" \n \nIN THE INCOME TAX APPELLATE TRIBUNAL \nNAGPUR BENCH, NAGPUR \n \nBEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER AND \nSHRI K.M. ROY, ACCOUNTANT, MEMBER \n \nITA no.56/Nag./2025 \n(Assessment Year : 2020–21) \n \nIncome Tax Officer \nWard–1(4), Nagpur \n \n……………. Appellant \n \nv/s \n \nRahi Mahila Nagri Sahakari Patsanstha Ltd. \n10, Rahi Estate, Jaitala Road \nAhilya Nagar, Nagpur 440 036 \nPAN – AAAJR1027Q \n \n……………. Respondent \n \nAssessee by : Ms. Alfiya Rozie \n \n \nRevenue by : Shri Abhay Y. Marathe \n \nDate of Hearing – 05/03/2025 \nDate of Order – 21/03/2025 \n \nO R D E R \n \nPER K.M. ROY, A.M. \n \n \n \nThis appeal by the Revenue is emanating from the impugned order \ndated 26/11/2024, passed by the learned Commissioner of Income Tax \n(Appeals), National Faceless Appeal Centre, Delhi, [“learned CIT(A)”], for the \nassessment year 2020–21. \n \n2. \nThe Revenue has raised following grounds:– \n \n“1. The order of Ld. CIT(A) is contrary to law and to the facts and \ncircumstances of the case in view of the decision of the Apex court in the case \nof Totagar's Co-operative Sales Society Ltd. vs. ITO, (2010) 322 ITR 283(SC). \n \n2. The Ld. CIT(A) has erred on facts and in law holding that AO was not \njustified in denying benefit of deduction u/s 80P(2)(a)(i) of the Act whereby \nerroneously treating income from other sources as business income as the \ninterest is received from the Banks \n \n\n2 \n \nRahi Mahila Nagri Sahakari Patsanstha Ltd. \nITA no.56/Nag./2025 \n \n \n3. The Ld.CIT(A) has erred on facts and circumstances of the case, in deletion \nof addition made on account of interest income earned on the investment with \nCo-operative Bank of Rs.38,98,350/-as the same is not covered u/s 80P(2)(d) \nof the I.T. Act, 1961. \n \n4. The Ld.CIT(A) has erred on facts and in law in this case, directing the AO to \nallow deduction u/s 80P(2)(a)(i) on enhanced income due to disallowance of \nprovisions and expenses, on account of interest expense to the tune of \nRs.79,19,028/-, commission expense of Rs.73,04,580/- and provision for \ndoubtful loans of Rs. 18,85,569/-, ignoring the fact that the assessee had not \nsubmitted any evidence that these expenditure are related to business \nactivity. \n \n5. The Ld.CIT(A) has erred on facts and in law, relying on CBDT Circular No. \n37/2016 dated 02.11.2016, ignoring the fact that expenditure disallowed \nshould be related to business activity for allowing deduction. \n \n6. Any other ground that may be raised during the course of appellate \nproceedings.” \n \n \n3. \nThe learned CIT(A) has elaborately dealt with the issue in the impugned \norder which are as under:– \n \n“4.3 In Grounds 1 and 2, the appellant contested disallowance of interest \nincome amounting to Rs. 38,98,350/- only u/s 80P(2)(a)(i) of the I.T. Act, and \nargued that this income would qualify for deduction. The appellant also \nasserted that CBDT Circular No. 37/2016 supports its claim for Chapter VI-A \ndeductions on enhanced income post disallowance of certain expenses. \n \n4.4 In Ground No.1 the appellant has challenged the disallowance of interest \nincome u/s 80P(2)(a)(i) of the I.T. Act of Rs.38,98,350/- only. In the case of \nthe appellant interest income can be categorised in two types: income derived \nfrom investments in co-operative banks and income derived from investments \nin commercial banks and a savings bank account. \n \n4.4.1 It has not been disputed by the AO that the appellant is not a registered \nunder Co-operative societies Act of the respective state, as a Credit Co-\noperative Society. Interest income earned by the appellant, co-operative \nsociety as per judicial precedence in this regard is a well settled law that it, \nshould always be charged as income from the head \"Other Sources only. In \nthe context of admissibility of interest income u/s 80P, it would be pertinent to \nmention here that the High Court of Kerala in the case of PCIT vs. Peroorkada \nService Co-Operative Bank Ltd. [vide: (2022) 442 ITR 141 (Kerala)], has held \nthat, Interest income from investments with co-operative societies registered \nunder state co-operative Societies Act Including interest income from Co-\noperative banks, is eligible for deduction under section 80P(2)(d) of the \nIncome Tax Act. \n \n\n3 \n \nRahi Mahila Nagri Sahakari Patsanstha Ltd. \nITA no.56/Nag./2025 \n \n \n4.4.2 Further, it would also be imperative to refer to the decision of High Court \nof Karnataka in the case of PCIT- Hubli, vs Totagars Co-operative Sale Society, \n[vide: [2017] 78 taxmann.com 169 (Karnataka)]. It has been held in the said \ncase by an order dt: 05.01.2017, that interest income of co-operative societies \n(Credit society) from a Co-operative Bank should be considered as a receipt of \ninterest from a Co-operative Society -for purpose of section 80P(2)(d), where \nsuch Co-operative Bank is registered under the Co-operative Societies Act of \nthe respective state respective state. \n \n4.4.3 Besides, there are plethora judgements of Jurisdictional Tribunal (ITAT), \nwhere interest income from co-operative banks earned by a registered co-\noperative society has been allowed as deduction u/s 80P(2)(d) of the I.T.Act. \n \n4.4.4 Having regard to the facts of the case and Respectfully following the \norders mentioned above, the Ae is directed to pass an effect order allowing \ndeduction u/s 80P(2)(d) of the I.T.Act, to the extent interest earned by the \nappellant from Co-operative Banks only (out of Rs.38,98,350/-), if such banks \nare registered under Co-operative Societies Act of the state concerned, and \nafter verification of quantum of such interest income, earned & accounted for, \nby the appellant. This deduction should be allowed in addition to deduction u/s \n80P(2)(a)(i). No deduction should be allowed on interest income from \ncommercial banks, bonds etc. Ground No.1 is allowed in terms of direction \nafore-stated. \n \n4.5 Ground No.2 pertains to disallowances made by the AO not in parity with \ncircular No.37/2016 and stand taken by the Board. The contents of CBDT \nCircular No.37/2016 dt: 02.11.2016 has been considered. It has been \ncategorically stated in para-3 of the said circular, as under: \n \n\"3. In view of the above, the Board has accepted the settled position that the \ndisallowance made under sections 32, 40(a)(ia), 40A(3), 43B, etc. of the Act \nand other specific disallowances, related to the business activity against which \nthe Chapter VI-A deduction has been claimed, result in enhancement of the \nprofits of the eligible business, and that deduction under Chapter VI-A is \nadmissible on the profits so enhanced by the disallowance.\" \n \nThe principle laid down by the Board has been carefully considered, in the \ncontext of the present appeal. The AO in the instant case has made \ndisallowances as specified in the body of the order to determine the income \nfrom business operations of the appellant. Due to such disallowances made \nduring assessment the total income has become greater than the claim for \ndeduction made by the appellant u/s 80P in its Return of Income for the year. \nKeeping in mind the facts of the case and the principle enunciated in the noted \ncircular of the CBDT, the AO is directed to allow deduction u/s 80P(2)(a)(i) of \nthe I.T.Act, on enhanced income due to disallowances of provisions and \nexpenses, on account of interest expense to the tune of Rs. 79,19,028/-, \ncommission expense of Rs. 73,04,580/- and provision for doubtful loans of Rs. \n18,85,569/- only, made during assessment. Ground No.2 is allowed \naccordingly. \n \n\n4 \n \nRahi Mahila Nagri Sahakari Patsanstha Ltd. \nITA no.56/Nag./2025 \n \n \n4. \nThe learned Departmental Representative in all fairness submitted that \nthere is no infirmity in the said order since the same findings support from \nvarious binding judicial precedents and circular issued by the CBDT. The \nlearned Authorised Representative has only submitted that the order passed \nby the learned CIT(A) need not be disturbed. We find that the learned CIT(A) \nhas rightly relied on the judicial precedents and has followed the CBDT \nCircular in letter and spirit. Hence, there is no scope for interference at our \nend so as to tinker with the well–reasoned order passed by the learned \nCIT(A). \n \n5. \nIn the result, appeal by the Revenue stands dismissed. \nOrder pronounced in the open Court on 21/03/2025 \n \n \nSd/- \nV. DURGA RAO \nJUDICIAL MEMBER \n \n \n \n \n \n Sd/- \nK.M. ROY \nACCOUNTANT MEMBER \nNAGPUR, DATED: 21/03/2025 \n \nCopy of the order forwarded to: \n \n(1) \nThe Assessee; \n(2) \nThe Revenue; \n(3) \nThe PCIT / CIT (Judicial); \n(4) \nThe DR, ITAT, Nagpur; and \n(5) \nGuard file. \n \n \n \n \n \n \n \n True Copy \n By Order \nPradeep J. Chowdhury \nSr. Private Secretary \n \n \n \n \n \n \n \n \n \n Sr. Private Secretary \n ITAT, Nagpur \n \n \n"