The Ahmedabad Bench of Income Tax Appellate Tribunal ( ITAT ) ruled in favour of the assessee allowing full deductions under Section 80P of the Income Tax Act,1961 for income earned from cooperative banks.It emphasized that this income fosters cooperative financial activity and should qualify for tax relief, contradicting the Assessing Officer ( AO )’s decision to exclude cooperative banks from the definition of “co-operative society.”
Gandhinagar District Coop.Milk Producers Union Ltd.,the appellant assessee,was a co-operative society registered under the Gujarat Co-operative Societies Act, 1961, and engaged in collecting raw milk. For the Assessment Year ( AY ) 2020-21, it filed a return of income declaring ₹3,12,33,210, claiming deductions under Section 80P amounting to ₹1,44,48,096.
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During scrutiny under CASS, the AO disallowed the deductions under Section 80P(2)(d) and treated ₹50,00,000 received as government grants as revenue receipts. The disallowed deductions included interest from Ahmedabad District Co-Op Bank (₹1,04,14,746), dividend from Gujarat Co-Op Milk Marketing Federation Ltd. ( ₹40,25,100 ), and dividend from Ahmedabad District Co-Op Bank (₹8,250).
The AO concluded that the term “Co-operative Society” in Section 80P(2)(d) did not include cooperative banks, citing the Karnataka High Court decision in Principal Commissioner of Income-tax, Hubballi vs. Totagars Co-operative Sale Society [2017] , which held that cooperative banks were excluded from claiming deductions under Section 80P.
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The assessee appealed to the Commissioner of Income Tax(Appeals)[CIT(A)] against the AO’s order. The CIT(A) upheld the AO’s disallowance of the ₹1,44,48,096 deduction claimed under Section 80P(2)(d) of the Act.
Dissatisfied with the order of the CIT(A) the assessee appealed before the tribunal.
The tribunal reviewed the submissions, facts, and judicial precedents regarding the disallowance of deductions claimed by the assessee under Sections 80P(2)(d) and 80P(2)(c).The assessee sought deductions for interest and dividend income from the Ahmedabad District Co-Op Bank and GCMMF Ltd. The AO disallowed these deductions, citing a Karnataka High Court ruling that excluded cooperative banks from the definition of cooperative societies under Section 80P(2)(d).
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The tribunal noted that the AO and CIT(A) relied on non-jurisdictional decisions, which are not binding in Gujarat. It emphasized the relevance of jurisdictional precedents from the Gujarat High Court and Co-ordinate benches, which had consistently allowed such deductions.
The bench referenced prior rulings, including the amendment in the case of Katlary Kariyana Merchant Sahkari Sarafi Mandali Ltd., where it was later determined that interest income from cooperative banks qualifies for deduction under Section 80P(2)(d).
The appellate tribunal concluded that both interest and dividend income earned by the assessee from cooperative banks and societies were eligible for deduction under Section 80P(2)(d) to promote cooperative financial activity. It further ruled that the income from cooperative banks remained within the cooperative framework, justifying the tax relief.
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The two member bench comprising T.R Senthil Kumar ( Judicial Member ) and Makarand V.Mahadeokar ( Accountant Member ) regarding Section 80P(2)(c), noted that the assessee qualified for a standard deduction of ₹50,000, as its activities did not fall under the explicit categories listed in Section 80P(2)(a) or (b). The CIT(A) had denied this deduction without sufficient reasoning. Consequently, the tribunal set aside the disallowance of the ₹50,000 deduction under Section 80P(2)(c)(ii) and allowed it in full.
In conclusion,the ITAT set aside the orders of the lower authorities and granted the appeal of the assessee in full.
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