O R D E R

Per Arun Khodpia, AM:

This appeal is instituted by the assessee, directed against the order of Commissioner of Income Tax Appeals/ National Faceless Appeal Centre(NFAC), Delhi [“the Ld. CIT(A)] dated 15.01.2026 for the assessment year 2020-21 arises from assessment order u/s 143(3)r.w.s. 144B of the Income Tax Act, 1961 (“the Act”) dated 12.09.2022, passed by Assessment Unit, Income Tax Department.

The grounds of appeal raised by the assessee are as under:

“1. On the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the disallowance of interest income of Rs 25,95,090/- earned from investments in Co-operative banks by relying on the decision of Hon'ble Apex Court in the case Totgars Cooperative Sale Society Ltd. v. ITO (2010) 322 ITR 283 (S.C) without appreciating that the said decision was rendered in the context of Sec. 80P(2)(a)(i), and not on the entitlement of a co-operative society towards deduction under Sec. 80P(2)(d). Thus the disallowance made is bad-in-law and must be deleted.

2. On the facts and circumstances of the case and in law, the learned CIT(A) erred in not appreciating that, even pursuant to the insertion of Sub-section(4) of Sec. 80P, the interest income derived by a cooperative society from its investments held with a co-operative bank, would continue to be entitled for claim of deduction under Sec.80P(2)(d) of the Act. Thus the disallowance made is bad-in-law and must be deleted.

3. The appellant craves leave to add, to amend, alter/delete and/or modify the above grounds of appeal on or before the final hearing.”

The sole controversy in the instant appeal emerges from the issue that, “whether the interest income earned by a Co-operative Society from deposits with a Co-operative Banks would entitle for deduction u/s 80P(2)(d) or Not?”, This issue has been decided by the ITAT’s coordinate benches in various decisions, relied upon by the assessee herein.

In the instant case the assessee residential housing society had claimed a deduction of Rs. 25,95,090/- u/s 80P(2)(d), being interest income earned from deposits with Saraswat Co-operative Bank and Mumbai District Co-operative Bank. The claim of assessee had been disallowed by the ld. AO as well as Ld. CIT(A) with the findings, as under:

“5. I have carefully considered the assessment order passed u/s. 143(3) r.w.s. 144B dated 12.09.2022, the grounds of appeal raised by the assessee in Form No. 35, the written submissions filed during appellate proceedings dated 16.02.2022 and 16.08.2022, the material available on record and the judicial precedents cited by both sides.

6. The Assessing Officer noticed that the assessee claimed deduction u/s. 80P(2)(d) of Rs. 25,95,090/- comprising interest income from Saraswat Co-operative Bank Ltd. (Rs. 25,86,743/-) and Mumbai District Central Co-operative Bank Ltd. (Rs. 8,347/-). Despite issuing notices u/s. 142(1), 143(2) and show-cause notices dated 23.03.2022 & 11.08.2022, the assessee failed to furnish cogent evidence establishing eligibility of co-operative banks as "any other co-operative society" u/s. 80P(2)(d). The AO disallowed the claim holding interest taxable u/s. 56 and initiated penalty u/s. 270A for misreporting.

7. Section 80P(2)(d) provides deduction for "income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society". Section 80P(4) inserted w.e.f. 01.04.2007 specifically excludes co-operative banks from section 80P benefits. Section 2(19) defines co-operative society but co-operative banks operate under RBI licence qua Part V, Banking Regulation Act, 1949.

8. The Hon'ble ITAT in many cases held that: Section 80P(4) is in the nature of a proviso to the main provision contained in section 80P(1) and (2). This proviso specifically excludes only co-operative banks, which are co-operative societies who must possess a licence from the RBI to do banking business. The words 'in relation to' can incl