Interest Income Earned by Co-Operative Society from Deposits With Co-Op Banks & Nationalised Bank Eligible for S. 80P Deduction: ITAT [Read Order]

The Pune Bench of the Income Tax Appellate Tribunal (ITAT) held that interest income earned by a co-operative credit society from deposits with co-operative banks and a nationalised bank was eligible for deduction under Section 80P of the Income Tax Act, 1961, and that the Revenue Authorities cannot deviate from its earlier stand in the absence of any change in facts, in view of the rule of consistency.

The appellant, The Sangli Salary Earners Co-operative Society Ltd., is a co-operative credit society registered under the Maharashtra Co-operative Societies Act, 1960, and engaged exclusively in providing credit facilities to its members. For the Assessment Year 2020-21, the appellant filed its return of income claiming deduction under Section 80P of the Income Tax Act, 1961.

The Assessing Officer (AO) during assessment proceedings treated the interest income amounting to ₹3.71 crore, earned on deposits placed with co-operative banks and a nationalised bank, as “Income from Other Sources” and denied deduction under Section 80P. The disallowance was primarily based on the interpretation of the Supreme Court decision in Totgars Co-operative Sale Society Ltd. v. ITO, which confirmed the disallowance.

The dispute arose as the Revenue Authorities departed from its earlier approach, as identical claims of the assessee had been allowed in previous assessment years on similar facts. Aggrieved by the confirmation of the disallowance, the appellant carried the matter in appeal before the ITAT.

Counsel Amit Sudhir Shintre for the appellant clarified that the assessee is a co-operative credit society and not a co-operative bank, and therefore squarely entitled to deduction under Section 80P of the Income Tax Act, 1961. He argued that the deposits were made out of statutory reserves and working capital funds, which were integral to the business of providing credit facilities to members.

Further, submitted that reliance placed by the Revenue Authorities on the Supreme Court decision in Totgars Co-operative Sale Society Ltd. is unjust as that matter pertains to a marketing society and not a credit co-operative society. Stressing the rule of consistency, he highlighted the incorrect application of Section 80P the Income Tax Act, 1961 despite binding judicial precedents, including the appellant’s own cases in earlier assessment years, where identical interest income had been consistently held to be eligible for deduction by the appellate authorities.

The Bench comprising Vinay Bhamore, Judicial Member, and Dr. Dipak P. Ripote, Accountant Member, allowed the appeal of the assessee, observing that the appellant is a co-operative credit society and that its interest income arose from deposits made in the course of its regulated business activities. The Tribunal noted that in the appellant’s own case for earlier assessment years, the Commissioner of Income Tax (Appeals) had allowed the deduction under Section 80P the Income Tax Act, 1961 on identical facts, and those findings had not been disturbed.

Applying the rule of consistency, the Tribunal held that in the absence of any change in facts or law, the authorities were bound to follow the view taken in earlier years. The Tribunal reiterated that the interest income was attributable to the business of providing credit facilities to members and therefore qualified for deduction under Section 80P of the Income Tax Act, 1961.

Accordingly, the Tribunal directed that the interest income of ₹3.71 crore to be allowed as a deduction under Section 80P the Income Tax Act, 1961 and deleted the addition made by the AO.

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