ITAT quashes AO's Order, upholds deduction under Section 80P for Cooperative Credit Society [Read Order]

In a significant ruling, the Mumbai Bench of  Income Tax Appellate Tribunal (ITAT) has upheld that cooperative credit societies are eligible for deductions under Section 80P of the Income Tax Act. The tribunal’s decision came in response to appeals filed by Samarth Raghuveer Sahakari Patsanstha Ltd. against orders passed by the National Faceless Assessment Centre ( NFAC ) for the assessment years 2017-18 and 2018-19.

The core issue in the appeals revolved around the denial of deductions under Section 80P, a provision aimed at promoting the growth of cooperative societies. Specifically, the appellant society claimed deductions under Section 80P(2)(a)(i) for its income earned from business activities with its members, and Section 80P(2)(d) for interest income earned from deposits with cooperative banks. The Assessing Officer (AO) had disallowed the deductions, arguing that the interest income from cooperative banks was taxable under the head “Income from Other Sources” and not eligible for deduction under Section 80P, as the provisions of Section 80P(4) barred deductions to cooperative banks.

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

The tribunal, however, disagreed with the AO’s interpretation. Citing several precedents, the ITAT ruled that a cooperative credit society, which does not hold a banking license, is not considered a cooperative bank and thus remains eligible for deductions under Section 80P. In particular, the decision referred to the Hon’ble Karnataka High Court’s ruling in PCIT v. Totgars Co-operative Sale Society and the landmark Supreme Court rulings in Citizen Cooperative Society Ltd. vs. ACIT and Mavilayi Service Cooperative vs. CIT to affirm that interest earned by a cooperative society from deposits with cooperative banks qualifies for deduction under Section 80P(2)(d).

The ITAT further noted that income derived from providing credit facilities to its members falls under the scope of Section 80P(2)(a)(i) and thus, should be eligible for deductions. This ruling aligns with previous judgments by the ITAT, including in cases such as Nava Sandesh Sahakari Patsastha Maryadit and Bharat Sanchar Nigam Employees Co-operative Credit Society Ltd., which have consistently held that cooperative credit societies are entitled to deductions under Section 80P.

The tribunal also emphasized that interest income from non-cooperative banks or scheduled banks is not eligible for deduction under this section. The decision provides much-needed clarity for cooperative societies, reaffirming their entitlement to tax benefits under the relevant provisions.

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

In light of these findings, Two Member Bench comprised of Amit Shukla ( Judicial Member ) and Girish Agrawal ( Accountant Member ) allowed the appeals of Samarth Raghuveer Sahakari Patsanstha Ltd. for both assessment years, granting them the appropriate deductions under Section 80P. This ruling underscores the ongoing commitment of the judiciary to support the cooperative sector in India.

The ITAT’s ruling solidifies the status of cooperative credit societies as eligible for deductions under Section 80P, ensuring that they can continue to benefit from tax exemptions for income earned through their members and from cooperative banks.

To Read the full text of the Order CLICK HERE

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