ITAT Chennai Allows 80P Deduction on Interest from Co-operative Bank; Revenue’s Appeal Dismissed

The ITAT Chennai had dismissed the appeal of the Income Tax Department filed to challenge the orders of CIT(A), NFAC Delhi, which allowed a company to enjoy a deduction under Section 80P(2)(d) for the interest earned from investment made in Villupuram District Central Co-operative Bank (VDCC). The tribunal ruled in favour of the company.

The case has been filed by the Assistant Commissioner of Income Tax (ACIT) before the Income Tax Appellate Tribunal (ITAT), Chennai. The tax department challenged five separate orders passed by the CIT(A), NFAC Delhi, in favour of a company named M/s. Kallakurichi-II Cooperative Sugar Mills Ltd. All orders were issued on the same date, i.e., June 18, 2025, under Section 250 of the Income Tax Act.

This dispute is about whether the sugar mill (the assessee) can claim a tax deduction under Section 80P(2)(d) for the interest earned from investment made in Villupuram District Central Co-operative Bank (VDCC). However, the tax department denied this deduction on the grounds that VDCC is a co-operative bank and not a co-operative society, so the deduction should not be permitted.

The aggrieved company filed an appeal before the FAA. It allowed the deductions claimed by the company. The FAA referenced earlier rulings of the ITAT in the same company’s own case for assessment years 2011-12, 2012-13 and 2015-16 in ITA Nos. 369/CHNY/2019 and ITA Nos. 409 & 410/CHNY/2020 and the ruling of the Jurisdictional High Court in the case of Thorapadi Urban Co-op Credit Society Ltd. and Virupachipuram Urban Co-op Credit Society Ltd. vs. ITO. In both of these judgments, the authority upheld that the taxpayer is entitled to enjoy a deduction under section 80P(2)(d) of the Act on interest income received from the co-operative banks.

The dissatisfied tax department, with the order of the FAA, filed the current appeal before the ITAT Chennai. The tax department argued that VDCC is controlled by the RBI and is acting like a bank, so it should not be treated as a co-operative society. To support its argument, the department also cited a Karnataka High Court judgement in the Totagars case. On this point, the company stated that the Madras High Court has already announced its decision on this matter that interest from co-operative banks qualifies for Section 80P(2)(d). VDCC is legally registered as a Co-operative Central Bank under the Tamil Nadu Co-operative Societies Act, so it is a co-operative society. Moreover, the tribunal had previously allowed the same deduction to the same assessee for earlier years.

In the final outcome, the ITAT Chennai endorsed the arguments served by the company and the Commissioner, stating that VDCC is registered as a co-operative society, so interest generated from it is liable for deduction under section 80P(2)(d). The cited Madras High Court ruling is correct in upholding the deduction, and earlier ITAT decisions for this same assessee also support the deduction.

Therefore, the ITAT dismissed all the Income Tax Department’s appeals. Meaning, the sugar mill is allowed to enjoy deduction under Section 80P(2)(d).