K864 MURALI CHENNAMPATTI PRIMARY AGRICULTURE CO-OP CREDIT SOCIETY,ERODE V. INCOME TAX OFFICER, WARD 2(1), ERODE, ERODE

ITA 681/CHNY/2025

AI Insights

The case involves the Murali Chennampatti Primary Agricultural Co-Op Credit Society, which appealed against the order of the Commissioner of Income Tax (Appeals) that upheld the disallowance of a deduction under Section 80P(2)(a)(i) for the assessment year 2012-13. The Assessing Officer had initially disallowed the deduction on the grounds that the society's membership structure, which included 'B' class members, violated the principle of mutuality. The Tribunal, referencing decisions from the Supreme Court and other ITAT benches, concluded that the society's structure was compliant with the relevant laws and that the deduction should be allowed as the claim was made in the return filed in response to a notice under Section 148.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 398188 (ITAT-CHENNAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-06-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Other Referred Cases: ACIT Vs M/s. DAEE Coop T&C Society ITA No.: 3047/CHNY/2019, The Mavilayi Service Cooperative Bank Ltd. & Ors. Vs. CIT, Calicut reported in 431 ITR 1, Citizen Co-operative Society Ltd. reported in 397 ITR 1, U.P. Cooperative Cane Unions' Federation Ltd., Lucknow v. Commissioner of Income Tax, Lucknow-l (1997) 11 SCC 287, Chirakkal Service Co-operative Bank Ltd., vs. CIT (2016) 384 ITR 490 (Ker)
• Laws Referred To: Income Tax Act, 1961, Tamil Nadu Co-operative Societies Act, 1983
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRYATI SHARMA
• Assessee Lawyers: A. VIJAYALAKSHMI
• Keywords: Principle of natural justice; Co-operative Credit Society
• Section: 142(1); 271(1)(c)

Judgement Text

"आयकर अपीलȣय अͬधकरण, ‘ए’ Ûयायपीठ, चेÛनई IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, CHENNAI Įी जॉज[ जॉज[ क े, उपाÚय¢ एवं Įी एस.आर.रघुनाथा, लेखा सदèय क े सम¢ BEFORE SHRI GEORGE GEORGE K, VICE PRESIDENTAND SHRI S.R. RAGHUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.: 681/CHNY/2025 िनधाᭅरण वषᭅ/Assessment Year:2012-13 K864 Murali Chennampatti Primary Agricultural Co-Op Credit Society, Murali, Murali Post, Anthiyur Taluk, Erode District – 638 504. PAN: AABAK 3671M Vs. The Income Tax Officer, Ward 2(1), Erode. (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) अपीलाथᱮ कᳱ ओर से/Appellant by : Ms. A. Vijayalakshmi, CA (Through virtual mode) ᮧ᭜यथᱮ कᳱ ओर से/Respondent by : Ms. Pryati Sharma, JCIT सुनवाई कᳱ तारीख/Date of Hearing : 03.06.2025 घोषणा कᳱ तारीख/Date of Pronouncement : 03.06.2025 आदेश /O R D E R PER GEORGE GEORGE K, VICE PRESIDENT: This appeal at the instance of the assessee is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 15.01.2025, passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2012-13. 2. The grounds raised by the assessee read as follows:- - 2 - ITA No.681/CHNY/2025 1. The order of the Assessing Officer and the CIT(A) is bad in law and against the principles of natural justice. 2. The disallowance of deduction under Section 80P(2)(a) () is contrary to the decisions of the jurisdictional Madras High Court and Supreme court. 3. The Assessing officer erred in applying the Supreme Court decision in Citizen Co-op. Society, as the facts of the appelant's case are different. 4. The Assessing officer failed to appreciate the definition of \"member\" under Section 2(16) of the Tamil Nadu Co-operative Societies Act, 1983, which includes \"associate members,\" making the classification between \"A- class\" and \"B-class\" members irrelevant. 5. The CIT(A) Wrongly applied Section 80A(5) to deny the deduction under Section 80P, despite the appellant's compliance with substantive conditions. The appellant relied the following order of the Hon'ble ITAT Chennai bench i. The ACIT Vs M/s. DAEE Coop T&C Society ITA No.: 3047/CHNY/2019 dt. 10.11.2020 6. The CIT(A) Wrongly initiated penalty proceedings under Section 271(1)(c) without proving concealment of income. 3. Brief facts of the case are as follows: The assessee is a primary agricultural co-operative credit society limited registered under the Tamilnadu Co-operative Societies Act, 1983. For the assessment year 2012-13, the assessee did not file any return of income. Based on the information in the possession of the Department that assessee had deposited Rs.61,23,750/- during the relevant assessment year 2012-13, notice u/s.148 of the Act was issued on 25.02.2019. In response to the notice issued u/s.148 of the Act, the assessee filed return of income admitting ‘nil’ income - 3 - ITA No.681/CHNY/2025 after claiming deduction u/s.80P of the Act. The assessment was completed u/s.143(3) r.w.s. 147 of the Act vide order dated 27.12.2019. In the said assessment order, the AO disallowed the claim of deduction u/s.80P(2)(a)(i) of the Act. The reason for the AO to disallow the claim of deduction u/s.80P(2)(a)(i) of the Act was, the assessee had admitted ‘A’ Class members and ‘B’ Class members (nominal members). According to the AO, the ‘B’ class members namely nominal members are not members in the real sense and thereby violated the principle of mutuality. The AO came to the above conclusion by relying on the judgment of the Hon’ble Supreme Court in the case of Citizen Co-operative Society Ltd., reported in 397 ITR 1. 4. Aggrieved by the order of the assessment completed u/s.143(3) r.w.s. 147 of the Act, the assessee filed an appeal before the First Appellate Authority (FAA). Before the FAA, the assessee took up grounds regarding validity of reassessment as well as on merits that it is entitled to deduction u/s.80P(2)(a)(i) of the Act. The CIT(A) dismissed the appeal of the assessee. The CIT(A) held that the assessee had not filed the return of income u/s.139 of the Act nor within the time allowed u/s.148 of the Act. The CIT(A) quoting the provisions of section 80A(5) of the Act held that assessee is not - 4 - ITA No.681/CHNY/2025 entitled to deduction u/s.80P of the Act. Consequently, the CIT(A) directed the AO to assess the total income at Rs.24,91,765/- without allowing deduction claimed u/s.80P of the Act (total income assessed by the AO was Rs.17,33,025/- after allowing deduction claimed u/s.80P(2)(d) & 80P(2)(c) of the Act). Therefore, the CIT(A) enhanced the income assessed. 5. Aggrieved by the order of the CIT(A), the assessee has filed the present appeal before the Tribunal. The Ld.AR submitted that the AO is not justified in rejecting the claim of deduction u/s.80P(2)(a)(i) of the Act by holding that assessee was dealing with nominal members (‘B’ class members). It was submitted as per the Tamilnadu Co-operative Societies Act, Members also include ‘associate / nominal members’. It was contended that the judgment of Hon’ble Supreme Court in the case of The Mavilayi Service Cooperative Bank Ltd. & Ors. Vs. CIT, Calicut reported in 431 ITR 1 is squarely applicable to the facts of the instant case. The Ld.AR also relied on the order of the Chennai Bench of the Tribunal in the case of AA533 Umareddiyur Primary Agricultural Co-operative Credit Society Ltd., in ITA No.2784/CHNY/2024, order dated 19.05.2025. - 5 - ITA No.681/CHNY/2025 6. As regard the CIT(A) reasoning for denying the claim of deduction u/s.80P of the Act, the Ld.AR submitted the issue in question is squarely covered in favour of assessee by the order of the Chennai Bench of the Tribunal in the case of ACIT vs. DAEE Coop T&C Society in ITA No.3047/CHNY/2019, (order dated 10.11.2020), wherein it has been categorically held as per section 80A(5) of the Act claim of deduction u/s.80P of the Act need to be raised only in the return of income filed and there is no mention in the said section that the return of income has to be filed within the due date prescribed under 139(1) or 139(4) of the Act. 7. The Ld.DR supported the orders of the AO and CIT(A). 8. We have heard rival submissions and perused the material on record. The AO had denied the claim of deduction u/s.80P(2)(a)(i) of the Act for the reason that the assessee was dealing with nominal members who are not actual members of the assessee society and hence had violated the principles of mutuality. Therefore, it was concluded by the AO that assessee society was not entitled to deduction u/s.80P(2)(a)(i) of the act. The Chennai Bench of the Tribunal in the case of AA533 Umareddiyur Primary Agricultural Cooperative Credit Society Ltd., vs. ITO in ITA No.2784/CHNY/2024 - 6 - ITA No.681/CHNY/2025 after considering the judicial precedents on the subject has held that associate members/nominal members (‘B’ class members) are also members as per section 2(16) of the Tamilnadu Cooperative Societies Act, 1983. The Chennai Bench of the Tribunal in the case of AA533 Umareddiyur Primary Agricultural Cooperative Credit Society Ltd., supra after following the decision of Hon’ble Apex Court in the case of The Mavilayi Service Cooperative Bank Ltd., supra, held the said judgmental have equal application to the assessee since Tamilnadu Cooperative Societies Act allows admission of ‘B’ class (associate/nominal) members. The relevant finding of the Tribunal read as follows:- “8. We have heard rival submissions and perused the material on record. The members of assessee co-operative society are admitted as per section 2(16) of the TNCS Act. The TNCS Act allows admission of two class Members A Class (Primary) and B Class (Associate) Members. Section 2(16) of TNCS Act defines \"member\". The same reads as follows:- “; 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;” 9. The Hon'ble Supreme Court order in the case of The Mavilayi Service Cooperative Bank Ltd. & Ors. Vs. CIT, Calicut reported in 431 ITR 1, has held as under:- “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-l (1997) 11 SCC 287 referred to section 80P of the IT Act and then held: - 7 - ITA No.681/CHNY/2025 \"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 65 provisions of the law enacted by the State Legislature under which the cooperative society claiming exemption has been formed. It İs, 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).” 10. The above Judgement of Hon’ble Apex Court will equally applicable to the assessee, since TNCS Act allows admission of B Class (Associate) Member. The ITAT Chennai in the Case of AA531 Kesarimangalam Primary Agrl. Co-op. Credit Society Ltd in ITA No. 2611/CHNY/2024, allowed the deduction under sec. 80P by accepting submission made by the assessee on the issue of admission of two classes of member. The relevant finding of ITAT reads as follows:- “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/-. - 8 - ITA No.681/CHNY/2025 14. In the result, the appeal of the assessee is allowed.” 11. In light of the aforesaid judicial pronouncements, we direct the AO to allow the claim of deduction u/s.80P(2)(a)(i) of the Act for Rs.6,28,728/-. It is ordered accordingly.” 9. The CIT(A) had enhanced the income assessed by the AO from Rs.17,33,025/- to Rs.24,91,765/-. The AO had allowed the deduction claimed u/s.80P(2)(d) & 80P(2)(c) of the Act. The CIT(A) held that in view of section 80A(5) of the Act, the assessee is not entitled to deduction u/s.80P of the Act, since the assessee has not filed its return of income within the time allowed in the notice u/s.148 of the Act. The Chennai Bench of the Tribunal in the case of DAEE Coop T&C Society, supra, had held that what is required to be seen is whether the assessee had made the claim of deduction in the return of income filed for the relevant year or not, even though such return is not filed within the due date. The issue considered by the Chennai Tribunal in the case DAEE Coop T&C Society, supra, is identical to the facts of the instant case, wherein the claim of deduction u/s.80P of the Act was made in the return filed belatedly pursuant to the notice issued u/s.148 of the Act (refer para 3 of the said order). The relevant finding of the Tribunal in the case of DAEE Coop T&C Society, supra read as follows:- 8. We have heard both the parties, perused the materials available on record and gone through the orders of authorities below along with various - 9 - ITA No.681/CHNY/2025 case laws cited by both the parties. There is no dispute with regard to the fact that the assessee is a credit co-operative society registered under the TamilNadu Co-operative Societies Act, 1983. It is also not in dispute that the assessee is engaged in the business of providing credit facilities to its members. The AO has disallowed deduction claimed u/s.80P(2)(a)(i) of the Act primarily on two grounds. The first objection of the AO is with regard to claim of deduction in the light of provisions of Section 80A(5) of the Act which restricts the deduction unless such deduction is claimed in the return of income. We have gone through the provisions of Section 80P read with Section 80A(5) of the Act and found that nowhere in Section 80P or in Section 80A(5) of the Act it is mentioned that the assessee is required to file its return of income within the prescribed time provided u/s.139(1) or 139(4) of the Act. But, what is required to be seen is whether the assessee has made a claim in the return of income filed for the relevant year or not, even though such return is not filed within due date. In this case, the assessee although not filed its return of income for the impugned assessment year u/s.139 of the Act but such return of income has been filed in response to the notice issued u/s.148 of the Act and in the said return of income the assessee has made a claim for deduction u/s.80P(2)(a)(i) of the Act. Therefore, we are of the considered view there is no merit in the arguments taken by the ld.DR that the assessee is not entitled for deduction u/s.80P unless such deduction is claimed by filing return of income within the prescribed time allowed u/s.139(1) or 139(4) of the Act. This view is fortified by the decision of the Hon’ble Kerala High Court in the case of Chirakkal Service Co-operative Bank Ltd., vs. CIT (2016) 384 ITR 490 (Ker), where the Hon’ble Kerala High Court held that “a return filed by the assessee beyond the period stipulated u/s.139(1) or 139(4) or 142(1) or 148 of the Act 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 IT 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 Act.” 10. Therefore, for the relevant assessment year namely 2012-13, there is no necessity to have filed the return of income within the time prescribed u/s.139(1) or 139(4) of the Act. The only criteria is, the claim of deduction ought to have been made in the return of - 10 - ITA No.681/CHNY/2025 income, whether it is filed within time or not. In view of the above orders of the Tribunal, we direct the AO to grant the deduction claimed u/s.80P op the Act. It is ordered accordingly. 11. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 3rd June, 2025 at Chennai. Sd/- Sd/- (एस.आर. रघुनाथा) (S.R. RAGHUNATHA) लेखा सदèय/ACCOUNTANT MEMBER (जॉज[ जॉज[ क े) (GEORGE GEORGE K) उपाÚय¢ /VICE PRESIDENT चेÛनई/Chennai, Ǒदनांक/Dated, the 3rd June, 2025 RSR आदेश कȧ ĤǓतͧलͪप अĒेͪषत/Copy to: 1. अपीलाथȸ/Appellant 2. Ĥ×यथȸ/Respondent 3. आयकर आयुÈत /CIT, Coimbatore 4. ͪवभागीय ĤǓतǓनͬध/DR 5. गाड[ फाईल/GF. "