Section 80P Deduction on Co-operative Bank Interest: ITAT Pune’s Structured Relief for Co-operative Credit Societies

1. Overview of the Decision

In Gajanan Nagari Sahakari Pat Sanstha Ltd. Vs ITO (ITAT Pune), the Pune Bench of the Income Tax Appellate Tribunal examined whether a co-operative credit society could claim deduction on interest earned from deposits with co-operative banks when its original deduction under Section 80P(2)(a)(i) had been disallowed.

The Tribunal ultimately granted relief under Section 80P(2)(d) in respect of such interest income. However, it imposed a clear monetary ceiling: the overall deduction allowable could not exceed the quantum originally claimed in the return under Section 80P(2)(a)(i). This dual outcome—recognition of eligibility under Section 80P(2)(d) combined with a cap based on the original claim—forms the core of the ruling.

2. Factual Matrix and Assessment Proceedings

2.1 Status and Activities of the Assessee

The assessee was a co-operative credit society registered under the Maharashtra Co-operative Societies Act, 1961. Its main line of activity consisted of:

  • Accepting deposits exclusively from its members; and
  • Extending credit/loan facilities to those members.

For Assessment Year 2018-19, the assessee filed its return of income on 29.09.2018 showing total income of ₹3,38,810 after claiming deduction of ₹76,53,839 under Section 80P(2)(a)(i) of the Income Tax Act 1961.

2.2 Scrutiny Selection and Issues Examined

The case was taken up for scrutiny under the e-assessment framework. The specified reasons for selection included examination of:

  • Expenditure of a personal nature;
  • Investments, advances and loans; and
  • Deductions under Chapter VI-A, including the claim under Section 80P.

Notices under Section 143(2) and Section 142(1) were issued. In response, the assessee submitted details of its members and disclosed interest income of ₹93,74,627 arising from deposits made with co-operative banks.

2.3 Disallowance under Section 80P(2)(a)(i)

The Assessing Officer scrutinised the material, including the membership details and nature of operations. He concluded that the assessee was not entitled to the deduction claimed under Section 80P(2)(a)(i) and disallowed the full amount of ₹76,53,839.

  • No distinct or additional disallowance was made specifically towards the interest from deposits with co-operative banks;
  • The assessee’s total income was finally assessed at ₹79,92,650 by order dated 10.04.2021 passed under Section 143(3) read with Sections 143(3A) and 143(3B).

3. First Appeal before CIT(A)/NFAC

3.1 Grounds and Alternative Plea

Aggrieved, the assessee approached the CIT(A)/NFAC, Delhi, challenging:

  • The denial of deduction under Section 80P(2)(a)(i); and
  • In the alternative, seeking deduction under Section 80P(2)(d) in respect of interest income from deposits with co-operative banks.

The assessee placed its written submissions on record, supporting both the primary and alternative claims.

3.2 Order of the CIT(A)

The CIT(A) considered:

  • Grounds of appeal;
  • Statement of facts; and
  • Findings in the assessment order.

However, the CIT(A) upheld the Assessing Officer’s conclusion and refused both the deduction under Section 80P(2)(a)(i) as well as the alternative relief under Section 80P(2)(d). The appeal was dismissed in its entirety.

The assessee then preferred a further appeal to the ITAT Pune.

4. Appeal before ITAT Pune: Rival Contentions

4.1 Submissions by the Assessee

Before the Tribunal, the assessee’s Authorised Representative argued that:

  • The authorities below had erred in holding that interest earned from co-operative banks was not eligible for deduction under Section 80P(2)(a)(i);
  • Even assuming the main claim was not acceptable, the interest income qualified for deduction under Section 80P(2)(d) because the co-operative banks in which deposits were made were themselves co-operative societies under the Maharashtra Co-operative Societies Act, 1961; and
  • Judicial precedents of the Pune Bench had already recognized such eligibility for primary co-operative credit societies.

The assessee thus pressed both the factual and legal bases for relief under Section 80P, placing reliance on multiple Tribunal and higher court decisions.

4.2 Stand of the Department

The Departmental Representative supported the order of the CIT(A) and adopted the reasoning given therein, resisting any interference with the disallowance.

5.1 Nature of the Two Clauses

  • Section 80P(2)(a)(i) grants deduction to co-operative societies engaged in carrying on the business of providing credit facilities to their members in respect of the profits and gains attributable to such business.