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Judgment
PER MANISH AGARWAL, A.M.:
The present appeal is filed by assessee against the order dated 31.10.2025 passed by Ld. Commissioner of Income Tax (A), National Faceless Appeal Centre (“NFAC”), Delhi [“Ld. CIT(A)”] in Appeal No. NFAC/2019-20/10180265 u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of assessment order dated 20.09.2022 passed u/s 143(3) r.w.s. 144B of the Act pertaining to Assessment Year 2020-21.
Brief facts of the case are that the assessee is a company, engaged in the business of only marketing of agricultural produce produced by the members and not involved in carrying of any banking business, filed its return of income on 28.12.2020, declaring total income of NIL after claiming deduction u/s 80P(2)(a)(iii) of the Act of INR 3,38,27,239/-. The case was selected under Complete scrutiny and notice u/s 143(2) was issued on 29.06.2021 followed by the notices u/s 142(1) alongwith a detailed questionnaire. In response to the notices issued, the assessee filed its reply in parts on various dates. The AO has disallowed the deduction u/s 80P(2)(a)(iii) of the Act on the bank and interest received on loan totaling to INR 1,05,14,419.43 by placing reliance on the judgment of Hon’ble Supreme Court in the case of Totgars’ Cooperative Sale Society Ltd. vs ITO reported in 322 ITR 283 (SC).
Against the said order, assessee filed an appeal before ld. CIT(A) who vide order dated 31.10.2025, dismissed the appeal of the assessee.
Aggrieved by the order of ld. CIT(A), assessee is in appeal before the Tribunal by taking various grounds of appeal mentioned in the appeal memo.
Heard the contentions of both parties at length and perused the material available on record. At the outset, it is observed that this issue has been decided by the Co-ordinate Bench of Tribunal in the case of Cooperative Cane Development Society Ltd. in ITA No.5764/Del/2024 order dated 05.06.2025 and in the case of Deoband Cooperative Cane Development Union Ltd. in ITA No.6638/Del/2025 order dated 20.03.2026 where the Co-ordinate Bench has followed the order of Pune Bench of the Tribunal in the case of ITO vs Shri Bhairavnath Multistate Co-operative Credit Society Ltd. reported in [2024] 164 taxmann.com 382 (Pune Trib.) wherein the Co-ordinate Bench has made the following observations:-
"5.We heard the rival submissions and perused the material on record. We find this issue is no more res integra by virtue of catena of decisions passed by the Coordinate Benches of this Tribunal. In the present case, we find that admittedly the interest income was earned from the investments out of surplus funds made with cooperative banks/socieites, the cooperative bank is also a specie of cooperative society, therefore, the interest income earned by the cooperative society from the cooperative banks qualifies for deduction u/s.80(P)(2)(d) of the Act. Such interest also qualifies for exemption u/s.80P(2)(a)(i) as held by the Co-ordinate Bench of Pune Tribunal in the case of Nashik Road Nagari Sahkari Patsanstha Ltd. v. ITO [IT Appeal No. 1700 (Pune) of 2017, dated 27-12-2021] , wherein the Tribunal held as under:-
"9.We heard the rival submissions and perused the material on record. Admittedly, the appellant is a Cooperative society formed under the provisions of Maharashtra Cooperative Societies Act, 1960 with the objective of accepting deposits and lending money to its members. The money which is not immediately required for the purpose of lending to the members is deposited with Bank of Baroda in the form of Fixed Deposit. The question is whether the interest so earned qualifies for exemption u/s. 80P(2)(a)(i) of the Act. The AO as well as the CIT(A) were of the opinion that the interest earned from third parties or nonmembers does not quality for exemption u/s.80P. It is an admitted position that the interest so earned should be taxed as 'income from other sources' There is a cleavage of judicial opinion among several High Courts on the issue of eligibility of this kind of income for exemption u/s. 80P(2)(a)(i) of the Act. The Hon'ble Punjab & Haryana High Court in the case of CIT v. Punjab State Cooperative Federation of Housing Building Societies Ltd. [2011] 11 taxmann.com 448 (Punjab & Haryana) , the Hon'ble Gujarat High Court in the case of State Bank of India v. CIT [2016] 72 taxmann.com 64/241 Taxman 163/389 ITR 578 (Gujarat), the Hon'ble Delhi High Court in the case of Mantola Cooperative Thrift & Credit Society Ltd. v. CIT [2014] 50 taxmann.com 278/229 Taxman 68 (Delhi), the Hon'ble Punjab & Haryana High Court in the case of CIT v. Punjab State Cooperative Agricultural Development Bank Ltd. [2017] 77 taxmann.com 308/245 Taxman 125/389 ITR 68 (Bombay) and the Hon'ble Kolkata High Court in the case of CIT v. Southern Eastern Employees Cooperative Credit Society Ltd. [2016] 73 taxmann.com 123/390 ITR 524 (Calcutta) took a view that the income arising on the surplus invested in short term deposits and securities cannot be attributed to the activities of the society and, therefore, not eligible for exemption u/s.80P(2)(a)(i) of the Act. However, the Hon'ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. v. ITO (2015) 230 taxmann 309 (Kar.) and the Hon'ble Telangana and Hon'ble Andhra Pradesh High Court in the case of Vaveru Co-operative Rural Bank Ltd. v. CIT [(2017) 396 ITR took a view that such interest income is attributable to the activities of the society and, therefore, eligible for exemption u/s.80P(2)(a)(i) of the Act. The Coordinate Bench of Pune Benches in the case of M/s. Ratnatray Gramin Bigar Sheti Sah. Pat Sanstha Maryadit v. ITO (ITA Nos.559/560/PUN/2018, dated 11-122018) has taken view in favour of the assessee following the judgment of Hon'ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra). Respectfully following the decision of the Coordinate Bench, we hold that the interest income earned on the investment of surplus money with banks is also eligible for exemption u/s.80P(2)(a)(i) of the Act. Thus, the grounds of appeal No. 1 & 2 stands allowed."
6.Thus, the order passed by the ld.CIT(A) is in conformity with the settled position of law by virtue of the above discussion. Therefore, we affirm the impugned order directing the Assessing Officer to allow the claim of exemption u/s.80P(2)(a)(i)/80P(2)(d) on the interest income earned on investments made out of surplus funds made with Cooperative banks, Cooperative Societies and Nationalized banks."
The case of the assessee is squarely covered by the aforesaid judgment of Pune Bench of Tribunal. Thus, by respectfully following the observations of the made in the above case by the coordinate benches of Tribunal which are applicable Mutatis Mutandis. Therefore, we hold that the assessee is entitled for deduction u/s 80(P)(2) of the Act on the interest received. Accordingly, all the Grounds of appeal raised by the assessee are allowed.
In the result, appeal of the assessee is allowed.