Case Commentary: ITAT Pune Allows Section 80P(2)(d) Deduction on Interest Income from Cooperative Bank – A Landmark Ruling for Cooperative Credit Societies
Introduction
The Income Tax Appellate Tribunal (ITAT), Pune Bench “B”, in a consolidated order dated 26.05.2026, delivered a significant ruling on the eligibility of interest income earned by a cooperative credit society from fixed deposits (FDRs) with a cooperative bank for deduction under Section 80P(2)(d) of the Income Tax Act, 1961. The cross-appeals in ITA No.2707/PUN/2025 (by the assessee) and ITA No.2921/PUN/2025 (by the Revenue) arose from the order of the Ld. Addl./JCIT(A)-2, Coimbatore, dated 25.09.2025 for Assessment Year 2021-22. The core dispute revolved around whether interest income from a cooperative bank, which is itself a cooperative society, qualifies for the beneficial deduction under Section 80P(2)(d). The Tribunal, relying on its own coordinate bench decision in Shri Bhairavnath Multisate Cooperative Credit Society vs. ITO, allowed the assessee’s appeal and dismissed the Revenue’s cross-appeal, providing much-needed clarity on this recurring issue.
Facts of the Case
The assessee, The Poona District Police Co-operative Credit Society Limited, is a primary credit cooperative society registered under the Maharashtra Co-operative Societies Act, 1960. It is engaged in providing credit facilities to its members and accepting deposits from them. For Assessment Year 2021-22, the assessee filed its return of income on 05.01.2022, declaring Nil income after claiming a deduction of Rs.26,65,65,814/- under Section 80P(2)(a)(i) of the IT Act. The return was processed under Section 143(1)(a) on 01.12.2022, wherein the entire deduction under Section 80P(2)(a)(i) was disallowed. The assessee filed a rectification application under Section 154, which was rejected by the CPC on 24.02.2023. Aggrieved, the assessee appealed to the Ld. CIT(A), who partly allowed the appeal. The Ld. CIT(A) allowed the deduction under Section 80P(2)(a)(i) for Rs.24,70,48,788/- (business profits) but disallowed Rs.1,95,17,026/- under Section 80P(2)(d), representing interest income earned from FDRs made with Pune District Central Co-op. Bank Ltd. Both the assessee and the Revenue challenged this order before the ITAT.
Reasoning of the ITAT
The ITAT, comprising Shri Manish Borad (Accountant Member) and Shri Vinay Bhamore (Judicial Member), delivered a detailed and well-reasoned order. The Tribunal first addressed the assessee’s appeal (ITA No.2707/PUN/2025) concerning the disallowance of Rs.1,95,17,026/- under Section 80P(2)(d). The assessee contended that since Pune District Central Co-op. Bank Ltd. is a cooperative society, the interest income from FDRs with it should be eligible for deduction under Section 80P(2)(d). In support, the assessee relied on three coordinate bench decisions: Shri Bhairavnath Multisate Cooperative Credit Society vs. ITO (2014), Kolhapur District Central Co-op. Bank Kanista Sevakanchi Sahakar Pat Sanstha Ltd. vs. ITO (2024), and Shree Mahaveer Dhamani vs. ITO (ITA No.2809/PUN/2024).
The Tribunal found strong support from the decision in Shri Bhairavnath Multisate Cooperative Credit Society (supra). In that case, the coordinate bench had held that interest income earned by a cooperative society from investments made out of surplus funds with cooperative banks/societies qualifies for deduction under Section 80P(2)(a)(i) and 80P(2)(d) of the IT Act. The reasoning was that a cooperative bank is a specie of cooperative society, and therefore, interest income from such banks falls within the ambit of Section 80P(2)(d). The Tribunal quoted the relevant portion of that decision, which emphasized that the issue is no longer res integra (settled) by virtue of a catena of decisions. The coordinate bench had also relied on the Pune Tribunal’s decision in Nashik Road Nuagari Sahkari Patsanstha Limited vs. ITO, which held that interest income from surplus funds invested with banks qualifies for exemption under Section 80P(2)(a)(i), following the Karnataka High Court’s judgment in Tumkur Merchants Souharda Credit Cooperative Ltd. vs. ITO.
Applying this settled position of law, the ITAT in the present case held that the assessee is eligible for deduction under Section 80P(2)(a)(i) and 80P(2)(d) of the IT Act. The Tribunal specifically noted that the interest income of Rs.1,95,17,026/- was earned from another cooperative society, i.e., Pune District Central Co-op. Bank Ltd. Consequently, the Tribunal set aside the order of the Ld. CIT(A) and directed the Assessing Officer to allow the deduction under Section 80P(2)(d). The other grounds raised by the assessee were rendered infructuous and were not adjudicated.
Turning to the Revenue’s appeal (ITA No.2921/PUN/2025), the Revenue challenged the Ld. CIT(A)’s decision to allow the deduction under Section 80P(2)(a)(i) without examining the scope of Section 154. The Tribunal dismissed this ground, reiterating that it has been consistently held by various coordinate benches that a primary credit cooperative society is entitled to claim deduction under Section 80P(2)(a)(i). The Tribunal again relied on Shri Bhairavnath Multisate Cooperative Credit Society (supra) to affirm that the deduction is allowable with regard to income attributable to the business of the assessee, i.e., interest income. The second ground raised by the Revenue was also dismissed as the Tribunal found no merit in the challenge.
Conclusion
The ITAT’s decision is a resounding victory for cooperative credit societies. By allowing the deduction under Section 80P(2)(d) for interest income earned from FDRs with cooperative banks, the Tribunal has reinforced the principle that cooperative banks are a subset of cooperative societies. The ruling is consistent with the legislative intent behind Section 80P, which is to promote the cooperative movement by providing tax incentives. The Tribunal’s reliance on the coordinate bench decision in Shri Bhairavnath Multisate Cooperative Credit Society (supra) ensures judicial consistency and provides a clear precedent for similar cases. The Revenue’s appeal was dismissed, affirming that the deduction under Section 80P(2)(a)(i) is rightly allowable. This order will have far-reaching implications for cooperative societies across India, particularly those that invest surplus funds in cooperative banks.