ITAT Pune Affirms Section 80P Deduction on Interest from Surplus Deposits with Banks

1. Background of the Dispute

The Pune Bench of the Income Tax Appellate Tribunal dealt with a recalled appeal filed by the Revenue concerning Assessment Year 2014-15 in the case of ITO Vs Shri Bhairavnath Multistate Cooperative Credit Society Ltd. (ITAT Pune). The matter arose from the claim of deduction under Section 80P(2)(a)(i) and Section 80P(2)(d) made by a Co-operative Credit Society on interest and dividend income from deposits with:

  • Commercial banks
  • Cooperative banks
  • Cooperative societies
  • Nationalised banks

The assessee is a Co-operative Credit Society registered under the Multi State Co-operative Societies Act, 2002, engaged in:

  • Accepting deposits from its members
  • Providing credit/loan facilities to its members
  • Carrying out activities in accordance with cooperative law provisions

For Assessment Year 2014-15, the assessee filed its return of income on 25.09.2014, declaring Nil income. During the relevant year, the assessee earned interest income of Rs.3,39,44,265/- from deposits placed with various banks and cooperative entities.

The Assessing Officer (AO) completed the assessment under Section 143(3) vide order dated 23.11.2016, determining the total income at Rs.33,69,640/-. In this process, the AO denied the assessee’s claim of deduction/exemption of Rs.2,65,15,064/- under Section 80P(2)(a)(i)/Section 80P(2)(d) in respect of interest and dividend income arising from deposits with cooperative banks/societies and nationalised banks.

The CIT(A) allowed the assessee’s claim, which led to the present appeal by the Revenue before the Tribunal.

2. Procedural History – Recalled Matter

The appeal before the Tribunal was not a fresh proceeding, but a recalled matter arising from an earlier appeal of the Revenue. Specifically:

  • The Tribunal had earlier passed an order in ITA No.2484/PUN/2017 dated 01.08.2018.
  • Subsequently, a Miscellaneous Application was filed in M.A. No.285/PUN/2022.
  • Vide order dated 30.05.2024, the Tribunal recalled its earlier order for limited purposes, leading to rehearing of the issue for Assessment Year 2014-15.

Thus, the Tribunal reconsidered afresh the question of eligibility of deduction under Section 80P(2)(a)(i) and Section 80P(2)(d) on interest income from surplus funds parked with banks and cooperative entities.

3. Core Issue Before the Tribunal

The central controversy was whether interest and dividend income arising from investments of surplus funds, made by a Co-operative Credit Society with:

  • Cooperative banks
  • Cooperative societies
  • Commercial banks
  • Nationalised banks

would qualify for deduction under:

  • Section 80P(2)(a)(i) – income of a co-operative society carrying on the business of banking or providing credit facilities to its members, and
  • Section 80P(2)(d) – income by way of interest or dividends derived by a co-operative society from its investments with any other co-operative society.

In essence, there were two distinct but related questions:

  1. Whether interest from deposits with cooperative banks/societies qualifies under Section 80P(2)(d)?
  2. Whether interest from deposits of surplus funds (including with nationalised/commercial banks) is attributable to the assessee’s business of providing credit to members, and therefore eligible under Section 80P(2)(a)(i)?

4. Findings of the CIT(A)

The CIT(A) had decided the issue in favour of the assessee.