ITAT Pune Allows Section 80P Deduction on Interest Earnned From Cooperative Bank Deposits

February 04, 2026 : The Pune Bench of the Income Tax Appellate Tribunal has ruled in favour of a cooperative credit society, holding that interest income earned from deposits placed with cooperative banks qualifies for deduction under Section 80P(2)(d) of the Income-tax Act, 1961.

The ruling came in an appeal filed by The Karad Urban Sevak Sahakari Patsanstha Maryadit, Karad, for the Assessment Year 2020–21, challenging an order of the National Faceless Appeal Centre. The dispute arose after the Assessing Officer disallowed a deduction of ₹39.69 lakh claimed on interest income earned from fixed deposits maintained with Satara District Central Cooperative Bank Ltd. and Karad Urban Cooperative Bank Ltd., and brought the amount to tax.

The assessee had declared nil income after claiming deduction under Section 80P, asserting that it was a cooperative society engaged in providing credit facilities to its members. It argued that even if the interest income were to be assessed separately, it squarely fell within Section 80P(2)(d), which allows deduction of interest or dividend income earned from investments made with other cooperative societies. According to the assessee, cooperative banks are essentially cooperative societies that operate under a banking licence and therefore retain their character as cooperative societies for the purpose of Section 80P.

Deciding the appeal, Accountant Member Dr. Manish Borad observed that the issue was no longer res integra. The Tribunal noted that several coordinate benches have consistently held that interest income earned by a cooperative society from deposits with cooperative banks is eligible for deduction under Section 80P(2)(d). It emphasised that the mere fact that a cooperative society carries on banking activities under a licence does not change its fundamental character as a cooperative society for the purposes of the provision.

Relying on a series of earlier decisions, including recent rulings of the Pune Bench, the Tribunal reiterated that cooperative banks continue to fall within the expression “cooperative society” under Section 80P(2)(d). Consequently, interest income derived from investments made with such cooperative banks cannot be denied the benefit of deduction.

Accordingly, the Tribunal set aside the disallowance of ₹39.69 lakh made by the Assessing Officer and upheld by the appellate authority. The appeal filed by The Karad Urban Sevak Sahakari Patsanstha Maryadit was allowed, and the assessee was held entitled to deduction under Section 80P(2)(d) on interest income earned from cooperative banks.