2026 Supreme(Online)(ITAT) 8538

INCOME TAX APPELLATE TRIBUNAL (INDORE BENCH)
B.M. Biyani, Accountant Member, Paresh M. Joshi, Judicial Member
M.P. Matsya Mahasangh Sahakari – Appellant
Versus
National Faceless Assessment Centre – Respondent
ITA No.358/Ind/2024|ITA No.359/Ind/2024|ITA No.328/Ind/2024|ITA No.329/Ind/2024|ITA No.330/Ind/2024

Interest income earned by a co-operative society from investments in another co-operative society, including a co-operative bank, is eligible for deduction under Section 80P(2)(d) of the Income Tax Act, 1961, as co-operative banks remain co-operative societies despite the exclusion under Section 80P(4).

Headnote:(A) Income Tax Act, 1961 - Sections 80P(1), 80P(2)(d), 80P(4), 14A, 143(3), 147, 144B - Deduction in respect of income of co-operative societies - Interest income earned from investments in other co-operative societies, including co-operative banks - Whether eligible for deduction. The provision of Section 80P(2)(d) allows for deduction of the whole of the income by way of interest or dividends derived by a co-operative society from its investments with any other co-operative society. A co-operative bank, being a co-operative society registered under the relevant State act, falls within the ambit of the definition of co-operative society. The restriction under Section 80P(4) relates only to the eligibility of co-operative banks to claim deductions under Section 80P, but it does not disentitle a co-operative society from claiming deduction on interest income earned from investments in a co-operative bank. The precedent set by the court holding that such income is eligible for deduction as per Section 80P(2)(d) must be followed. (Paras 4, 10, 11, 15, 16)

(B) Appellate Jurisdiction - Assessment - Re-adjudication - Where the lower authorities disallowed expenses under Section 14A on the premise that they were incurred for earning exempt income without proper verification, and the issue was not contested before them, the matter warrants a fresh adjudication after providing an opportunity of being heard. (Paras 17, 18)

Facts of the case:
The assessee, a co-operative society, claimed deductions on interest income earned from investments in co-operative banks under Section 80P(2)(d). The assessing authorities disallowed these claims, relying on the interpretation that interest from a co-operative bank is not eligible, and additionally disallowed certain expenses under Section 14A. The first appellate authority confirmed these disallowances.

Findings of Court:
The court found that co-operative societies are entitled to claim the deduction under Section 80P(2)(d) for interest income received from co-operative banks as these banks are registered societies under the relevant co-operative legislation. It further held that Section 80P(4) does not restrict such claims for non-banking co-operative society assessees. Regarding the disallowance under Section 14A, the court remanded the matter for fresh assessment.

Issues: Whether interest income earned by a non-banking co-operative society from a co-operative bank is eligible for deduction under Section 80P(2)(d), and whether the disallowance of expenditure under Section 14A was justified.

Ratio Decidendi: The legislative intent behind Section 80P(2)(d) is to promote the financial health of the co-operative movement. Since a co-operative bank is legally a co-operative society, interest earned from it qualifies for the deduction. Section 80P(4) operates only to exclude co-operative banks from the benefits of Section 80P and does not affect the rights of other societies investing surplus funds in them.

Result: Appeals allowed in part.