Relief for BSNL Employees’ Co-operative Society: ITAT grants Section 80P(2) Deduction [Read Order]

The Bangalore bench of the Income Tax Appellate Tribunal ( ITAT ) has ruled in favour of BSNL Employees' Co-operative Society, granting it the benefit of deduction under Section 80P(2) of the Income Tax Act, 1961.
The tribunal concluded that the society is not engaged in banking activities, does not fall under the definition of a bank as per the Reserve Bank of India (RBI), and has not obtained any banking licence from the RBI, thus making it eligible for the Section 80P deduction.

The assessee, BSNL Employees' Co-operative Society Ltd, a cooperative society, filed its income tax return declaring Nil income on September 26, 2012, and claimed a deduction of ₹67,80,387 under Section 80P(2)(a)(i) of the Income tax statute.
The case was selected for scrutiny, and statutory notices were issued to the society. The Assessing Officer (AO) observed that the society did not meet the primary requirements to claim the deduction under Section 80P(2)(a)(i) and instead fell under the provisions of Section 80P(4) read with Section 2(24) of the Act.

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Consequently, the AO classified the society as a primary cooperative bank and disallowed the deduction, adding ₹67,80,387 to the society's total income. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO’s decision, prompting the society to appeal before the ITAT.
During the ITAT hearing, the Authorised Representative (AR) of the society, Adv. Ravishankar, reiterated the arguments made before the lower authorities, stating that the society primarily provides credit facilities to its members, who are all employees of BSNL.
The counsel submitted that the society receives deposits only from its members and does not engage in banking activities like accepting deposits from the public or extending credit to the public. Additionally, the society's deposits with Karnataka Central Cooperative Bank Ltd. (KCC Bank) are in compliance with statutory requirements and generate interest income, which is considered business income.

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The AR relied on a previous judgment by the coordinate Bench of the Tribunal in the case of Alnavar Credit Souharda Co-op Ltd. vs. ITO, which supported the society's position.
The bench of Keshav Dubey ( Accountant Member ) and Laxmi Prasad Sahu ( Judicial Member ), after considering the rival submissions, acknowledged that the revenue authorities had previously denied the deduction based on a detailed analysis under Section 80P(4) read with Section 2(24) of the Income tax law.
However, the ITAT found that the society, formed under the Karnataka Co-operative Society Act, 1959, solely for the benefit of BSNL employees, did not operate as a bank and was therefore eligible for the Section 80P(2) deduction.

The appellate tribunal directed the AO to re-examine the issue and decide on the deduction claim in light of the Tribunal's ruling reference. Consequently, the appeal was allowed for statistical purposes

To Read the full text of the Order CLICK HERE 

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