction under section 80P(2)(a)(i). * Siddhartha Pattina Sahakari Sangha Niyamita v. ITO (ITA No. 2113/Bang/2024, order dated 29.05.2025) - Held that interest earned on statutory/reserve fund deposits maintained as per the Karnataka Co-operative Societies Act is attributable to the business of providin....
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....tive society, the resultant interest income cannot be treated as " Income from Other Sources." 7A Without prejudice to the above, section 80P(2)(d) claim: The learned CIT(A) erred in not adjudicating and allowing the appellant's statutory alternative claim under section 80P(2)(d) in respect of interest earned from deposits made with co-operative banks, which are themselves co-operative societies. 8. Without prejudice to the primary contention under section 80P(2)(a)(i), the learned CIT(A) erred in rejecting the alternative claim for deduction under section 57(iii) in respect of interest paid to members and administrative expenses wholly and exclusively incurred for earning interest income. 9. The learned authorities failed to consider relevant documents placed on record, including bye-laws, statutory investment provisions, fund-flow statements, and interest ledgers, resulting in violation of principles of natural justice. 10. The learned CIT(A) erred in passing a mechanical and nonspeaking order without properly examining the appellant's factual matrix and the judicial precedents relied upon. 11. The initiation of penalty proceed....
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....ordingly, interest income of Rs. 1,56,03,018 was added to the assessee's income as "Income from other sources", and the assessment order was passed on 7 March 2025. 4. Aggrieved, the assessee preferred an appeal before the learned CIT(A). It contended that the issue was covered in its favour by several decisions, including those of the Hon'ble Karnataka High Court in Tumkur Merchants Souharda Credit Co-operative Ltd. and Totgars Cooperative Sale Society Ltd. The assessee also submitted that it had not claimed deduction on the basis that the interest income was taxable as income from other sources; rather, its case was that the interest income was taxable as business income. The learned CIT(A) confirmed the action of the Assessing Officer, holding that the interest income was chargeable under the head "Income from other sources" unless the assessee established a nexus with its business activity. The assessee also raised an alternative claim for deduction of cost of funds under section 57(iii) of the Act, which was rejected on the ground that the assessee had not established a nexus between the borrowings and the interest income earned. The appeal was accordingly dismissed. 5. ....
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....e appeal is admitted for adjudication on merits. 8. The learned Authorised Representative, Shri Girish T.L., Chartered Accountant, filed a paper book and written submissions. We also heard Shri Nishant Agarwal, learned Departmental Representative, on the issue. 9. We have carefully considered the rival submissions and perused the orders of the lower authorities. The admitted facts are that the assessee is a credit co-operative society engaged in providing credit facilities to its members. The assessee earned interest income of Rs. 1,56,03,018, which it claimed as deduction under section 80P(2)(a)(i) of the Income-tax Act. The interest income comprised interest on savings accounts and fixed deposits maintained with various co-operative societies and other banks. The assessee contended that the deposits were made for the purposes of its business and that the entire profit attributable to its activity of providing banking/credit facilities to members was eligible for deduction under section 80P(2)(a)(i). The Assessing Officer, however, held that the interest income was chargeable to tax as "Income from other sources" and not as business income. Relying on decisions of the Hon'bl....
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....ted below: "11. The Assessment Years involved in the present batch of appeals are Assessment Years 2007-2008 to 2011- 2012. The bone of contention is that the deduction under Section 80P(2) of the Act is now claimed by the respondent assessee under Section 80P(2)(d) of the Act and not under Section 80P(2)(a) of the Act. The reason is that now the investments and deposits after the Supreme Court's decision against the assessee Totgar's Co-operative Sale Society Ltd. (supra), the assessee has shifted the deposits and investments from Schedule Banks to Co-operative Bank and such Co-operative Bank is essentially a Co-operative Society also and Clause (d) allows deduction of income by way of interest or dividends derived by the assessee Co-operative Society from its investments with any other Co-operative Society. 12. In view of the above facts, we find that the assessee's case falls within the category of cases where deduction is claimed under section 80P(2)(a)(i) of the Income-tax Act and not under section 80P(2)(d). Therefore, the decision, relied upon by the Revenue authorities, does not apply to the facts of the present case. 13. In the present case, since th....