Income Tax Deduction Eligibility of Cooperative Society

Co-operative Societies are associations of voluntary individuals who work together to meet common economic, social, or cultural needs through a jointly owned and controlled enterprise. Cooperative societies are subject to income tax under the Income Tax Act of 1961 but specific provisions allow societies to claim deduction.

The Government of India recognized the importance of cooperatives in empowering farmers and promoting rural development. The government has introduced tax incentives under Section 80P of the Income Tax Act, 1961 to support this initiative. This provision allows exemption for types of income earned by cooperative societies from income tax, especially for activities that directly benefit small farmers and rural communities.

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Cooperative societies engaged in the following activities can avail themselves of these tax benefits:

1. Societies that provide loans and financial assistance to members.
2. Small-scale industries producing goods using traditional methods.
3. Societies involved in the fishing industry.
4. Cooperatives that help farmers market and sell their products collectively.
5. Cooperatives that procure seeds, fertilizers, and equipment for their members.
6. Collective disposal of Labor of members
7. Traditional agriculturalprocessing methods that do not involve electricity or other energy sources.

These societies can claim deductions on the income earned from these activities while filing their income tax returns, offering them significant financial relief. The Government's goal is to ensure that cooperatives receive the same treatment and opportunities as other business units in the economy, enabling them to become key players in India’s development.

To bring equal status between cooperative societies and companies, several important tax provisions have been introduced in recent years:

1. Minimum Alternate Tax (MAT) for cooperatives has been reduced from 18.5% to 15%, aligning it with the tax rate for companies.
2. The surcharge on cooperatives has been reduced from 12% to 7%.
3. The upper limit for cash deposits and loans by Primary Agricultural Credit Societies (PACS) and Primary Cooperative Agriculture and Rural Development Banks has been raised to Rs. 2 lakhs per member.
4. Producer cooperatives formed on or after April 1, 2023, and starting manufacturing or production before March 31, 2024, are taxed at a concessional rate of 15%.
5. The limit for cash withdrawals without TDS by cooperative societies has been increased to Rs. 3 crores.

With these income tax provisions, cooperative societies are not only financially empowered but are also able to offer better services and facilities to their members. These changes are expected to increase the income of farmers and expand their activities in various fields, encouraging rural development and economic growth.

Interest Income from Fixed Deposit of Co-operative Society made during the course of Business eligible for Deduction u/s 80P(2)(a)(i) of Income Tax Act: ITAT The Rifle Factory Cooperative Society Limited vs Assistant Commissioner of Income Tax CITATION: 2023 TAXSCAN (ITAT) 943

The Kolkata bench of the Income Tax Appellate Tribunal ( ITAT ) ruled that interest income earned by the Rifle Factory Co-operative Society Limited from fixed deposits made during the course of business is eligible for deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961. The case arose after the Assessing Officer (AO) did not consider an interest income of Rs. 9,06,730 from fixed deposits with a cooperative bank as part of the society’s business activity. The AO's order was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)], leading the cooperative society to appeal to the ITAT. The society argued that its business activities, including the fixed deposits, were in line with the West Bengal Cooperative Societies Act, 2006.

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After reviewing the arguments, the ITAT observed that the society’s activities were compliant with the West Bengal Cooperative Societies Act, and the interest income from the fixed deposits was earned during the normal course of business. Based on these considerations, the ITAT concluded that the interest income qualifies for the deduction under Section 80P(2)(a)(i) and overturned the previous decisions. As a result, the appeal filed by the Rifle Factory Co-operative Society was allowed by the two-member bench comprising Dr. Manish Borad and Sonjoy Sarma.

Deduction u/s 80P can be finalised only after analysing form of Society: Kerala HC sets aside Assessment Order UDAYANAPURAM SERVICE CO-OPERATIVE BANK LTD vs INCOME TAX OFFICER CITATION: 2023 TAXSCAN (HC) 525

The Kerala High Court set aside an assessment order involving Udayanapuram Service Co-Operative Bank Ltd, which had challenged both the assessment and the demand notice related to the assessment year 2020–21. The central issue was whether the petitioner’s society was entitled to the benefit of Section 80P of the Income Tax Act, 1961, which provides tax deductions for cooperative societies. The petitioner argued that the assessing officer had not examined whether the society qualified for this benefit, contrary to the Supreme Court’s ruling in Mavilayi Service Co-operative Bank Ltd. v. Commissioner of Income Tax. Despite a specific claim for the deduction under Section 80P, the petitioner was treated as a Co-operative Bank in the assessment order without due consideration of its status as a Primary Agricultural Credit Society or a Primary Co-operative Agricultural and Rural Development Bank.

Justice T.R. Ravi, presiding over the case, observed that the petitioner had not been allowed to properly present their case before the assessing officer. The court also noted that the assessing officer had not specifically addressed the question of the petitioner’s form as required for the Section 80P deduction. As a result, the court set aside the assessment order and directed the respondent to issue a fresh assessment.

CPC not Authorized to Carry Out Adjustment for Disallowance of Deduction u/s 80P Income Tax Act: ITAT  SAI PRERANA CO-OP. CREDIT SOCIETY LTD VS INCOME TAX OFFICER CITATION: 2023 TAXSCAN (ITAT) 500

The case involved Sai Prerana Co-op. Credit Society Ltd, which had claimed a deduction of Rs. 1 crore under Section 80P while filing its return. However, the CPC denied this deduction during processing. The assessee argued that the adjustment was beyond the CPC’s authority, particularly since the assessment year in question (2007-08) preceded the CPC’s empowerment to make such adjustments. They further contended that the issue of deduction under Section 80P was debatable and relied on a previous Tribunal decision in a similar case.

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The CIT(A) had earlier ruled that the order under Section 143(1) had merged with the assessment order under Section 143(3), wherein the Assessing Officer had disallowed the deduction. However, on appeal, the ITAT upheld the assessee’s argument, agreeing that the CPC was not empowered to adjust in this case and deleted the CPC’s disallowance. The Tribunal Bench, consisting of Om Prakash Kant and Pavan Kumara Gadale, stated that the CPC’s adjustment for disallowance of deduction under Section 80P was unauthorized, reinforcing that the matter was sub judice but still deleting the addition based on the CPC’s lack of authority.

Non-granting of Deduction u/s.80P of Income Tax Act of Earned Interest Income due to Utilisation of Income for Non Business Activities: ITAT Directs Re-adjudication YUVASHAKTI NAGARI SAHKARI VS ITO CITATION: 2023 TAXSCAN (ITAT) 1524

The appellant, Yuvashakti Nagari Sahkari, a cooperative credit society providing credit facilities to its members, had its deduction claim rejected by the assessing officer, a decision later upheld by the Commissioner of Income Tax (Appeals). The assessee argued that under section 80P(2)(a)(i), all profits from its credit facility business should be deductible, while the revenue's counsel maintained that the rejection was lawful, as the deduction only applies to business-related income.

The tribunal, led by R.S. Syal, found that the deduction claim was valid under the law, supporting the assessee's entitlement to the deduction for interest income earned from business activities. The tribunal directed the assessing officer to allow the deduction and upheld the assessee's appeal.

Relief to Indian Oil Employees Welfare: ITAT rules Interest Income to Cooperative Society from Investment with any Other Cooperative Society Deemed allowable u/s 80P INDIAN OIL EMPLOYEES WELFARE COOPERATIVE SOCIETY LTD VS ACIT 23(1) CITATION: 2024 TAXSCAN (ITAT) 550

The primary issue was whether the society could claim a deduction on interest earned from investments made with cooperative banks under Section 80P(2)(d). The society argued that, as a cooperative entity registered under the Maharashtra Cooperative Societies Act, 1960, it was entitled to deduct interest income earned from other cooperative banks. The assessing officer had previously denied the deduction, which led the society to appeal. The Tribunal bench, comprising Amit Shukla and Prashanth Maharishi, noted that the interest earned from cooperative banks qualifies for deduction under Section 80P(2)(d), referencing a similar Supreme Court case involving the Kerala State Cooperative Agricultural & Rural Development Bank Ltd.

The Tribunal clarified that income earned by a cooperative society from investments with other cooperative societies or banks is fully deductible, reinforcing that the banks in question were indeed cooperative societies as defined under The Banking Regulation Act, 1949. The bench emphasized that the case was on stronger footing compared to other precedents, as the society in question was exclusively for employees of Indian Oil Corporation, and the interest income derived was in line with the activities permissible under Section 80P(2). As a result, the Tribunal directed the lower authorities to allow the deduction, bringing relief to the Indian Oil Employees’ Welfare Cooperative Society.

Mere Difference of Opinion with AO not a Base to Exercise Revision Jurisdiction under Income Tax Act: ITAT THE MULLANPUR GARIBDAS CO-OPERATIVE MULTIPURPOSE SOCIETY VS THE PCIT-II CITATION: 2024 TAXSCAN (ITAT) 699

Mullanpur Garibdas Cooperative Multipurpose Society is engaged in providing loans and agricultural inputs to its members. The society had claimed a deduction under Section 80P(2)(d) for interest earned on investments made with cooperative banks, a claim that was originally allowed by the AO. However, the Commissioner initiated revision proceedings under Section 263, arguing that the society was not entitled to the deduction because it had invested in cooperative banks, not cooperative societies, and cited Section 80P(4), which bars cooperative banks from claiming deductions.

The Tribunal quashed the revision order, stating that the Commissioner's dissatisfaction must be based on legal or factual grounds and cannot be merely subjective. It noted that during the original assessment, the AO had thoroughly examined the books of accounts and found no discrepancies, allowing the exemption under Section 80P. Consequently, the Tribunal restored the original assessment order directing that the assessee was entitled to the deduction under Section 80P(2)(d) for interest income from cooperative bank investments.

Interest Income from Deposits with Co-operative Banks qualifies for Deduction u/s 80P(2)(d) of Income Tax Act: ITAT THE SALESTAX EMPLOYEES CO OPERATIVE CREDIT SOCIETY LTD. VS THE ACIT CITATION: 2024 TAXSCAN (ITAT) 1109

The assessee, Sales Tax Employees Co-operative Credit Society Ltd., initially filed a return declaring NIL income. During limited scrutiny, the Assessing Officer (AO) found that the society had earned interest from fixed deposits and savings accounts, but disallowed deductions for this income based on a Supreme Court ruling (Totgar Co-operative Sales Society Ltd.) which limited such deductions for interest earned from scheduled banks. The AO added the amounts to the society’s taxable income, and the Commissioner of Income Tax (Appeals) [CIT(A)] upheld this decision, stating that the interest was from Axis Bank, a scheduled bank, which does not qualify for the deduction.

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The assessee appealed, clarifying that the interest was actually earned from Ahmedabad District Co-operative Bank, not Axis Bank, and argued that it was eligible for a deduction under Section 80P(2)(d) as a co-operative society. The Tribunal acknowledged this and allowed the deduction for the interest earned from the co-operative bank, directing the AO to verify whether the Ahmedabad District Co-operative Bank was registered under the Co-operative Societies Act. However, the deduction for interest from the savings account with Axis Bank was denied, as it is a scheduled bank, which is ineligible for such deductions under the cited rulings. The Tribunal’s decision affirmed that only interest from cooperative banks qualifies for deduction under Section 80P(2)(d), while interest from scheduled banks does not.

Deduction u/s 80P(2)(d) of Income Tax Allowable to Cooperative Banks Doing Banking Business: ITAT Grand Paradi Co-op Housing vs The Income Tax Officer CITATION: 2024 TAXSCAN (ITAT) 771

The Grand Paradi Co-op Housing Society, a cooperative, sought to claim this deduction on the interest income earned from cooperative banks. Initially, their deduction claim was denied under Section 143(1), prompting the society to file an appeal with the CIT (A). However, the appeal was rejected because it was filed after a delay of 3642 days, and the CIT (A) refused to condone the delay. Despite the rejection, the society argued that it had consistently received the deduction in previous years, and the investment made on interest income was eligible under Section 80P(2)(d).

The ITAT, in its decision, sided with the assessee, emphasizing that cooperative banks are considered cooperative societies engaged in banking under Section 2(10) of the Maharashtra Cooperative Societies Act. It further clarified that under Section 80P(2)(d), the interest earned from cooperative banks qualifies for the deduction. The Tribunal's ruling essentially established that cooperative banks, functioning as cooperative societies, are eligible for deductions related to interest income under this section of the Income Tax Act, regardless of prior delays in filing the appeal. Thus, the Grand Paradi Co-op Housing Society was entitled to the deduction for the interest income earned from cooperative banks.

Income Tax Deduction U/S80P cannot be denied on ground of Delay in Submitting Audit Report by Govt Auditor: ITAT Uttam Dairy Staff Co-operative Credit & Supply Society Limited vs AO CITATION: 2023 TAXSCAN (ITAT) 2151

In this case, the assessee, a cooperative society, filed its income return on 31.03.2021 and claimed a deduction of ₹4,18,340 under Section 80P. However, the CPC denied this claim, leading to a tax demand of ₹1,61,860. The assessee filed an appeal with the CIT(A), which was dismissed due to the late filing of the return, approximately one and a half months after the extended deadline of 15.02.2021. The assessee then appealed to the ITAT, arguing that the delay was caused by the government auditor’s late submission of the audit report and pandemic-related guidelines that impacted the process.

The ITAT agreed with the assessee, holding that the circumstances of the delayed filing were beyond the control of the assessee. The tribunal observed that the mandate for filing returns by the due date would apply from the assessment year (AY) 2021-22 onwards, and not for AY 2020-21, which was under consideration. The tribunal, led by a single-member bench of Suchitra Kamble, determined that the CIT(A) and the Assessing Officer were incorrect in disallowing the deduction claim under Section 80P based on the late return filing. The appeal was allowed.

Interest/Dividend Income out of Investments with Co-operative Society is Eligible for Deduction u/s 80P(2) of Income Tax Act: ITAT [Read Order] M/s. The Karnataka State vs The Income Tax Officer CITATION: 2024 TAXSCAN (ITAT) 732

The assessee, M/s. The Karnataka State Co-operative Agriculture and Rural Development Bank Ltd., earned interest from statutory reserves and other investments made with cooperative banks and societies. The authorities initially denied the deduction, arguing that the principle of mutuality was not satisfied since the assessee extended credit to nominal and associate members without rights in the society. The revenue argument also claimed that the interest accrued from such investments should fall under income from other sources rather than qualify for the 80P deduction.

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However, the ITAT ruled that interest earned from credit activities provided to members, including nominal or associate members, is allowable under Section 80P(2)(a)(i). Interest earned from loans to employees, however, was treated as income from other sources, not eligible for the deduction. The tribunal directed the Assessing Officer (AO) to verify whether the interest or dividend income came from investments with cooperative societies. If so, this income would be entitled to deductions under Section 80P(2)(d) following the Supreme Court’s observation in a similar case. The AO was instructed to provide the assessee with the opportunity to be heard and compute the allowable deductions according to the law, resulting in the appeal being allowed.

ITAT Orders Re-adjudication on Section 80P(2)(e) Deduction for Agricultural Loans Provided to Members under Income Tax Act [Read Order] M/s. Savanoor Primary Agricultural Co-operative Societ vs ITO CITATION: 2024 TAXSCAN (ITAT) 336

The society, registered under the Karnataka State Cooperative Societies Act of 1959, is involved in providing credit facilities to its members and had claimed a deduction of Rs. 81,61,682/- for the Assessment Year 2018-19. However, the Assessing Officer (AO) denied the deduction due to incomplete information. The ITAT bench, consisting of Chandra Poojari and George George K, noted that the lack of detailed facts required further investigation. As a result, the case was sent back to the AO for additional examination, and the appeal by the assessee was allowed for statistical purposes.

Additionally, the assessee raised an issue about a deduction under Section 80P(2)(a)(i) for interest income from certain cooperative banks. The assessee argued that the interest was earned in compliance with Rule 28 of the Karnataka Co-operative Societies Rules, 1960, which is linked to the business of providing credit to its members. The bench directed the AO to verify if the interest income was indeed earned through compulsory compliance with these rules. If so, it would qualify for deduction under Section 80P(2)(a)(i) of the Income Tax Act. The ITAT remanded this matter as well for further investigation, allowing the appeal for statistical purposes.

Exemption u/s 80P is allowable, If delay in Filing Income Tax Return is condoned by Competent Authority: ITAT [Read Order] Amasebail Vyvasaya Seva Sahakari Sangha Ltd vs Deputy Commissioner of Income tax CITATION: 2022 TAXSCAN (ITAT) 1305

The case involved Amasebail Vyvasaya Seva Sahakari Sangha Ltd., which sought the deduction under Section 80P despite not filing the return of income within the prescribed time. The assessee requested that the delay in filing the return for the Assessment Year 2018-19 be condoned, allowing them to claim the deduction once the income return is filed. The single-member bench, led by Shri Chandra Poojari, held that if the competent authority condones the delay, the assessee is entitled to the exemption under Section 80P. The ruling referenced legal precedents that supported allowing the exemption even when the return is filed late, provided that assessment proceedings are still pending.

The Tribunal remitted the matter back to the Assessing Officer (AO) for further examination of the application filed by the assessee on 30th November 2018 to the Principal Commissioner of Income Tax (PCIT) for condonation of the delay. The appeal was partly allowed for statistical purposes. This ruling highlights that a late return, filed under sections 139(1), 139(4), 142(1), or 148, can still be considered if the delay is condoned and the case is actively under adjudication.

Non Filing of Income Tax Returns on belief of Exemption u/s 80P of Income Tax Act: Kerala HC directs to file ITR within 1 month [Read Order] MUVATTUPUZHA HOUSING CO-OPERATIVE SOCIETY LTD vs THE INCOME TAX OFFICER CITATION: 2023 TAXSCAN (HC) 1453

The petitioners had not filed their returns, believing that their income was entirely exempt under Section 80P of the Income Tax Act, 1961. However, the assessing authority suspected that the petitioners had concealed their income to evade assessment and issued notices under Section 148 of the Income Tax Act. The petitioners challenged these notices through writ petitions but did not file their returns in response to the orders passed under Section 148. The petitioners' counsel requested that the court grant them the opportunity to file their income tax returns and assert their claims for exemption under Section 80P during the assessment process.

Justice Dinesh Kumar Singh, presiding over the case, ruled that the petitioners were allowed to file their income tax returns within a one-month period. The court ordered that if the petitioners comply, the assessing authority must review the returns in accordance with the law and issue final assessment orders promptly. This judgment emphasizes the obligation to file returns even when claiming exemptions and ensures that the petitioners’ claims under Section 80P will be considered during the assessment process.

Notice issued u/s 148 on Ground of Concealment of Income: Kerala HC grants one month To File ITR [Read Order] MUVATTUPUZHA HOUSING CO-OPERATIVE SOCIETY LTD vs THE INCOME TAX OFFICER CITATION: 2023 TAXSCAN (HC) 1491

The petitioners had not filed their returns for the Assessment Year 2019-20, believing their entire income was exempt under Section 80P of the Income Tax Act, 1961. This led the petitioners to assume they were not obligated to file a return. However, the assessing authority suspected that the petitioners were concealing income and issued notices under Section 148A of the Income Tax Act, accusing them of attempting to evade assessment. Despite these notices, the petitioners had not yet filed their returns when they approached the court.

The petitioners' counsel argued for the opportunity to file the returns, asserting that their income was exempt under Section 80P, and requested that they be allowed to file the returns and make their claims during the assessment. In response, Justice Dinesh Kumar Singh, presiding over a single bench, ruled that the petitioners were permitted to file their ITR within one month. The court directed the assessing authority to examine the return and complete the assessment process under the law and without delay. This ruling reaffirms the importance of filing tax returns, even for entities claiming exemptions, and ensures the assessment process will address the exemption claims under Section 80P.

Interest Income from the Investments Made out of Reserve Fund Exempt u/s 80P(2)(a)(i): ITAT [Read Order] ONGC Employees Co-op Credit & Thrift Society Limited vs Income Tax Officer CITATION: 2023 TAXSCAN (ITAT) 1044

 The case involved ONGC Employees Co-op Credit & Thrift Society Limited, a co-operative credit society that provides credit facilities to its members. The society claimed a deduction on interest income from various banks, including Nationalized Banks, under Section 80P. However, the Assessing Officer disallowed the deduction for interest income from deposits with the Mehsana District Central Co-op. Bank and Provident Fund (PF) accounts of staff, adding those amounts back to the income. The AO argued that the nature of the funds, particularly the connection with reserve funds, had not been properly clarified before the revenue authorities.

The assessee, represented by Dhrunal Bhatt, argued that the interest was derived from reserve funds and should have been allowed as a deduction, citing the Supreme Court's decision in the case of CIT vs. Karnataka State Co-operative Apex Bank. On behalf of the revenue, N.J. Vyas argued that the origin of the interest from reserve funds had not been adequately demonstrated. The single-member bench, presided over by Judicial Member Suchitra Kamble, sided with the assessee, ruling that as a cooperative society, the interest income from investments made out of reserve funds is eligible for exemption under Section 80P(2)(a)(i). The bench reiterated that the income listed under sub-section 2 of Section 80P is exempt, and this includes interest income from reserve fund investments. Therefore, the appeal was allowed, granting the exemption to the assessee.

Bonafide Belief of Interest Income on Bank Deposits Eligible for Deduction u/s 80P : ITAT Deletes Penalty u/s 271(1)(c) [Read Order] Khanpur Vibhag Madhyamik Shala Karmchari Dhiran & Grahak Sahakari Mandali Limited vs A.C.I.T CITATION: 2023 TAXSCAN (ITAT) 1228

The assessee, a cooperative credit society, had declared its total income as NIL and claimed a deduction under Section 80P(2)(a)(i) for interest income from deposits made in Baroda Guj. Gramin Bank and Bank of Baroda. The Assessing Officer, relying on the Supreme Court decision in Totgars Cooperative Sale Society Limited vs. ITO, allowed the deduction for income earned from members but disallowed the same for interest earned from financial institutions. Subsequently, a penalty was imposed on the assessee for allegedly filing inaccurate particulars of income.

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The assessee’s representative, Jaimin Gandhi, argued that the penalty under Section 271(1)(c) could only be levied if inaccurate particulars were furnished, and in this case, the assessee genuinely believed that the interest income was eligible for deduction under Section 80P. The ITAT bench, led by Judicial Member Suchitra Kamble, relied on the Supreme Court decision in CIT vs. Reliance Petroproducts (P) Ltd., which held that penalties cannot be imposed for bona fide claims. The Tribunal ruled that the assessee had a bona fide belief about the eligibility of the interest income for deduction under Section 80P and, therefore, deleted the penalty under Section 271(1)(c) for failure to furnish inaccurate particulars of income.

Insurance Activities Carried out by Cooperative Society do not fall with Banking Business: ITAT upholds Disallowance of Deduction u/s 80P of Income Tax Act [Read Order] The Indur Intideepam Producers vs The Income Tax Officer CITATION: 2023 TAXSCAN (ITAT) 2566

The assessee had filed a return of income, claiming a deduction under Section 80P. However, the Assessing Officer (AO), after reviewing the submission, concluded that the assessee’s main business involved lending services for guarantee payments, not qualifying under Section 80P, leading to the disallowance of the claimed deduction. The AO further noted that the assessee engaged in activities such as owning equipment for dredging and participating in the Tonnage Tax Scheme (TTS), which did not fall under the purview of Section 80P.

The assessee appealed the AO's decision to the Commissioner of Income Tax (Appeals) [CIT(A)], but the appeal was dismissed, leading to a second appeal before the ITAT. The assessee’s counsel, S. Ramarao, argued that the AO disallowed the receipts rather than the income earned, while the Revenue’s counsel, Shakeer Ahmed, maintained that the primary activities of the assessee, including insurance services, did not qualify for deduction under Section 80P. The ITAT, consisting of Vice President R.K. Panda and Judicial Member Laliet Kumar, ruled that the insurance activities of the assessee did not fall within the scope of banking or providing credit facilities to its members, as outlined in Section 80P(2). Consequently, the tribunal upheld the disallowance of the deduction claimed by the assessee for its insurance-related income.

Interest Income from Investment in KDCC Bank is not Eligible for Deduction u/s 80 P(2)(a)(i) of Income Tax Act: ITAT remits to AO for Fresh Consideration [Read Order] Sri Laxminarayana Suvarna Credit Co-operative Society vs The Income Tax Officer CITATION: 2024 TAXSCAN (ITAT) 752

The assessee had claimed a deduction of Rs. 29,03,833 on interest income received from its investments with KDCC Bank. The Assessing Officer (AO) denied the deduction, stating that while KDCC Bank has the structure of a cooperative society, its operations resemble those of a commercial bank, thus excluding it from the benefits of Section 80P. The AO also denied the alternative claim of deduction under Section 80P(2)(d), which applies to interest income from investments with other cooperative societies, citing that KDCC Bank functions like a commercial bank.

The Tribunal upheld the decision of the AO and the Commissioner of Income Tax (Appeals) [CIT(A)], who had relied on the Karnataka High Court ruling in Totgars Cooperative Sale Society Ltd. and noted that KDCC Bank, being a scheduled bank governed by the Banking Regulation Act of 1949, falls under the scope of Section 80P(4), which disqualifies cooperative banks from such deductions. The Tribunal also referenced a prior judgment by the ITAT in West Coast Paper Mill Employees Souharda Credit Co-op. Ltd., which dealt with similar circumstances. However, the Tribunal allowed partial relief by remitting the case back to the AO to determine the cost of funds used to generate the interest income. The appeal was partly allowed for statistical purposes.

ITAT disallows Deduction under Section 80P Due to Late Submission of Return [Read Order] The Parabada Co-op. Milk Producers Society Limited vs The Income Tax Officer CITATION: 2023 TAXSCAN (ITAT) 1154

The assessee had claimed a deduction of Rs. 4,61,664/- under Section 80P, which was disallowed by the Centralized Processing Centre (CPC) in Bangalore through an intimation under Section 143(1) of the Income Tax Act, issued on April 16, 2020, due to the late submission of the return.

The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], arguing that although the return was filed late, the intimation was made under Section 143(1)(a), not Section 143(3), and that the adjustment rules under Clause (b) of Section 143(1) came into effect only from April 1, 2021. However, the CIT(A) upheld the disallowance. The revenue's counsel highlighted that as per Section 80AC(ii) of the Income Tax Act, deductions under Chapter VIA, including Section 80P, are only admissible if the return is filed within the prescribed due date. Judicial Member Suchitra Kamble, presiding over the ITAT, agreed with the revenue and held that the return was filed after the extended due date, and thus the assessee was not entitled to the deduction under Section 80P. Consequently, the ITAT dismissed the appeal.

Benefits of 80P Deduction denied due to Non-filing of Income Tax Returns on Prescribed Time: Kerala HC directs to File ITR THE MUVATTUPUZHA AGRICULTURAL CO-OPERATIVE BANK vs THE INCOME TAX OFFICER CITATION: 2024 TAXSCAN (HC) 1210

The petitioner challenged an assessment order issued under Section 148A(d) and a notice under Section 148, which directed the bank to file ITR for the Assessment Year 2020-2021. The bank claimed eligibility for deductions under Section 80P(2)(a)(i) and 80P(2)(d), which allow cooperative societies to deduct profits derived from certain specified activities. The petitioner argued that the denial of these deductions would result in significant financial liability.

The Standing Counsel for the Income Tax Department, Adv. Jose Joseph, clarified that the deadline to file returns expires on June 29, 2024, and if the petitioner submits the return before that date, the assessing authority would consider the deduction claims in accordance with the law. Justice Murali Purushothaman, presiding over the case, directed the petitioner to file the return of income before the given deadline. The court emphasized that the benefits under Section 80P are not available to cooperative banks, except primary agricultural credit societies or rural development banks, as per the provisions of the Banking Regulation Act. The writ petition was disposed of with instructions to the petitioner to file the return on time for consideration under the law.

Grants from West Bengal State Government to Co-operative Society not Income from other source: ITAT directs to allow Deduction u/s 80P [Read Order] Udyan Large Size Multipurpose Cooperative Society Limited vs Income Tax Officer CITATION: 2023 TAXSCAN (ITAT) 1146

The cooperative society, formed by Tribal members and registered under the West Bengal Cooperative Societies Act, 1973, provides services such as Mini Bank services and the sale of fertilizer to its members. In its return for the relevant assessment year, the society claimed a deduction of Rs. 65,844 under Section 80P.

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During scrutiny, the Assessing Officer (AO) identified a miscellaneous income of Rs. 9,92,664 in the society's Profit & Loss account and treated it as income from other sources after the assessee failed to provide a satisfactory explanation. This decision was upheld by the CIT(A). However, the assessee clarified that the miscellaneous income included grants received from the West Bengal State Government for activities aligned with the society’s objectives, as per its registered bye-laws. The tribunal, comprising Shri Rajpal Yadav (Vice-President) and Dr. Manish Borad (Accountant Member), agreed with the assessee's argument. It held that the income was part of the society’s regular activities and therefore eligible for deduction under Section 80P, as it was not income from other sources. Consequently, the tribunal allowed the appeal in favor of the assessee.

Co-operative Society involved in Banking Business Not eligible for deduction u/s 80P(2)(a)(i): ITAT [Read Order] Shri Basaveswar Credit Co-op Society Ltd vs Income Tax Officer CITATION: 2023 TAXSCAN (ITAT) 1230

The assessee filed a Nil return for the relevant assessment year, claiming a deduction under Section 80P(2)(a)(i), but the case was selected for scrutiny. The assessee argued that its main activities—accepting deposits and providing credit facilities to its members—entitled it to the deduction. However, the Commissioner of Income Tax (Appeals) [CIT(A)] directed the Assessing Officer (AO) to disallow the deduction because the interest income earned from associate members was not under Section 80P. Aggrieved by this decision, the assessee appealed, arguing that the interest income should have been considered business income and was wrongly classified as income from other sources.

The ITAT, represented by Shri Laxmi Prasad Sahu (Accountant Member), remitted the issue back to the CIT(A) for reconsideration, granting the assessee the opportunity to present further documentation to support its case. The CIT(A) was directed to provide a fair opportunity for the assessee to be heard. The ITAT’s decision allows the appeal for statistical purposes, giving the assessee another chance to substantiate its claim for deduction under Section 80P.

Lower Authorities passed Orders Overlooking SC Precedents: ITAT directs AO to Reconsider 80P deduction under Income Tax [Read Order] Arjuna Souhardha Pathina Sahakari Niyamitha vs The Deputy Commissioner of Income Tax CITATION: 2024 TAXSCAN (ITAT) 1004

The case revolved around the society's claim for a deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961, which allows cooperative societies to deduct income earned from providing credit facilities to their members. Despite earlier instructions from the ITAT to reassess the claim, the Assessing Officer (AO) once again disallowed the deduction, relying on the Supreme Court's ruling in Citizen Co-operative Society Ltd. vs. ACIT. The CIT(A) upheld this decision, prompting the assessee to appeal to the ITAT, where they argued that the AO and CIT(A) failed to consider the more recent Supreme Court decision in Mavilayi Service Co-operative Bank Ltd. vs. CIT, which provided relevant clarifications on the deduction under Section 80P(2)(a)(i).

The ITAT, consisting of Smt. Beena Pillai and Mr. Laxmi Prasad Sahu, observed that the lower authorities had not considered the Mavilayi and Kerala State Co-operative Agricultural and Rural Development Bank Ltd. rulings, which were crucial for understanding the case. Rather than remanding the matter back to the CIT(A), the ITAT directed the AO to reassess the case with these Supreme Court decisions in mind, ensuring a proper application of Section 80P. The Tribunal also instructed the AO to consider other relevant Tribunal rulings, particularly regarding interest on fixed deposits under Section 80P(2)(d) and the applicability of Section 57. Consequently, the ITAT allowed the appeal for statistical purposes, sending the case back to the AO for fresh consideration.

Co-Operative Bank Eligible for 80P Deduction in respect of Income from Interest on Staff Welfare Fund and Staff Loans: ITAT [Read Order] Ghatal Co-operative Agriculture And Rural Development Bank Ltd. vs ACIT CITATION: 2023 TAXSCAN (ITAT) 807

The Kolkata bench of ITAT ruled that Ghatal Co-operative Agriculture and Rural Development Bank Ltd., a co-operative rural bank, is eligible for a deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961. This deduction applies to interest earned from the bank's staff welfare fund and staff loans, amounting to Rs. 98,971/-, as well as miscellaneous income of Rs. 85,047/- from various services provided to its members. The Tribunal, comprising Judicial Member Shri Sonjoy Sarma and Accountant Member Shri Girish Agrawal, concluded that these earnings benefit the members of the co-operative and qualify for tax deductions under the cited section of the Act.

The Tribunal further directed the Assessing Officer to delete the additional income added against the assessee in the assessment order dated 31.12.2016, issued under section 143(3) of the Act. The ITAT recognized that the income generated from staff welfare and member services is an essential part of the bank's operations benefiting its members, thereby justifying the deduction claim. Consequently, the appeal raised by the cooperative bank was allowed, and the previous order by the Commissioner of Income Tax (Appeals) was set aside.

CPC not within Jurisdiction to Disallow Deduction u/s 80P of Income Tax Act: ITAT Allows West Bengal Cooperative Society’s Claim West Bengal State Multipurpose Consumers Cooperative Federation Limited vs ACIT CITATION: 2023 TAXSCAN (ITAT) 1744

The cooperative society filed its return for the 2019-20 fiscal year on 03.10.2019, within the extended due date set by the CBDT. However, the CPC disallowed the deduction, arguing that the return was filed after the original due date. The tribunal, consisting of Judicial Member Sanjay Garg and Accountant Member Manish Borad, found that the CPC’s authority to make such prima facie adjustments was only effective from 01.04.2021, after the filing in question. Therefore, the CPC had overstepped its jurisdiction by making the adjustment.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

Additionally, the ITAT ruled in favor of the assessee, stating that the income tax return had indeed been filed within the extended due date allowed under Section 139(1) of the Income Tax Act. The Tribunal directed the Assessing Officer to allow the claimed deduction of Rs. 1,82,65,272 under Section 80P, thus rejecting the Revenue’s argument that the CPC was justified in adjusting.

Non-Filing of ITR on Bonafide Belief of Exemption u/s 80P of Income Tax Act: Kerala HC directs to File ITR [Read Order] MUVATTUPUZHA HOUSING CO-OPERATIVE SOCIETY LTD vs THE INCOME TAX OFFICER CITATION: 2023 TAXSCAN (HC) 1467

The society had not filed its income tax returns (ITR) for the 2019-20 assessment year, believing its income was entirely exempt under Section 80P of the Income Tax Act, 1961. However, the assessing authority suspected that the cooperative had concealed income and issued notices under Section 148A of the Income Tax Act. After reviewing the society’s response, orders were passed to proceed with an assessment against them. The society had not yet filed the return of income in response to these proceedings.

The petitioners argued in court that they should be allowed to file their ITR and defend their claim for exemption under Section 80P. The Kerala High Court, in a ruling by a Single Bench, directed the cooperative to file its returns within one month. The court emphasized that the assessing authority should examine the returns under the law and issue final assessment orders expeditiously. This decision allows the society to present its case for exemption under Section 80P while also addressing the issue of non-filing of returns.

Income earned from Commercial Activity can’t be claimed as a Deduction u/s 80P of Income Tax Act: ITAT dismisses Appeal [Read Order] Jetalpur Seva Sahkari Mandali Limited vs DCIT CITATION: 2023 TAXSCAN (ITAT) 1555

In this case, the assessee, Jetalpur Seva Sahkari Mandali Ltd., filed a return for the 2017-18 assessment year, claiming a deduction of Rs. 33,21,232 under Section 80P, which included Rs. 9,43,000/- in interest income from its petrol pump business. The Assessing Officer (AO) questioned the eligibility of this interest income for deduction, as it was derived from a commercial activity. The assessee argued that its head office provided financial services to its members and that the petrol pump income was connected to these services, thereby justifying the deduction.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

However, the ITAT, led by Judicial Member Suchitra Kamble, held that the interest earned from the petrol pump operations was derived from commercial activity and thus did not qualify for the Section 80P exemption, which is intended for income related to cooperative activities benefiting members. The Tribunal agreed with the Assessing Officer and the Commissioner of Income Tax (Appeals) that the petrol pump business was taxable and did not fall within the scope of Section 80P(2)(a)(i), which is reserved for cooperative societies serving their members.

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