ITAT Mumbai Allows Section 80P(2)(d) Deduction on Interest from Co-operative Banks, Deletes Disallowance

April 15, 2026 : The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has granted relief to New Bombay Co-operative Commercial Complex Premises Society Limited, holding that deduction under Section 80P(2)(d) of the Income Tax Act is available on interest income earned from deposits placed with co-operative banks.

The Bench comprising Narender Kumar Choudhry (Judicial Member) and Arun Khodpia (Accountant Member) allowed the assessee’s appeal for Assessment Year 2021–22 and directed deletion of the disallowance of ₹1,76,987, subject to factual verification by the jurisdictional Assessing Officer.

The dispute arose from a rectification order passed under Section 154, wherein the Assessing Officer denied deduction claimed under Section 80P(2)(d) on interest earned from deposits with Maharashtra State Co-operative Bank Ltd. and Saraswat Bank. The disallowance was subsequently upheld by the Commissioner of Income Tax (Appeals).

Before the Tribunal, the assessee argued that interest income derived from investments with co-operative banks qualifies for deduction, as such banks fall within the definition of “co-operative society” under Section 2(19) of the Act. Accepting this contention, the Tribunal noted that Section 80P(2)(d) permits deduction of income by way of interest or dividend earned by a co-operative society from investments with any other co-operative society.

The Bench emphasized that two conditions must be satisfied: the income must be in the nature of interest or dividend, and it must arise from investments made with another co-operative society. Since the assessee was a registered co-operative society and the deposits were made with co-operative banks, these conditions stood fulfilled.

Addressing the Revenue’s reliance on Section 80P(4), the Tribunal clarified that the provision excludes co-operative banks from claiming deduction under Section 80P themselves, but does not bar a co-operative society from claiming deduction on interest earned from such banks. The Tribunal reiterated that co-operative banks, despite this exclusion, continue to retain their character as co-operative societies under Section 2(19).

The Bench also relied on earlier coordinate bench rulings, including Pathare Prabhu Cooperative Housing Society Ltd. v. ITO and Kaliandas Udyog Bhavan Premises Co-op Society Ltd. v. ITO, which have consistently held that interest earned from co-operative banks is eligible for deduction under Section 80P(2)(d).

Observing that the issue is well settled in favour of the assessee, the Tribunal held that the disallowance could not be sustained and ordered its deletion, subject to verification.

Case Title: New Bombay Co-operative Commercial Complex Premises Society Limited v. ITO
Case No.: ITA No. 1440/M/2026