TaxTMI 
TaxTMI 
2026 (9) TMI 487
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....its and providing credit facilities to its members. For the assessment year 2016-17, the assessee has not filed its return of income as per section 139(1) of the Act. 3.1 Subsequently, a notice under section 148 of the Act was issued based on specific information. In response to the notice u/s 148, the assessee filed its return for the first time declaring total income at NIL after claiming deduction u/s 80P(2)(a)(i) of the Act for Rs. 9,43,253/- only. 3.2 During the assessment, the AO noticed that the gross income of the assessee included interest income earned from banks also, and the assessee claimed a deduction under section 80P(2)(a)(i) of the Act on such interest income earned from banks. The AO noted that the interest income earned from banks is to be considered as income from other sources, which is not eligible for deduction u/s 80P(2)(a)(i) of the Act. In holding so, the AO relied on various case laws, including the judgment of the Hon'ble Supreme Court in the case of Totgars Co-Operative Sale Society Ltd. v. ITO [2010] 322 ITR 283 / 188 Taxman 282 (SC) and the judgment of the Hon'ble Gujarat High Court in the case of SBI v. CIT (2016) 389 ITR 578 (Guj) etc. 3.3 ....
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....om investments of surplus funds, even if placed with co-operative banks, is not attributable to the business of providing credit to members and is assessable under the head "Income from Other Sources". Several High Courts, including Punjab & Haryana, Gujarat, Delhi, and Calcutta, have reiterated this principle. The AO has rightly applied this dictum and held that the appellant cannot claim deduction under section 80P(2)(a)(i) on such income. Section 80P(4) also specifically excludes co-operative banks other than primary agricultural credit societies or primary cooperative agricultural and rural development banks. The appellant is admittedly a Souharda Credit Cooperative Society, and its claim to blanket exemption is not tenable. The reliance placed by the appellant on isolated ITAT decisions does not override the binding authority of the Hon'ble Supreme Court and jurisdictional High Courts. Thus, the disallowance made is legally justified. 5. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us. 6. The learned AR before us file a paper book running from pages 1 to 78 and submitted that the AO wrongly denied the deduction u/s 80P(2)(a)(i) of ....
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....on 80P(2)(a)(i) of the Act for the first time. 8.2 The AO disallowed the claim of the assessee by initially invoking the 6th proviso to section 139(1) of the Act. We note that the proviso as applicable to A.Y. 2016-17 mandated certain persons (individuals, Hindu undivided families, associations of persons, bodies of individuals, or artificial juridical persons) to furnish a return within the due date of 139(1) if their total income, without giving effect to certain exemptions or Chapter VI-A deductions, exceeded the maximum amount not chargeable to income-tax. Crucially, this proviso did not explicitly include 'co-operative society' in the list of entities to whom it applied. Furthermore, section 80P of the 1961 Act falls under Chapter VI-C, not Chapter VI-A, which was referenced in the proviso. Therefore, the AO's reliance on this proviso for disallowing the section 80P deduction for a cooperative society appears to be legally incorrect. 8.3 The AO also invoked section 80AC of the 1961 Act. We find that for AY 2016-17, section 80AC of the Act, as it stood, stipulated that deductions under sections 80IA, 80IAB, 80IB, 80IC, 80ID, or 80IE would not be allowed unless....
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.... legally sustainable, would generally be considered a change in the legal justification for the same disallowance, rather than introducing a new ground of disallowance. This is permissible, provided the assessee is given a fair opportunity to present their case against the new legal basis. 8.6 From the order of the learned CIT(A), we note that there was no opportunity provided to the assessee to present its case against the new legal basis, i.e. making disallowances by invoking the provision of section 80A(5) of the Act. 8.7 It is also pertinent to highlight that the learned CIT(A) held that "the language of section 80A(5) as well as the sixth proviso to section 139(1) makes it abundantly clear that no deduction under Chapter VIA, including section 80P, shall be allowed unless the return is filed within the time prescribed under section 139(1)". In our considered opinion, the view expressed by the learned CIT(A) is misplaced. In the preceding paragraph, 8.8 we have already held that the provision of the 6th proviso to section 139(1) of the Act does not cover the deduction u/s 80P of the Act. Furthermore, section 80A(5) requires only that the claim be made in the r....
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.... Act is deemed to be a return furnished under section 139 of the 1961 Act, it should satisfy the condition of "make a claim in his return of income" as required by section 80A(5) of the Act. 8.11 Be that as it may be. The learned DR before us placed reliance on the ruling of the Hon'ble Kerala High Court in the case of Nileshwar Rangekallu Chethu Vyavasaya Thozhilali Sahakarana Sangham v. CIT reported in [(2023) 152 taxmann.com 347 / 459 ITR 730] and submitted that the assessee filed its return of income after the expiry of the period allowed in the notice issued under section 148 of the Act. Therefore, applying the ratio of the Hon'ble Kerala High Court, the assessee is not eligible for the deduction u/s 80P of the Act. 8.12 We note that the assessee Nileshwar Rangekallu Chethu Vyavasaya Thozhilali Sahakarana Sangham, a cooperative society registered under the Kerala Act, did not file their return of income for A.Y. 2009-10. Accordingly, notice under section 148 of the Act was issued on 6-2-2012 requiring the assessee to furnish a return of income within 30 days of receipt of the notice. The assessee failed to file the return of income in response to the notice under section....
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....on under section 80P could be made by an assessee in a return filed within the time prescribed for filing such returns under any of the above provisions. The amendment to Section 80AC with effect from 1-4-2018, however, mandated that for an assessee to get a deduction under section 80P of the IT Act, he had to furnish a return of his income for such assessment year on or before the due date specified in section 139(1) of the IT Act. In other words, after 1-4-2018, even if the assessee makes his claim for deduction under section 80P in a return filed within time under sections 139(4), 142(1) or section 148, he will not be allowed the deduction, unless the return in question was filed within the due date prescribed under section 139(1). Thus, it is clear that the statutory scheme permits the allowance of a deduction under section 80P of the IT Act only if it is made in a return recognised as such under the IT Act, and after 1-4-2018, only if that return is one filed within the time prescribed under section 139(1) of the Act. As the return in these cases, for the assessment years 2009-10 and 2010-11, were admittedly filed after the dates prescribed under sections 139(1) and 139(4) or ....
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....nd the same is accepted as a valid return by the AO while finalising the assessment, the condition prescribed under section 80A(5) of the Act has been fulfilled. Therefore, in view of the above detailed discussion, we hold that the AO and the learned CIT(A) erred in disallowing the assessee's claim of deduction u/s 80P of the Act by invoking section 80AC or section 80A(5) of the Act. 8.15 Without prejudice to the above, we find that both the AO and the learned CIT(A) noted that the income claimed as a deduction under section 80P(2)(a)(i) of the Act included interest income on deposit with the bank as well. Accordingly, the AO and the learned CIT(A) held that interest income on deposits does not arise from the business of providing credit facilities to members. Therefore, the same is not eligible for deduction under section 80P(2)(a)(i) of the Act. In this regard, we note that this issue is covered by the recent decision of the coordinate bench of This Tribunal in the case of M/S Naravi Vyavasaya Seva Sahakari Bank Ltd. vs ITO in ITA Nos. 2552-2553/Bang/2025 vide order dated 19-05-2026. The relevant finding of the tribunal reads as under: 19. We heard the rival contentio....
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.... under section 80P(2)(a)(i) of the Act. This argument of the assessee was rejected by the AO by holding that the assessee-society had invested the surplus funds as and by way of, investment by an ordinary investor, hence, interest on such investment has got to be taxed under the head "Income from other sources". The finding of the AO was confirmed by the Tribunal as well by the Hon'ble Karnataka High Court. The dispute reached to the Hon'ble Supreme Court through the civil appeal filed by the assessee. The Bench of Hon'ble Supreme Court observed that the assessee markets the produce of its member and sale proceeds of the same which liable to remitted to the member were sometimes retained by the assessee. The surplus fund created by such retention, not immediately required for business purposes, was invested in specified securities. The Hon'ble Supreme Court in the given facts and circumstances decided the issue favouring the Revenue by observing as under: 10. At the outset, an important circumstance needs to be highlighted. In the present case, the interest held not eligible for deduction under section 80P(2)(a)(i ) of the Act is not the interest received from the members ....
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....ely, carrying on the business of providing credit facilities to its members or marketing of the agricultural produce of its members. When the assessee-Society provides credit facilities to its members, it earns interest income. As stated above, in this case, interest held as ineligible for deduction under section 80P(2)(a) is not in respect of interest received from members. In this case, we are only concerned with interest which accrues on funds not required immediately by the assessee(s) for its business purposes and which have been only invested in specified securities as "investment". Further, as stated above, assessee(s) markets the agricultural produce of its members. It retains the sale proceeds in many cases. It is this "retained amount" which was payable to its members, from whom produce was bought, which was invested in short-term deposits/securities. Such an amount, which was retained by the assessee-Society, was a liability and it was shown in the balance-sheet on the liability-side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in section 80P(2)(a)(i) of the Act or in section 80P(2)(a)(iii) of the Act....
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.... the Society. In this particular case, the evidence shows that the assessee-Society earns interest on funds which are not required for business purposes at the given point of time. Therefore, on the facts and circumstances of this case, in our view, such interest income falls in the category of "Other Income" which has been rightly taxed by the Department under section 56 of the Act. 19.3 The above finding of the finding of the Hon'ble Supreme Court has been followed by the revenue authorities for disallowing the deduction claimed under section 80P(2)(a)(i) of the Act on account of interest income earned from deposit or investment of surplus fund by the cooperative societies carrying the business of banking or providing credit facilities to the members. 19.4 On the contrary, the argument of the assessee engaged in providing credit facility to the members is that the surplus fund for which members are not immediately seeking credits are deposited with bank as a prudent business decision and hence, the same shall be attributed to the business only. Therefore, the same is eligible for the deduction. We note that the above argument of the assessee finds support from t....
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....s members only. The society is not carrying on any separate business for earning such interest income. The income so derived is the amount of profits and gains of business attributable to the activity of carrying on the business of banking or providing credit facilities to its members by a co-operative society and is liable to be deducted from the gross total income under Section 80P of the Act." 19.6 The Hon'ble High Court in the above stated case of Tumkur Merchants Souharda Credit Cooperative Ltd(supra) also found that ratio laid down by the Hon'ble Supreme in Totgars Co-operative Sale Society (supra) was in different context. It was found that said assessee retained the sale proceed payable to the members and deposited such retained money. The fund deposited was the liability of the said cooperative society and interest earned on such deposit was held to be not attributable to the business of the cooperative society. Hence, the Hon'ble High Court held that ratio laid down by the Hon'ble Supreme Court in Totgars Co-operative Sale Society(supra) shall not be applicable where cooperative society is carrying banking business or providing credit facility to members and earn....
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....Revenue. 19.10 We further note that the ratio laid down by the Hon'ble Jurisdictional High Court of the Karnataka in Tumkur Merchants Souharda Credit Cooperative Ltd(supra) was subsequently followed by the Hon'ble Kerala High Court in the case of the PCIT vs. Sahyadri Co operative Credit Society Ltd. reported in [2024] 166 taxmann.com 445 (Kerala) and further by the Hon'ble Calcutta High Court in West Bengal State Co-Operative Agriculture & Rural Development Bank Ltd. vs. DCIT reported [2025] 177 taxmann.com 469 (Calcutta)[06-08-2025]. The relevant finding of the Hon'ble Kerala High Court in above stated case is extracted as under: 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 ....
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....from sources other than the actual conduct of the business. The facts in the said case were more or less identical to the facts before us. As the interest income so derived or the capital, if not immediately required to be lent to the members, the society/assessee cannot keep the said amount idle and if they deposit this amount in bank so as to earn interest, the said interest income is attributable to the profits and gains of the business of providing credit facilities to its members only. Bearing in mind the meaning of the words 'attributable to' the court proceeded to consider as to the applicability of the judgment of the Hon'ble Supreme Court in Totgars, Co operative Sale Society Ltd. (supra). It was pointed out that the Hon'ble Supreme Court was dealing with the case where the assessee therein, apart from providing credit facility to the members, was also in the business of marketing of agricultural produce grown by its members and the sale consideration received from marketing agricultural produce of its members was retained in many cases and retained amount which was payable to its members from whom produce was bought, was invested in a short term deposit/se....
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....members, the interest received on deposits in business and securities is attributable to the business of the assessee as its job is to provide credit facilities to its members and marketing the agricultural products of its members. This court is, therefore, of the view that the above decision is not restricted only to the investments made by the assessee therein from the retained amount which was payable to its members but also in respect of funds not immediately required for business purposes. The Supreme Court has held that interest on such investments, cannot fall within the meaning of the expression "profits and gains of business" and that such interest income cannot be said to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members or marketing of agricultural produce of its members. The court has held that when the assessee society provides credit facilities to its members, it earns interest income. The interest which accrues on funds not immediately required by the assessee for its business purposes and which has been invested in specified securities as "investment" are ineligible for deduction under se....
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.... only if an order issued under s. 3 of the Act was infringed during the course of the import or export. The division Bench of the High Court held that a contravention of a condition imposed by a licence issued under the Act is not an offence under s. 5 of the Act. This raises the question whether an administrative tribunal can ignore the law declared by the highest court in the State and initiate proceedings in direct violation of the law so declared. Under Art 215, every High Court shall be a court of record and shall have all the powers of such a court including the power to punish for contempt of itself. Under Art. 226, it has a plenary power to issue orders or writs for the en- forcement of the fundamental rights and for any other purpose to any person or authority, including in appropriate cases any Government, within its territorial jurisdiction. Under Art. 227 it has jurisdiction over all courts and tribunals throughout the territories in relation to which it exercise jurisdiction. It would be anomalous to suggest that a tribunal over which the High Court has superintendence can ignore the law declared by that court and start proceedings in direct violation of it. If a tribu....
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....court and of the Supreme Court. Equally well-settled is the position that when a Division Bench of the High Court gives a decision on a question of law, it should generally be followed by a co-ordinate Bench of the same High Court. If the co-ordinate Bench in the subsequent case wants the earlier decision to be reconsidered, it should refer the question at issue to a larger Bench. It is equally well-settled that the decision of one High Court is not a binding precedent on another High Court. The Supreme Court in Vattiama Champaka Pillai v. Sivathanu Pillai, AIR 1979 SC 1937, dealing with the controversy whether a decision of the erstwhile Travancore High Court can be made a binding precedent on the Madras High Court on the basis of the principle of stare decisis, clearly held that such a decision can at best have persuasive effect and not the force of binding precedent on the Madras High Court. Referring to the States Reorganisation Act, it was observed that there was nothing in the said Act or any other law which exalts the ratio of those decisions to the status of a binding law nor could the ratio decidendi of those decisions be perpetuated by invoking the doctrine of stare decis....
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....rest income earned by a co-operative society from deposits placed with banks would not qualify for deduction under section 80P(2)(a)(i) of the Act and the same was liable to be taxed under the head "Income from other sources". Accordingly, the claim of deduction under section 80P(2)(a)(i) in respect of such interest income was rejected in those cases. 19.23 However, the legal position now stands clarified by the judgment of the Hon'ble jurisdictional High Court of Karnataka in Tumkur Merchants Souharda Credit Cooperative Ltd. (supra), and other case laws as discussed in preceding paragraphs wherein it has been held that where a co-operative society engaged in the business of providing credit facilities to its members temporarily parks its surplus funds with banks, the interest earned therefrom is attributable to the business of the society and is therefore eligible for deduction under section 80P(2)(a)(i) of the Act. 19.24 Since the decision of the Hon'ble Jurisdictional High Court is binding on this Tribunal, judicial discipline requires that the same be followed. Therefore, to the extent our earlier decisions have taken a contrary view, we respectfully depart fr....