AA531 KESARIMANGALAM PRIMARY AGRL CO-OP CREDIT SOCIETY LIMITED,TIRUPUR V. INCOME TAX OFFICER, WARD 2(1) ERODE, ERODE

ITA 2611/CHNY/2024

AI Insights

The case involves the AA531 Kesarimangalam Primary Agricultural Co-op Credit Society Ltd., which appealed against the decision of the Commissioner of Income Tax (Appeals) who had rejected their earlier appeal due to a significant delay in filing. The primary issue was the denial of a deduction under Section 80P(2)(d) of the Income Tax Act, 1961, by the Assessing Officer, which was based on the classification of the society's members into 'A' and 'B' classes, where only 'A' class members were considered for such deductions. The Tribunal, referencing decisions from the Supreme Court and other High Courts, found that the society was entitled to the deduction as it met the criteria set out under Section 80P for primary agricultural credit societies.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 107215 (ITAT-CHENNAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2016-2017
• Other Referred Cases: PCIT vs. S-1306 Ammapet Primary Agricultural Cooperative Bank Ltd., Citizen Cooperative Society Limited Vs. ACIT, CIT, Panaji, Goa Vs. Goa Staff Cooperative Housing Finance & Federation Ltd., Mavilayi Service Cooperative Bank Ltd.& Ors. Vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R.ANITA
• Assessee Lawyers: A. VIJAYALAKSHMI
• Keywords: Set aside; Period of limitation; Co-operative Credit Society
• Section: 271(1)(c); 73; 80P; 271B

Judgement Text

"आयकर अपीलीय अिधकरण, ‘सी’ \u000eा यपीठ, चे\u0013ई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH: CHENNAI \u0016ी एबी टी. वक\u001b, \u000eा ियक सद\u001d एवं \u0016ी जगदीश, लेखा सद\u001d क े सम$ BEFORE SHRI ABY T. VARKEY, JUDICIAL MEMBER AND SHRI JAGADISH, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.2611/Chny/2024 िनधा &रण वष&/Assessment Year: 2016-17 M/s.AA531 Kesarimangalam Primary Agricultural Co-op Credit Society Limited, Kuppichipalayam, Kesarimangalam (P.O.), Bhavani – 638 311 [PAN: AACAA 6388G] Vs. The Income Tax Officer, Ward 2(1), Erode. (अपीला थ\u001b/Appellant) ()*थ\u001b/Respondent) अपीला थ\u001b की ओर से/ Appellant by : Ms. A. Vijayalakshmi, CA (Through Virtual Mode) )*थ\u001b की ओर से /Respondent by : Ms. R. Anita, Addl.CIT सुनवा ईकीता रीख/Date of Hearing : 15.01.2025 घोषणा कीता रीख /Date of Pronouncement : 05.03.2025 आदेश / O R D E R PER ABY T. VARKEY, JM: This is an appeal preferred by the primary agricultural co-operative credit society, against the impugned action of the Ld. Commissioner of Income Tax (Appeals) / Addl/JCIT(A)-2, Delhi, (hereinafter in short “CIT(A)\") dated 07.10.2024 for assessment year 2016-17 (hereinafter in short “AY\"). ITA No.2611/Chny/2024 (AY 2016-17) AA531 Kesarimangalam Primary Agrl. Co-op. Credit Society Ltd. :: 2 :: 2. The main grievance of the assessee is that the First Appellate Authority has refused to condone the delay in respect of filing of appeal before him and consequently didn’t admit the appeal for adjudication. 3. The Ld.AR pointed out that the assessment order was passed by the AO on 24.12.2018, and that assessee had filed the appeal belatedly with a delay of 1600 days. The assessee has filed an affidavit explaining the reason for the delay; and on perusal of it, reveals that the assessee was not aware of the existence of assessment order that was passed by AO on 24.12.2018 and came to know about it only in the first week of March, 2020 and immediately thereafter assessee handed over to the Ld.AR, the relevant papers for filing appeal before the Ld.CIT(A). But, because Covid- 19 pandemic paralyzed the functioning of institutions from 20th March, 2020, therefore, the Ld.AR could not file the appeal within 30 days and therefore, he filed the appeal only on 22.05.2023. According to the Ld.AR, the Department circular itself had extended the period of “Taxation and other laws (Relaxation and Amendment of certain Provisions of the Act, 2020)” [TOLA] up to March, 2023 and since the assessee had filed within 60 days of the end of TOLA period, the delay may be condoned. ITA No.2611/Chny/2024 (AY 2016-17) AA531 Kesarimangalam Primary Agrl. Co-op. Credit Society Ltd. :: 3 :: 4. Per contra, the Ld.DR doesn’t want us to condone the delay considering the delay of 1575 days in filing appeal before Ld CIT(A) 5. Having heard both the parties on the issue of delay caused in filing appeal before the Ld.CIT(A), it is noted that the assessee society has filed an affidavit through its secretary explaining the delay. According to assessee’s secretary, he was not aware of the e-proceedings which led to the passing of the assessment order in December, 2018; and he came to know about it [i.e., passing of assessment order] only when it was pointed out by the Member of TamilNadu Accounting and Taxation Services Co- operative Society, in the first week of March, 2020. Having come to know about the assessment order, he immediately handed over the relevant documents to the Ld.AR for filing of appeal before the Ld.CIT(A), but due to Covid-19 pandemic all the institutions, including the courts were shut down from 20th March, 2020 and consequently, appeal couldn’t be filed in March, 2020, which led to filing of appeal in May, 2023. Therefore, the main plea is that the period of Covid-19 be excluded keeping in view that TOLA has extended the period of limitation from 20.03.2022 to 30.03.2023; and since the assessee had filed the appeal on 22.05.2023 i.e., within a period of 52 days, it is pleaded that delay be condoned. Considering the overall facts ITA No.2611/Chny/2024 (AY 2016-17) AA531 Kesarimangalam Primary Agrl. Co-op. Credit Society Ltd. :: 4 :: stated in affidavit and there is no material to disprove the same, and considering that assessee is a primary agricultural co-operative credit society, which deals mainly with the farmers and farming community, we condone the delay in filing of appeal before the Ld.CIT(A) and proceed to adjudicate the grounds of appeal preferred by assessee. 6. The main grievance of the assessee is against the action of the AO denying deduction u/s.80P(2)(d) of the Income Tax Act, 1961 (hereinafter the ‘Act’) to the extent of Rs.7,06,759/-. 7. The brief facts are that the assessee had filed the return of income for AY 2016-17 on 08.03.2018 admitting ‘nil’ income after claiming deduction u/s.80P(2)(a)(i) of the Act. Later the case of the assessee was selected for scrutiny under CASS and the AO asked the assessee to file relevant documents for claiming deduction under Chapter VIA and pursuant to it, the AO acknowledged that assessee had filed byelaws, profit & loss account, etc., and he further noted that the assessee society has claimed deduction u/s.80P(2) of the Act amounting to Rs.15,06,083/- being income from providing credit facility to its members. The AO also noted the credit facilities were being provided by the assessee to its ‘A’ class members as ITA No.2611/Chny/2024 (AY 2016-17) AA531 Kesarimangalam Primary Agrl. Co-op. Credit Society Ltd. :: 5 :: well as ‘B’ class members. According to the AO, the ‘B’ class members were not entitled to receive dividend or exercise their voting rights and cannot participate in the general administrative and meeting of the society, whereas these privileges are given only to ‘A’ class members. According to the AO, the ‘B’ class members are admitted for limited purpose of availing loans and their membership exits for limited period (maximum of three years) whereas, the ‘A’ class members enjoy all rights in addition to their rights and liabilities of the society and therefore, according to AO, the associated members are not entitled to the benefit of surplus and hence, benefit of mutuality consent cannot be extended to assessee and therefore, he relied on few decisions and rejected the deduction claimed u/s.80P(2)(d) of the Act to the extent of Rs.7,06,759/-. 8. Aggrieved, the assessee preferred an appeal before the Ld.CIT(A), who rejected the appeal without admitting it citing the reason of delay, supra. Aggrieved, assessee is before us. 9. We have heard both the parties and perused the record. We are not repeating the facts for the sake of brevity. We note that the assessee is a primary agricultural co-operative credit society registered under the ITA No.2611/Chny/2024 (AY 2016-17) AA531 Kesarimangalam Primary Agrl. Co-op. Credit Society Ltd. :: 6 :: Tamilnadu Co-operative Societies Act, 1983 (hereinafter the ‘TNCS Act’) and the assessee filed its return of income for the AY 2016-17 on 08.03.2018 admitting ‘nil’ income after claiming deduction u/s.80P(2) of the Act amounting to Rs.15,06,083/- and the AO inter-alia has disallowed the deduction claimed u/s.80P(2) of the Act on the ground that assessee has two classes of members; ‘A’ class as well as ‘B’ class. ‘A’ class members enjoy all rights whereas a ‘B’ class members are admitted for limited purpose of availing loans and do not enjoy any rights. Therefore, according to the AO, assessee was not entitled to claim deduction u/s.80P(2) of the Act. The Ld.AR pointed out that on similar reasons, in another case, the AO denied the claim of a society u/s.80P of the Act, which was finally challenged before the Hon’ble Jurisdictional High Court in the case of PCIT vs. S-1306 Ammapet Primary Agricultural Cooperative Bank Ltd., and the Hon’ble Division Bench by order dated 06.12.2018 in T.C.A. No.882 & 891 of 2018 noted the facts of the case as under:- “The Assessing Officer was of the view that the assessee has got two categories of members namely shareholding members called as A Class members and associate members called as B Class members. The Assessing Officer was also of the view that the associate members are not entitled to receive dividends or exercise their voting rights and cannot participate in the general administration and meetings of the society and that these privileges are given to A Class members. The Assessing Officer further observed that B Class members are admitted for the limited purpose of availing loans and those members, after discharging their loans, relinquished their membership and did not have any role to play in the society whereas A Class members enjoy all rights in addition to other rights and liabilities in the society as specified in the By-laws. The Assessing Officer concluded that the associate members cannot be regarded as members of the cooperative society. The Assessing Officer allowed the deduction under Section 80P(2)(d) of the Act. The Assessing Officer also concluded that the assessee was not entitled to claim deduction under Section 80P(2)(a)(i) of the Act and that the Department decided to file special leave petitions before the Hon'ble Supreme Court against the said two decisions. The Assessing Officer, further observing that the collection of demand would not be enforced till the outcome of the special leave petitions in the Hon'ble Supreme Court, arrived at tax and initiated penalty proceedings under Sections 271(1)(c) and 271B of the Act. ITA No.2611/Chny/2024 (AY 2016-17) AA531 Kesarimangalam Primary Agrl. Co-op. Credit Society Ltd. :: 7 :: 9. The assessee carried the matters on appeal to the Commissioner of Income Tax (Appeals) [hereinafter called the CIT(A)], who, by separate orders respectively dated 30.8.2016 and 31.7.2017 respectively for the assessment years 2013- 14 and 2014-15, allowed the appeals filed by the assessee. As against the same, the Revenue carried the matters on appeal to the Tribunal. However, the Tribunal, by the impugned orders, dismissed the appeals filed by the Revenue. Therefore, the Revenue is before us. 10. The learned Senior Standing Counsel for the Revenue submits that the decision of the Hon'ble Supreme Court in the case of Citizen Cooperative Society Limited Vs. ACIT [reported in (2017) 84 Taxmann.com 114] is in favour of the Revenue and that the review petition filed against that decision was dismissed by the Hon'ble Supreme Court in the decision reported in (2017) 88 Taxmann.com 279. He further submits that in the case of CIT, Panaji, Goa Vs. Goa Staff Cooperative Housing Finance & Federation Ltd. [reported in (2016) 73 Taxmann.com 400], the Revenue filed a special leave petition and leave has been granted by the Hon'ble Supreme Court by order dated 12.8.2016. 11. We have elaborately heard the learned Senior Standing Counsel for the Revenue. 12. Admittedly, the assessee – society is registered under the provisions of the TNCS Act. It defines the word 'members' under Section 2(16) to mean a person joining in the application for the registration of society and a person admitted to the membership after registration in accordance with the provisions of the Act, the Rules framed thereunder and the By-laws and includes an associate member. The expression 'associate member' is defined under Section 2(6) of the TNCS Act to mean a member, who possesses only such privileges and rights of a member and who is subject only to such liabilities of a member as may be specified in this Act, the Rules and the By-law. 13. Thus, the definition of the word 'members' includes an associate member and therefore, the Assessing Officer fell into an error in drawing a distinction between A Class members and B Class members. For the purpose of being entitled to a relief under Section 80P of the Act, all that is required is that the cooperative society should answer the description of a society engaged in carrying on the business of providing credit facilities to its member. Once the description is answered, then automatically, the benefit of Section 80P of the Act would stand attracted subject to the provisions contained in Sub- Section (2) of Section 80P of the Act. 14. Further, it is to be pointed out that in terms of Sub-Section (4) of Section 80P of the Act, which was inserted vide the Finance Act, 2006 with effect from 01.4.2007 i.e from the assessment year 2007-08, the 'primary cooperative agricultural and rural development bank' means 'a society having its area of operation confined to a taluk, the principal object of which is to provide for long term credit for agricultural and rural development activities'. What was excluded was the 'cooperative banks' and admittedly, the assessee society is a primary agricultural cooperative credit society and therefore, would be entitled to the benefit of Section 80P of the Act. 15. Further, for the assessment year 2014-15, the decision in the case of Citizen Cooperative Society Limited was relied upon by the Revenue before the Tribunal, which, in paragraph 6.1 of its order dated 28.2.2018 for the assessment year 2014-15, extracted the operative portion of that judgment. In that case, the Hon'ble Supreme Court found that the society carried on certain activities, which were contrary to the provisions of the Andhra Pradesh Mutually Aided Cooperative Societies Act, 1995 and that they accepted deposits from third parties, who were not members in the real sense and were using those deposits to advance gold loans. Therefore, the Hon'ble Supreme Court pointed out that such an activity of the said society was that of a finance business and could not be termed as a cooperative society and that the loans, which were disbursed, were without the approval from the Registrar of Mutually Aided Cooperative Societies, Ranga Reddy District. The Hon'ble Supreme Court found that the said society was not entitled to deduction under Section 80P of the Act. 16. It is noteworthy to point out that the Hon'ble Supreme Court in the decision in the case of Citizen Cooperative Society Limited also observed that in the light of insertion of Sub-Section (4) to Section 80P of the Act by the Finance Act, 2006, such deduction should not be admissible to a cooperative bank and that if it is a primary agricultural credit society or a primary cooperative agriculture and rural development bank, the deduction would still be provided. 17. In the preceding paragraphs, we have pointed out the definitions of the expressions 'members' and 'associate member' under the TNCS Act and held that an 'associate member' is also a 'member' in terms of Section 2(16) of the TNCS Act. Furthermore, the Assessing Officer himself found that the associate members are also admitted as members of the society. In such circumstances, the Assessing Officer fell into an error in not granting any relief to the assessee society, which was rightly granted by the CIT (A) as confirmed by the Tribunal. In addition to that, the Assessing Officer has not pointed out that loans have been disbursed to all and sundry in terms of the provisions of the TNCS Act and in terms of Clause (b) to ITA No.2611/Chny/2024 (AY 2016-17) AA531 Kesarimangalam Primary Agrl. Co-op. Credit Society Ltd. :: 8 :: Sub-Section (4) of Section 80P of the Act, the society has an area of operation, operates within the taluk and will provide long term credit for agricultural and rural development activities as well. The CIT (A) rightly granted the relief to the assessee as confirmed by the Tribunal. We do not find any good ground to entertain these appeals. 10. And our attention was also drawn to the decision of Hon’ble Supreme Court in similar case of the Mavilayi Service Cooperative Bank Ltd.& Ors. Vs. CIT in Civil Appeal Nos. 7343-7350 of 2019, order dated 12.01.2021, held as under:- 45. To sum up, therefore, the ratio decidendi of Citizen Cooperative Society Ltd. (supra), must be given effect to. Section 80P of the IT Act, being a benevolent provision enacted by Parliament to encourage and promote the credit of the co- operative sector in general must be read liberally and reasonably, and if there is ambiguity, in favour of the assessee. A deduction that is given without any reference to any restriction or limitation cannot be restricted or limited by implication, as is sought to be done by the Revenue in the present case by adding the word “agriculture” into Section 80P(2)(a)(i) when it is not there. Further, section 80P(4) is to be read as a proviso, which proviso now specifically excludes co-operative banks which are co-operative societies engaged in banking business i.e. engaged in lending money to members of the public, which have a licence in this behalf from the RBI. Judged by this touchstone, it is clear that the impugned Full Bench judgment is wholly incorrect in its reading of Citizen Cooperative Society Ltd. (supra). Clearly, therefore, once section 80P(4) is out of harm’s way, all the assessees in the present case are entitled to the benefit of the deduction contained in section 80P(2)(a)(i), notwithstanding that they may also be giving loans to their members which are not related to agriculture. Also, in case it is found that there are instances of loans being given to non-members, profits attributable to such loans obviously cannot be deducted. 46. It must also be mentioned here that unlike the Andhra Act that Citizen Cooperative Society Ltd. (supra) considered, ‘nominal members’ are ‘members’ as defined under the Kerala Act. This Court in U.P. Cooperative Cane Unions’ Federation Ltd., Lucknow v. Commissioner of Income Tax, Lucknow-I (1997) 11 SCC 287 referred to section 80P of the IT Act and then held: “8. The expression “members” is not defined in the Act. Since a cooperative society has to be established under the provisions of the law made by the State Legislature in that regard, the expression “members” in Section 80- P(2)(a)(i) must, therefore, be construed in the context of the provisions of the law enacted by the State Legislature under which the cooperative society claiming exemption has been formed. It is, therefore, necessary to construe the expression “members” in Section 80-P(2)(a)(i) of the Act in the light of the definition of that expression as contained in Section 2(n) of the Cooperative Societies Act. The said provision reads as under: “2. (n) ‘Member’ means a person who joined in the application for registration of a society or a person admitted to membership after such registration in accordance with the provisions of this Act, the rules and the bye-laws for the time being in force but a reference to ‘members’ anywhere in this Act in connection with the possession or exercise of any right or power or the existence or discharge of any liability or duty shall not include reference to any class of members who by reason of the provisions of this Act do not possess such right or power or have no such liability or duty;”” Considering the definition of ‘member’ under the Kerala Act, loans given to such nominal members would qualify for the purpose of deduction under section 80P(2)(a)(i). 47. Further, unlike the facts in Citizen Cooperative Society Ltd. (supra), the Kerala Act expressly permits loans to non- members under section 59(2) and (3), which reads as follows: “59. Restrictions on loans.- (1) A society shall not make a loan to any person or a society other than a member: Provided that the above restriction shall not be applicable to the Kerala State Co-operative Bank. ITA No.2611/Chny/2024 (AY 2016-17) AA531 Kesarimangalam Primary Agrl. Co-op. Credit Society Ltd. :: 9 :: Provided further that, with the general or special sanction of the Registrar, a society may make loans to another society. (2) Notwithstanding anything contained in sub-section (1), a society may make a loan to a depositor on the security of his deposit. (3) Granting of loans to members or to non-members under sub-section (2) and recovery thereof shall be in the manner as may be specified by the Registrar.” Thus, the giving of loans by a primary agricultural credit society to non-members is not illegal, unlike the facts in Citizen Cooperative Society Ltd. (supra). 48. Resultantly, the impugned Full Bench judgment is set aside. The appeals and all pending applications are disposed of accordingly. These appeals are directed to be placed before appropriate benches of the Kerala High Court for disposal on merits in the light of this judgment. 11. According to the Ld.AR, when we apply the binding judicial precedent of Hon’ble High Court & Supreme Court (supra), in the Mavilayi Service Co- operative Bank to the facts of the assessee’s case, the assessee society is registered under the TamilNadu Co-operative Societies Act and the definition of ‘Member’ under TNCS Act is as under: - “2(16) “member” means a person joining in the application for the registration of a society and a person admitted to membership after registration in accordance with the provisions of this Act, the rules and the by-laws and includes an associate member;” 12. And further it is noted that the ‘Restrictions on loans’ is similarly given in section 66 of the TNCS Act, which reads as under:- “66. Restrictions on loans. (1) A registered society shall not make a loan to any person other than a member: Provided that, with the general or special sanction of the Registrar, a registered society may make loans to another registered society: Provided further that a registered society may make such loans as may be specified in the by-laws to any of its paid employees. (2) Notwithstanding anything contained in sub-section (1) - (a) a registered society may make a loan to a depositor on the security of his deposit; (b) a financing bank may provide overdraft to, or discount bills and cheques of, depositors subject to such limits and conditions as may be prescribed; and ITA No.2611/Chny/2024 (AY 2016-17) AA531 Kesarimangalam Primary Agrl. Co-op. Credit Society Ltd. :: 10 :: (c) a financing bank may make a loan to depositors on the security of gold jewels and silver-ware, subject to such limits and conditions as may be prescribed. (3) The Government may, by general or special order, prohibit or restrict the lending of money on mortgage of immovable property by any registered society or class or category of registered societies.” 13. Therefore, according to Ld.AR, as decided by Apex Court at para 47 in the case of Mavilayi Service Co-operative Bank (supra), the assessee’s claim would be allowable since similar provisions are governing the present case of assessee i.e. TamilNadu Co-operative Societies Act and hence, giving loans by the assessee/primary agricultural credit society to its ‘B’ class members is perfectly valid because the definition of ‘member’ under the TNCS Act, permits loans to be given to ‘B’ class members Hence, giving loan to ‘B’ class members would not disqualify assessee from claiming deduction u/s.80P(2)(a)(i) of the Act. Therefore, we allow the appeal of the assessee and direct the AO to grant 80P deduction to the extent of Rs.7,06,759/-. 14. In the result, the appeal of the assessee is allowed. Order pronounced on 05th March, 2025 at Chennai. Sd/- (जगदीश) (JAGADISH) लेखा सद\u0003य/ACCOUNTANT MEMBER Sd/- (एबी टी. वक\r) (ABY T. VARKEY) \u0005याियक सद\u0003य/JUDICIAL MEMBER चे\u0003ई/Chennai, \u0005दनांक/Dated: 05th March, 2025. Vm/- ITA No.2611/Chny/2024 (AY 2016-17) AA531 Kesarimangalam Primary Agrl. Co-op. Credit Society Ltd. :: 11 :: RSR आदेश की )ितिलिप अ0ेिषत/Copy to: 1. अपीला थ\u001b/Appellant, 2.)*थ\u001b/ Respondent, 3. आयकर आयु1/CIT, Coimbatore 4. िवभा गीय )ितिनिध/DR & 5. गा ड& फा ईल/GF. "