M/s. Shri Mahishasuramardini Urban Co-Operative Credit Society Limited, Haveri V. Income Tax Officer, Wrd-1, Haveri

ITA 566/BANG/2022

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 6521 (ITAT-BANGALORE)
• Duration Of Justice: 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-08-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2017-2018
• Appeal Filed On: 18-07-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Question of law; Co-operative Credit Society; Set aside
• Section: 68; 56; 142(1); 234B; 80P; 69A; 139(1); 139(4); 194A; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES “SMC-C”, BANGALORE Before Shri Chandra Poojari, Accountant Member ITA No.566/Bang/2022 : Asst.Year 2017-2018 Sri Mahishasuramardini Urban Co-operative Credit Society Ltd. Dru Joshi Building Krubageri Road, Ranebennur Haveri – 581 115. PAN : AABAS1467R. v. The Income Tax Officer Ward 1 Haveri. (Appellant) (Respondent) Appellant by : Sri.Vishal S Rao, CA Respondent by : Sri.Ganesh R.Ghale, Standing Counsel Date of Hearing : 16.08.2022 Date of Pronouncement : 16.08.2022 O R D E R This appeal filed by the assessee is directed against the order of the CIT(A) dated 20.05.2022 for the assessment year 2017-2018. The assessee has raised the following grounds:- “1. The impugned order of the Appellate Commissioner of Income Tax is liable to set aside in so far as the same is incorrect, irregular, improper, unlawful and oppose to the law and facts of the case. 2. The learned Appellate Commissioner erred in upholding the impugned action of the Assessing Officer in bringing to tax a sum of Rs.10,03,077/- under the head Income from business denying the deduction u/s 80P(2)(a)(i) of the Income Tax Act, 1961 to that extent with complete disregard to the decision of the Apex Court in the case ;of Mavilayi Service Co-operative Bank Ltd. & Others v. CIT 431 ITR 1 (SC) and as such the impugned additions made to that extent are liable to deletion. 3. The learned Appellate Commissioner erred in upholding impugned order of the Assessing Officer denying the deduction u/s 80P(2)(a)(i) of the Income Tax Act, 1961 to the extent of Rs.10,03,077/- misconstruing the facts of the case and ITA No.566/Bang/2022. Sri Mahishasuramanrdini Urban Co-op Cr.So.Ltd. 2 disregarding the provisions of the Karnataka Co-operative Societies Act, 1959 and even when there are no nominal members or non-members admitted and principle of mutuality is maintained. 4. The learned Appellate Commissioner erred in upholding the impugned action of the Assessing Officer in bringing to tx a sum of RS.2,99,011/- under the head income from other sources denying the deduction u/s 80P(2)(a)(i) of the Income Tax Act, 1961 to that extent with complete disregard to the decision of the jurisdictional High Court of Karnataka in the case of Tumkur Merchants Souharda Credit Co-operative Ltd. v. ITO (2015) 55 taxmann.com 447 (Karnataka) and as such the impugned additions made to that extent are liable to deletion. 5. The learned Appellate Commissioner erred in upholding the impugned order of the Assessing Officer denying the deduction u/s 80P(2)(a)(i) of the Act to the extent of Rs.2,99,011/- holding that the interests earned by the Appellant on the deposits with the other banks do not qualify for such deduction, disregarding the facts of the case, the law relevant and the decision of the jurisdictional High Court of Karnataka and as such the impugned additions made to that extent are liable to deletion. 6. The learned Appellate Commissioner erred in upholding the impugned addition of Rs.29,63,000/- made by the AO u/s 69A of the Act even when the provisions thereof do not apply in the case of the Appellant and as such the same is liable to set aside. 7. The learned Appellate Commissioner erred in upholding the impugned addition of Rs.29,63,000/- made by the AO u/s 69A of the Act even when the sources of the alleged deposits from members were identified and explained by the Appellant and as such the same is liable to deletion. 8 The learned Appellate Commissioner erred in upholding the impugned addition of Rs.29,63,000/- made u/s 69A of the Act with complete disregard to the facts of the case and as such the same is liable to deletion. 9. That the impugned order is liable to set aside in so far as the Appellate Commissioner erred in upholding the levy of interest of Rs.7,53,536/- u/s 234A even when the Appellant is not liable there for under the law. ITA No.566/Bang/2022. Sri Mahishasuramanrdini Urban Co-op Cr.So.Ltd. 3 10. That the impugned order is liable to set aside in so far as the Appellate Commissioner erred in upholding the levy of interest of 8,61,184/- u/s 234B even when the Appellant is not liable there for under the law.” Grounds 2 and 3 2. The brief facts of the case are that the assessee is an agricultural credit co-operative society, registered under the Karnataka Co-operative Societies Act, 1959. The Assessing Officer denied the claim of deduction u/s 80P(2)(a)(i) of the Act and brought to tax an amounting to Rs.10,03,077 under the head income from business. The A.O. also held that the assessee has violated the principle of mutuality since it was dealing with non-members. In this context, the A.O. relied on the judgment of the Hon’ble Apex Court in the case of The Citizen Co-operative Society Ltd. v. ACIT reported in 397 ITR 1 (SC). The Assessing Officer also denied the interest income earned out of investments with banks and others amounting to Rs.2,99,011 and brought to tax the same under the head “income from other sources”. 3. Aggrieved, the assessee filed an appeal to the first appellate authority. The CIT(A) upheld the view taken by the A.O. that the assessee has violated the principle of mutuality, and hence, it was concluded by him that the assessee was not entitled to deduction u/s 80P(2)a)(i). 4. Aggrieved by the order of the CIT(A), the assessee filed this appeal before the Tribunal. The learned AR submitted that the issue is covered by the latest judgment of the Hon’ble ITA No.566/Bang/2022. Sri Mahishasuramanrdini Urban Co-op Cr.So.Ltd. 4 Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. & Ors. v. CIT & Anr. Reported in (2021) 431 ITR 1 (SC). 5. The learned Departmental Representative supported the orders of the Income Tax Authorities. 6. I have heard rival submissions and perused the material on record. As regards whether the assessee is entitled to deduction u/s 80P(2)(a)(i) and 80P(2)(d) of the I.T.Act, the recent order of the Tribunal in the case of M/s.Vasavamba Co-operative Society Ltd. v. The Pr.CIT in ITA No.453/Bang/2020 (order dated 13.08.2021), after considering the judicial pronouncements on the issue held that interest income earned out of investments made from surplus funds would be taxable under the head `income from other sources’ and would not be eligible for deduction u/s 80P(2)(a)(i) of the I.T.Act. It was further held by the Tribunal insofar as deduction u/s 80P(2)(d) of the I.T.Act is concerned, only those interest received from investments with co- operative societies alone would be entitled to deduction. The relevant finding of the Tribunal reads as follows:- “9. The Hon’ble Supreme Court in the case of the The Totgars Co-operative Sale Society Ltd. Vs. ITO 322 ITR 283 (SC) held that Income from utilisation of surplus funds was taxable under the head income from other sources, and therefore not eligible for deduction u/s 80P. The Hon’ble Karnataka High Court in case of Tumkur Merchants Souharda Credit Cooperative Ltd. vs. ITO (230 Taxman 309), was dealing with a case where deduction u/s.80P(2)(a)(i) of the Act was claimed on interest from the deposits made in a nationalized bank out of the amounts which was used by the assessee for providing credit facilities to its members. The Assessee claimed that the said interest amount is attributable to the business of providing credit facilities by the assessee and forms ITA No.566/Bang/2022. Sri Mahishasuramanrdini Urban Co-op Cr.So.Ltd. 5 part of profits and gains of business. The Hon’ble Karnataka High Court after considering SC judgment in case of Totgars(supra) held that since the word income is qualified by the expression “attributable” to the business of Banking is used in Sec.80P(2)(a)(i) of the Act, it has to receive a wider meaning and should be interpreted as covering receipts from sources other than the actual conduct of business. The Court held a Cooperative Society which is carrying on the business of providing credit facilities to its members, earns profits and gains of business by providing credit facilities to its members. The interest income so derived or the capital, if not immediately required to be lent to the members, they cannot keep the said amount idle. If they deposit this amount in bank so as to earn interest, the said interest income is attributable to the profits and gains of the business of providing credit facilities to its members only. The society is not carrying on any separate business for earning such interest income. The income so derived is the amount of profits and gains of business attributable to the activity of carrying on the business of banking or providing credit facilities to its members by a co-operative society and is liable to be deducted from the gross total income under Section 80P of the Act. The Hon’ble Court also distinguished the decision of the Hon’ble Supreme Court in the case of Totgars (supra) by observing that the Supreme Court was dealing with a case where the assessee- Cooperative Society, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing agricultural produce of its members was retained in many cases. The said retained amount which was payable to its members from whom produce was bought, was invested in a short- term deposit/security. Such an amount which was retained by the assessee - Society was a liability and it was shown in the balance sheet on the liability side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in Section 80P(2)(a)(i) of the Act or under Section 80P(2)(a)(iii) of the Act. Therefore in the facts of the said case, the Apex Court held the assessing officer was right in taxing the interest income indicated above under Section 56 of the Act. The Court also observed that even the Hon’ble Supreme made it clear that they are confining the said judgment to the facts of that case. The Court therefore concluded that Hon’ble Supreme Court was not laying down any law. Similar view taken in Guttigedarara Credit Co- operative Society Ltd. vs. ITO [2015] 377 ITR 464 (Karnataka). In the case of PRINCIPAL COMMISSIONER OF INCOME TAX AND ANOTHER vs. TOTAGARS CO-OPERATIVE SALE SOCIETY 392 ITR 0074 (Karn) in the context of deduction u/s.80P(2)(d) of the Act, it was held that Sec.80P(2)(d) of the Act allows deduction in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co- operative society, the whole of such income. The Hon’ble Court ITA No.566/Bang/2022. Sri Mahishasuramanrdini Urban Co-op Cr.So.Ltd. 6 held that that the aforesaid Supreme Court's decision in the case of Totgars (supra), was not applicable to deduction u/s.80P(2)(d) of the Act, because the said decision was rendered with regard to deduction under Section 80P(2)(a)(i) of the Act and not under Section 80P(2)(d) of the Act. 10. However, the Hon’ble Karnataka High Court in the case of PRINCIPAL COMMISSIONER OF INCOME TAX AND ANOTHER vs. TOTAGARS CO-OPERATIVE SALE SOCIETY 395 ITR 0611 (Karn) took a different view and held that interest income earned on deposits whether with any other bank will be in the nature of income from other sources and not income from business and therefore the deduction u/s.80P(2)(d) of the Act cannot be allowed to the Assessee. The Hon’ble Court followed decision of Hon’ble Gujarat High Court in the case of SBI Vs. CIT 389 ITR 578(Guj.) in which the Hon’ble Gujarat High Court dissented from the view taken by the Hon’ble Karnataka High Court in the case of Tumkur Merchants case (supra) The Hon’ble Court had to deal with the following substantial question of law: "(I)Whether the assessee, Totagar Co-operative Sale Society, Sirsi, is entitled to 100% deduction under Section 80P(2)(d) of the Income Tax Act, 1961 (for short 'the Act') in respect of whole of its income by way of interest earned by it during the relevant Assessment Years from 2007-2008 to 2011-2012 on the deposits or investments made by it during these years with a Co-operative Bank, M/s. Kanara District Central Co-operative Bank Limited? (II) Whether the Supreme Court decision in the case of the present respondent assessee, Totgar Co-operative Sale Society Limited itself rendered on 08th February 2010, in Totgar's Co-operative Sale Society Limited v. Income Tax Officer, reported in (2010) 322 ITR 283 SC : (2010) 3 SCC 223 for the preceding years, namely Assessment Years 1991-1992 to 1999-2000 (except Assessment Year 1995- 1996) holding that such interest income earned by the assessee was taxable under the head 'Income from Other Sources' under Section 56 of the Act and was not 100% deductible from the Gross Total Income under Section 80P(2)(a)(i) of the Act, is not applicable to the present Assessment Years 2007-2008 to 2011-2012 involved in the present appeals and therefore, whether the Income Tax Appellate Tribunal as well as CIT (Appeals) were justified in holding that such interest income was 100% deductible under Section 80P(2)(d) of the Act?" 11. The Hon’ble Court held that such interest income is not income from business but was income chargeable to tax under the ITA No.566/Bang/2022. Sri Mahishasuramanrdini Urban Co-op Cr.So.Ltd. 7 head income from other sources and therefore there was no question of allowing deduction u/s.80P(2)(d) of the Act. The following points can be culled out from the aforesaid decision: 1. What Section 80P(2)(d) of the Act, which was though not specifically argued and canvassed before the Hon'ble Supreme Court, envisages is that such interest or dividend earned by an assessee co-operative society should be out of the investments with any other co-operative society. The words 'Co-operative Banks' are missing in clause (d) of subsection (2) of Section 80P of the Act. Even though a co- operative bank may have the corporate body or skeleton of a co-operative society but its business is entirely different and that is the banking business, which is governed and regulated by the provisions of the Banking Regulation Act, 1949. Only the Primary Agricultural Credit Societies with their limited work of providing credit facility to its members continued to be governed by the ambit and scope of deduction under Section 80P of the Act. (Paragraph 13 of the Judgment). 2. The banking business, even though run by a Co- operative bank is sought to be excluded from the beneficial provisions of exemption or deduction under Section 80P of the Act. The purpose of bringing on the statute book sub- section (4) in Section 80P of the Act was to exclude the applicability of Section 80P of the Act altogether to any co- operative bank and to exclude the normal banking business income from such exemption/deduction category. The words used in Section 80P(4) are significant. They are: "The provisions of this section shall not apply in relation to any co- operative bank other than a primary agricultural credit society .....". The words "in relation to" can include within its ambit and scope even the interest income earned by the respondent-assessee, a co-operative Society from a Co-operative Bank. This exclusion by Section 80P(4) of the Act even though without any amendment in Section 80P(2)(d) of the Act is sufficient to deny the claim of the respondent assessee for deduction under Section 80P(2)(d) of the Act. The only exception is that of a primary agricultural credit society. (Paragraph-14 of the judgment) 3. The amendment of Section 194A(3)(v) of the Act excluding the Co-operative Banks from the definition of "Co- operative Society" by Finance Act, 2015 and requiring them to deduct income tax at source under Section 194A of the Act also makes the legislative intent clear that the Co- operative Banks are not that specie of genus co-operative society, which would be entitled to exemption or deduction ITA No.566/Bang/2022. Sri Mahishasuramanrdini Urban Co-op Cr.So.Ltd. 8 under the special provisions of Chapter VIA in the form of Section 80P of the Act. (Paragarph 15 of the Judgment) 4. If the legislative intent is so clear, then it cannot contended that the omission to amend Clause (d) of Section 80P(2) of the Act at the same time is fatal to the contention raised by the Revenue before this Court and sub silentio, the deduction should continue in respect of interest income earned from the co-operative bank, even though the Hon'ble Supreme Court's decision in the case of Respondent assessee itself is otherwise.(Paragraph 16 of the Judgment) 5. On the decision of the earlier decision of the Hon’ble Karnataka High Court referred to in the earlier part of this order, the Court held that it did not find any detailed discussion of the facts and law pronounced by the Hon'ble Supreme Court in the case of the respondent assessee (Totagars Sales Co-operative society) and hence unable to follow the same in the face of the binding precedent laid by the Hon'ble Supreme Court. The Hon’ble Court observed that in paragraph 8 of the said order passed by a co- ordinate bench that the learned Judges have observed that "the issue whether a co-operative bank is considered to be a co- operative society is no longer res integra, for the said issue has been decided by the Income Tax Appellate Tribunal itself in different cases..............". No other binding precedent was discussed in the said judgment. Of course, the Bench has observed that a Co- operative Bank is a specie of the genus co- operative Society, with which we agree, but as far as applicability of Section 80P(2) of the Act is concerned, the applicability of the Supreme Court's decision cannot be restricted only if the income was to fall under Section 80P(2)(a) of the Act and not under Section 80P(2)(d) of the Act.(Paragraph-18 of the Judgment) 6. The Court finally concluded that it would not make a difference, whether the interest income is earned from investments/deposits made in a Scheduled Bank or in a Co- operative Bank. Therefore, the said decision of the Co- ordinate Bench is distinguishable and cannot be applied in the present appeals, in view of the binding precedent from the Hon'ble Supreme Court.” (Paragraph 19 of the Judgment) 12. The Hon’ble Karantaka High Court in the aforesaid decision also placed reliance on a decision of the Hon’ble Gujarat High Court in the case of STATE BANK OF INDIA (SBI) vs. COMMISSIONER OF INCOME TAX 389 ITR 0578 (Guj) did not ITA No.566/Bang/2022. Sri Mahishasuramanrdini Urban Co-op Cr.So.Ltd. 9 agree with the view taken by the Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd. (supra) that the decision of the Supreme Court in Totgars Co-operative Sale Society (supra) is restricted to the sale consideration received from marketing agricultural produce of its members which was retained in many cases and invested in short term deposit/security and that the said decision was confined to the facts of the said case and did not lay down any law. The Hon’ble Gujarat High Court held that in the case of Totgars Co-operative Sale Society (supra) decided by Hon’ble Supreme Court, the court was dealing with two kinds of activities: interest income earned from the amount retained from the amount payable to the members from whom produce was bought and which was invested in short-term deposits/securities; and the interest derived from the surplus funds that the assessee therein invested in short-term deposits with the Government securities. The Hon’ble Gujarat High Court in this regard referred to the decision of the Karnataka High Court from which the matter travelled to the Supreme Court wherein it was the case of the assessee that it was carrying on the business of providing credit facilities to its members and therefore, the appellant-society being an assessee engaged in providing credit facilities to its members, the interest received on deposits in business and securities is attributable to the business of the assessee as its job is to provide credit facilities to its members and marketing the agricultural products of its members. The Hon’ble Gujarat High Court therefore held that decision in the case of Totagar Co-operative Sales Society rendered by the Hon’ble Supreme Court is not restricted only to the investments made by the assessee therein from the retained amount which was payable to its members but also in respect of funds not immediately required for business purposes. The Supreme Court has held that interest on such investments, cannot fall within the meaning of the expression "profits and gains of business" and that such interest income cannot be said to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members or marketing of agricultural produce of its members. The court has held that when the assessee society provides credit facilities to its members, it earns interest income. The interest which accrues on funds not immediately required by the assessee for its business purposes and which has been invested in specified securities as "investment" are ineligible for deduction under section 80P(2)(a)(i) of the Act. (Paragraph-13 of the Judgment) 13. It can thus be seen that the ratio laid down by the Hon’ble Karnataka High Court in the case of Totalgars Cooperative Sales Society in 395 ITR 611 (Karn) is that in the light of the principles enunciated by the Supreme Court in Totgars Co-operative Sale Society (supra), in case of a society engaged in providing credit facilities to its members, income from investments made in banks ITA No.566/Bang/2022. Sri Mahishasuramanrdini Urban Co-op Cr.So.Ltd. 10 does not fall within any of the categories mentioned in section 80P(2)(a) of the Act. However, section 80P(2)(d) of the Act specifically exempts interest earned from funds invested in co- operative societies. Therefore, to the extent of the interest earned from investments made by it with any co-operative society, a co- operative society is entitled to deduction of the whole of such income under section 80P(2)(d) of the Act. However, interest earned from investments made in any bank, not being a co- operative society, is not deductible under section 80P(2)(d) of the Act. 14. The CIT was therefore justified in exercising his powers of revision u/s.263 of the Act and directing the AO to tax interest income in question as it is neither of the nature specified in Sec.80P(2)(a)(i) or 80P(2)(d) of the Act. 15. The argument of the learned counsel for the Assessee has been that the AO has applied his mind and allowed the deduction and therefore the jurisdiction u/s.263 of the Act cannot be exercised. On this argument, the learned DR pointed out that the jurisdiction u/s.263 of the Act was exercised by the CIT not for the reason that the AO failed to make proper enquiries before concluding the Assessment but on the ground that his decision was contrary to decision of Hon’ble Jurisdictional High Court and therefore this argument of the learned counsel for the Assessee cannot be accepted. The argument that the view taken by the AO was a possible view and hence revision u/s.263 of the Act is bad is again not acceptable because, the view that ought to have been adopted was the later binding decision of the High Court in the case of Totagar co-opeartive sales society 395 ITR 611 (Karn.). 16. The argument that co-operative Banks are also co-operative societies is again without any basis in the light of the law explained in the case of Totagar co-opeartive sales society 395 ITR 611 (Karn.). The reliance placed by the learned counsel for the Assessee on the earlier decisions of the Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra) that the decision in Totgars Co-operative Sale Society (supra) stands explained by the later decision in the case of Totagar co-opeartive sales society 395 ITR 611 (Karn.). 17. We however find that the Assessee has raised the following grounds of appeal in its appeal, viz., “5. Without prejudice to the above, the learned Principal Commissioner ought to have considered the submissions of the appellant to the effect that interest received by it amounting to Rs. 1,32,726 from deposits with Mysore & Chamarajanagar District Central Co-operative Bank made out of Reserve Fund in compliance with rule 23(2) of the ITA No.566/Bang/2022. Sri Mahishasuramanrdini Urban Co-op Cr.So.Ltd. 11 Karnataka Co-operative Societies Rules, 1960 constituted its income from the business of providing credit facilities to the members and accordingly, ought to have held that the Income Tax Officer rightly allowed deduction thereof under section 80-P(2)(a)(i) of the Income Tax Act, 1961. 6. Without prejudice to the above, the learned Principal Commissioner ought to have taken note of the submissions made by the appellant that interest received by it amounting to Rs. 1,32,726 from deposits with Mysore & Chamarajanagar District Central Co-operative Bank made in compliance with section 58 of the Karnataka Co-operative Societies Act, 1959 constituted its income from the business of providing credit facilities to the members and accordingly, ought to have held that the deduction under section 80- P(2)(a)(i) of the Income Tax Act, 1961 in respect thereof was rightly allowed by the Income Tax Officer. 7. Without prejudice to the above, the learned Principal Commissioner ought to have considered the submissions of the appellant to the effect that the interest received by it amounting to Rs. 1,32,726 from deposits with Mysore & Chamarajanagar District Central Co-operative Bank made in compliance with rule 28 of the Karnataka Co-operative Societies Rules, 1960 constituted its income from the business of providing credit facilities to the members and accordingly, ought to have held that the appellant was eligible for deduction thereof under section 80-P(2)(a)(i) of the Income Tax Act, 1961.” 18. The issue raised by the Assessee in the aforesaid grounds require examination because if there are statutory compulsions that the money should be invested in a particular manner to run business of the Assessee then the interest income arising from such investments have business nexus and should be considered as income derived from the business of providing credit facility to the members. This aspect requires examination by the AO as it has not been raised before the CIT. We therefore modify the order of the CIT by remanding the issue raised in ground No.5 to 7 alone to the AO for examination afresh. In other respects we confirm the order of the CIT.” 7. In the instant case, it was contended that majority of the interest income is earned out of investments made with Central Co-operative Banks and is in compliance with the requirement under the Karnataka Co-operative Societies Act and Rules. If the amounts are invested in compliance with the ITA No.566/Bang/2022. Sri Mahishasuramanrdini Urban Co-op Cr.So.Ltd. 12 Karnataka Co-operative Societies Act, necessarily, the same is to be assessed as income from business, which entails the benefit of deduction u/s 80P(2)(a)(i) of the I.T.Act. Insofar as deduction u/s 80P(2)(d) of the I.T.Act is concerned, we make it clear that interest income received out of investments with co- operative societies is to be allowed as deduction. 8. Moreover, the Hon’ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. & Ors. v. CIT & Anr. (supra) had settled various issues for claiming deduction u/s 80P(2)(a)(i) of the I.T.Act. The gist of the judgment of the Hon’ble Apex Court are as follows:- (i) Section 80P is a benevolent provision enacted by the Parliament to encourage and promote the credit of the co-operative sector in general must be read liberally and reasonably, if there is ambiguity, in favour of the assessee (para 45 of the judgment). (ii) The co-operative societies extending credit facilities are entitled to deduction u/s 80P(2)(a)(i) and if there are loans to non-members, only profits attributable to the transactions with the non-members alone is liable to be excluded from the deduction. That is to say that the transactions with non-members per se would not disentitle a co-operative society from claiming the deduction under the section. If the state Act (the Co- operative Law) provides for enrollment of 'nominal ITA No.566/Bang/2022. Sri Mahishasuramanrdini Urban Co-op Cr.So.Ltd. 13 members', the loans given to such nominal members would qualify for the purpose of deduction u/s 80P(2)(a)(i). (Para 30 to 46 of the Judgment) (iii) Under clause (d) of section 80P(2), the interest or dividend income derived by a co-operative society from investments with other co-operative society is also eligible for the deduction whole of such income. (Para 35 of the Judgment) (iv) The restrictive clause in sub-section (4) of section 80P applies only a co-operative bank and not to co- operative societies or to co-operative societies extending credit facilities to its members. Further, only a bank having obtained the license under the Banking Regulation Act, 1949, shall be covered under the said restrictive clause u/s 80P(4). The Hon'ble Court has also elaborately explained the correct meaning & scope of the Proviso under the said sub-section (4) of section 80P declaring that the proviso carves out an exception to the exclusion in sub-section (4). 9. In the light of the above judgment of the Hon’ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. & Ors. v. CIT & Anr. (supra), the matter needs to be examined afresh by the A.O. de hors the observations of the CIT. The A.O. is directed to follow the dictum laid down by the Hon’ble Apex Court in framing the fresh assessment. Thus, this issue ITA No.566/Bang/2022. Sri Mahishasuramanrdini Urban Co-op Cr.So.Ltd. 14 is remitted to the files of the A.O. for fresh consideration in the light of our above observation. Grounds 4 and 5 10. These grounds are with regard to treating a sum of Rs.2,99,011 holding that the interest income earned from other sources from deposits with banks and not entitled to deduction u/s 80P(2)(a)(i) of the Act. This issue is also remitted to the files of the A.O. to decide afresh as discussed in para 6 to 9 above. 10.1 The learned DR made one more objection that in this case, the assessee has not filed return of income as prescribed u/s 139(1) of the Act. The learned DR placed reliance on the judgment of the Hon’ble Madras High Court in the case of Veerappampalayam Primary Agricultural Cooperative Credit Society Limited v. DCIT & Ors. in WP No.7038 of 2020 (judgment dated 07.04.2021) to content that the assessee is not entitled for deduction u/s 80P of the Act. He drew our attention to the findings of the Hon’ble Madras High Court:- “7. The scope of an 'intimation' under Section 143 (1) (a) of the Act, extends to the making of adjustments based upon errors apparent from the return of income and patent from the record. Thus to say that the scope of 'incorrect claim' should be circumscribed and restricted by the Explanation which employs the term 'entry' would, in my view, not be correct and the provision must be given full and unfettered play. The explanation cannot curtail or restrict the main thrust or scope of the provision and due weight age as well as meaning has to be attributed to the purposes of Section 143(1)(a) of the Act. 8. The provisions of Section 80AC(ii) make it clear that any ITA No.566/Bang/2022. Sri Mahishasuramanrdini Urban Co-op Cr.So.Ltd. 15 deduction that is claimed under Part C of Chapter VIA would be admissible only if the return of income in that case were filed !within the prescribed due date. Thus no claim under any of the provisions of Part C of Chapter VIA would be admissible in the case of a belated return. There is no dispute on this position. The date of filing of a return of income would be apparent on the face of return and upon a perusal https./ /www.mhc.tn.gov.in/judis/ W.P. Nos.7038 of 2020 and batch thereof, it would be clear as to whether the return is a valid return, having been filed within the statutory time limit, or a belated one. This is mechanical exercise and one that can be carried out by the CPC, very much within the scope of Section 143 (1) (a) (ii) of the Act.” 10.2 On the other hand, the learned AR submitted that the judgment relied on by the learned DR is applicable for and from the assessment year 2018-2019 and the assessment involved in the present is A.Y. 2017-2018. In support of his contention, the learned AR placed reliance on the judgment of the Hon’ble Kerala High Court in the case of Chirakkal Service Co-operative Bank Ltd. v. CIT [(2016) 384 ITR 490 (Ker.)], wherein the Hon’ble Court held as under:- “19. Section 80A(5) provides that where the assessee fails to make a claim in his return of income for any deduction, inter alia, under any provision of Chapter VI-A under the heading "C.—Deductions in respect of certain incomes", no deduction shall be allowed to him thereunder. Therefore, in cases where no returns have been filed for a particular assessment year, no deductions shall be allowed. This embargo in section 80A(5) would apply, though section 80P is not included in section 80AC. This is so because, the inhibition against allowing deduction is worded in quite similar terms in sections 80A(5) and 80AC, of which section 80A(5) is a provision inserted through the Finance Act 33 of 2009 with effect from April 1, 2013, after the insertion of section 80AC as per the Finance Act of 2006 with effect from April 1, 2006. This clearly evidences the legislative intendment that the inhibition contained in sub-section (5) of section 80A would operate by itself. In cases where returns have been filed, the question of exemptions or deductions referable to section 80P would definitely have to be considered and granted if eligible. 20. Here, questions would arise as to whether belated returns filed beyond the period stipulated under section 139(1) or section 139(4) as well as following sections 142(1) and 148 proceedings could be ITA No.566/Bang/2022. Sri Mahishasuramanrdini Urban Co-op Cr.So.Ltd. 16 considered for exemption. If those returns are eligible to be accepted in terms of law, going by the provisions of the statute and the governing binding precedents, it goes without saying that the claim for exemption will also stand effectuated as a claim duly made as part of the returns so filed, for due consideration. 21. When a notice under section 142(1) is issued, the person may furnish the return and while doing so, could also make claim for deduction referable to section 80P. Not much different is the situation when pre- assessment enquiry is carried forward by issuance of notice under section142(1) or when notice is issued on the premise of escaped assessment referable to section 148 of the Income-tax Act. This position notwithstanding, when an assessment is subjected to first appeal or further appeals under the Income-tax Act or all questions germane for concluding the assessment would be relevant and claims which may result in modification of the returns already filed could also be entertained, particularly when it relates to claims for exemptions. This is so because the finality of assessment would not be achieved in all such cases, until the termination of all such appellate remedies. Under such circumstances, the Tribunal was not justified in denying exemption under section 80P of the Income-tax Act on the mere ground of belated filing of return by the assessee concerned. A return filed by the assessee beyond the period stipulated under section 139(1) or 139(4) or under section 142(1) or section 148 can also be accepted and acted upon provided further proceedings in relation to such assessments are pending in the statutory hierarchy of adjudication in terms of the provisions of the Income-tax Act. In all such situations, it cannot be treated that a return filed at any stage of such proceedings could be treated as non est in law and invalid for the purpose of deciding exemption under section 80P of the Income-tax Act. We thus answer substantial questions of law B and C formulated and enumerated above.” 10.3 I have gone through the judgments relied upon by both the parties. In my opinion, the assessment year involved in the present appeal is A.Y. 2017-2018 and the judgment of the Hon’ble Kerala High Court in the case of Chirakkal Service Co- operative Bank Ltd. v. CIT (supra) is directly on the issue. Being so, the judgment of the Hon’ble Madras High Court in the case of Veerappampalayam Primary Agricultural Cooperative Credit Society Limited v. DCIT & Ors. (supra), which is relating to assessment year 2018-2019, cannot be applied to the present case, and accordingly, the argument put forth by the learned DR is rejected. ITA No.566/Bang/2022. Sri Mahishasuramanrdini Urban Co-op Cr.So.Ltd. 17 Grounds 6, 7 and 8 11. As regards grounds 6 to 8, the CIT(A) upheld the addition made by the Assessing Officer u/s 69A of the Act, amounting to Rs.29,63,000. The assessee during the demonetization period, deposited a sum of Rs.29,63,000 into assessee’s bank account, which is treated as unexplained cash credit u/s 69A of the Act. The contention of the learned AR is that the amount has been received by the assessee from its members listed in page 42 of the paper book, wherein the assessee furnished details of assessee’s members who have deposited the money into their bank accounts with the assessee along with petition for admission of additional evidence under Rule 29 of the ITAT Rules, 1963. 12. The learned Departmental Representative, on the other hand, submitted that the assessee has not furnished any details of the depositor who is said to be the members of the assessee-society. 13. I have heard rival submissions and perused the material on record. In this case, the assessee’s plea is that the sum of Rs.29,63,000 has been deposited by the members of the assessee into their account with the assessee and in turn the assessee deposited this amount into the assessee’s bank account. It cannot be treated as unexplained cash deposit u/s 69A of the Act. For this purpose, the learned AR relied on the order of the Tribunal in the case of Sri Bhageeratha Pattinsa Sahakara Sangha Niyamitha v. ITO in ITA No.646/Bang/2021 ITA No.566/Bang/2022. Sri Mahishasuramanrdini Urban Co-op Cr.So.Ltd. 18 (order dated 18.02.2022), wherein the Tribunal held as follows:- “14. I heard Ld. D.R. on this issue and perused the record. I notice that the A.O. has not doubted the submissions of the assessee that the above said amount of Rs.24,47,500/- represents collection of money in the normal course of carrying on of business of the assessee, i.e., it represents money remitted by the members of the assessee society towards repayment of the loan taken by them and also towards pigmy deposits, etc. The Ld A.R submitted that the assessee has duly recorded in its books of account the transactions of collections of money as well as deposits made into bank account. Thus, I notice that the assessee has explained the nature and source of the above said amount of Rs.24,47,500/-, which was in-turn deposited by the assessee society in its bank account and further, all these transactions have been duly recorded in the books of account. Hence, the above said deposits cannot be considered as “unexplained money” in the hands of the assessee. 15. The case of the A.O is that the assessee has collected the demonetized notes after 8.11.2016 in violation of the notifications issued by RBI. Accordingly, he has taken the view that the above said amounts represents unexplained money of the assessee. I am unable to understand the rationale in the view taken by A.O. I noticed that the AO has invoked the provisions of sec.68 of the Act for making this addition. I also noticed that the assessee has also complied with the requirements of sec.68 of the Act. The AO has also not stated that the assessee has not discharged the responsibility placed on it u/s 68 of the Act. Peculiarly, the AO is taking the view that the assessee was not entitled to collect the demonized notes and accordingly invoked sec.68 of the Act. I am unable to understand as to how the contraventions, if any, of the notification issued by RBI would attract the provisions of sec. 68 of the Income tax Act. In any case, I notice that the assessee has also explained as to why it has collected demonetized notes after the prescribed date of 8.11.2016. The assessee has explained that it has stopped collection after the receipt of notification dated 14.11.2016 issued by RBI, which has clearly clarified that the assessee society should not collect the demonetized notes. Accordingly, I am of the view that the deposit of demonetized notes collected by the assessee from its members would not be hit by the provisions of section 68 of the Act in the facts and circumstances of the case. Accordingly, I set aside the order passed by Ld. CIT(A) on this issue and direct the A.O. to delete this disallowance. 14. In my opinion, the above case law cannot be applied strictly to the facts of the assessee’s case since the assessee ITA No.566/Bang/2022. Sri Mahishasuramanrdini Urban Co-op Cr.So.Ltd. 19 has not given the address and permanent account numbers of the members of the assessee, who had deposited the cash into the accounts of the assessee. Being so, in the interest of justice and equity, I remit the matter to the files of the A.O. to give directions to the assessee to furnish PAN and name and address of the respective members who deposited the amount into the account of the assessee. Accordingly, we direct the A.O. to consider the issue afresh after affording a reasonable opportunity of being heard to the assessee. 15. In the result, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced on this 16 th day of August, 2022. Sd/- (Chandra Poojari) ACCOUNTANT MEMBER Bangalore; Dated : 16 th August, 2022. Devadas G* Copy to : 1. The Appellant. 2. The Respondent. 3. The CIT(A)-NFAC Delhi 4. The Pr.CIT, Bengaluru. 5. The DR, ITAT, Bengaluru. 6. Guard File. Asst.Registrar/ITAT, Bangalore