Not Business Income, But Still Deductible; ITAT Sides with Kerala Co-op Bank, Quashes Tax Demand [Read Order]
The tribunal found that the issue was directly covered by the High Court's decision in the case of PCIT v. Peroorkada Service Co-op. Bank Ltd. (2022)
![Not Business Income, But Still Deductible; ITAT Sides with Kerala Co-op Bank, Quashes Tax Demand [Read Order]](https://images.taxscan.in/h-upload/2025/08/20/2078718-tax-demand-taxscan.webp "Not Business Income, But Still Deductible; ITAT Sides with Kerala Co-op Bank, Quashes Tax Demand [Read Order]")
The Income Tax Appellate Tribunal (ITAT), Cochin Bench has quashed a tax demand levied on a primary agricultural credit co-operative society, holding that interest income it earned from a district co-operative bank is eligible for deduction under the Income Tax Act. The order provides crucial clarity on the nature of such income for co-operative societies. Nallepilly...
The Income Tax Appellate Tribunal (ITAT), Cochin Bench has quashed a tax demand levied on a primary agricultural credit co-operative society, holding that interest income it earned from a district co-operative bank is eligible for deduction under the Income Tax Act. The order provides crucial clarity on the nature of such income for co-operative societies.
Nallepilly Service Co-operative Bank Ltd., based in Palakkad. For the assessment year 2020-21, the bank had filed its return declaring nil income after claiming a deduction of over Rs. 51 lakh under Section 80P of the Income Tax Act. The Income Tax Officer, however, took a contrary view regarding a portion of the income. The assessing authority completed the assessment by making an addition of Rs. 43,08,485, holding that the interest received by the appellant from a district co-operative bank did not qualify for the deduction. This addition was subsequently confirmed by the Commissioner of Income Tax (Appeals).
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The bank then appealed to the ITAT. During the proceedings, despite a notice of hearing being served, no one appeared on behalf of the assessee bank. The tribunal, therefore, proceeded to hear the arguments from the senior departmental representative for the income tax department before passing its order.
Accountant Member Inturi Rama Rao, who authored the order, based the decision squarely on a binding precedent set by the jurisdictional Kerala High Court. The tribunal found that the issue was directly covered by the High Court's decision in the case of PCIT v. Peroorkada Service Co-op. Bank Ltd. (2022). In that judgment, the High Court had clearly distinguished the treatment of such interest income. It held that while this interest does not fall under the category of business income eligible for deduction under Section 80P(2)(a)(i), it is nevertheless deductible under a different clause.
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The High Court had ruled that interest derived by a co-operative society from its investments with any other co-operative society is specifically covered under Section 80P(2)(d) of the Act. Following this reasoning, the ITAT held that the Nallepilly Service Co-op. Bank Ltd. was indeed entitled to the deduction on the interest income received from the district co-operative bank.
In conclusion, the tribunal allowed the bank’s appeal, thereby deleting the addition made by the tax department.
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