SHREE KARAVASAV SHIVACHARYA PATTIN SAHAKAR SANGH NI BARADOL ,BIJAPUR V. INCOME TAX OFFICER, WARD-2, BIJAPUR

ITA 588/BANG/2025

AI Insights

The case involves M/s Shree Karabasav Shivacharya Pattin Sahakar Sangh Ni Baradol, a cooperative society, which appealed against the order of the CIT(A) confirming the disallowance of a deduction claimed under section 80P(2)(a)(i) of the Income Tax Act. The society had claimed a deduction of Rs. 18,29,480 for the assessment year 2016-17, which was disallowed by the AO on the grounds that the society dealt with nominal and associate members, who are not entitled to the benefits under section 80P(2)(a)(i). The CIT(A) upheld this decision, leading to the appeal before the Tribunal. The Tribunal found procedural lapses in the handling of the assessee's submissions and directed a re-examination of the case by the AO.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 717661 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2016-2017
• Appeal Filed On: 20-03-2025
• Other Referred Cases: Citizen Co-operative Society Ltd. v. ACIT, Sri Ananthapadmanabha Credit Co-operative Society Ltd. in ITA No. 2193/Bang/2024
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: REVENUE; GANESH R GHALE; STANDING
• Assessee Lawyers: SUNAINA BHATIA
• Keywords: Set aside

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL ‘SMC’ BENCH, BANGALORE BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI KESHAV DUBEY, JUDICIAL MEMBER ITA No. 588/Bang/2025 Assessment Year: 2016-17 M/s Shree Karabasav Shivacharya Pattin Sahakar Sangh Ni Baradol, 01, Main Road, Baradol, Bijapur – 586 204. PAN – AAUAS 2463 B Vs. The Income Tax Officer, Ward - 2, Bijapur. . APPELLANT RESPONDENT Assessee by : Ms. Sunaina Bhatia, Advocate Revenue by : Shri Ganesh R Ghale - Advocate, Standing Counsel for Revenue Date of hearing : 18.06.2025 Date of Pronouncement : 13.08.2025 O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: This is an appeal filed by the assessee against the order passed by the Addl/JCIT(A), Panchkula vide order dated 22/01/2025 in DIN No. ITBA/APL/S/250/2024-25/1072420124(1) for the assessment year 2016- 17. 2. The assessee has raised the following grounds of appeal: Printed from counselvise.com ITA No.588/Bang/2025 Page 2 of 7 . “1. The orders of the authorities below, in so far as they are against the appellant, are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case. 2. The learned CIT[A] is not justified in disposing off the appeal ex-parte by order dated 22/01/2025 without allowing sufficient and real opportunity to the appellant under the facts and in the circumstances of the appellant's case. 3. Without prejudice to the above, the learned CIT[A]/NFAC is not justified in upholding the disallowance of Rs.18,29,480/- being the deduction claimed u/s.80P[2][a][i] of the Act and income under the facts and in the circumstances of the appellant's case. 3.1 The learned CIT[A] ought to have appreciated that associate and nominal members are also members permitted under the Karnataka Co-operative Societies Act, 1959 and that there cannot be a denial of deduction claimed for the alleged violation of the principles of mutuality on account of different category of members under the facts and in the circumstances of the appellant's case. 4. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.” 3. The effective issue raised by the assessee is that the learned CIT(A) erred in confirming the disallowance of the deduction claimed under section 80P of the Act. 4. The relevant facts are that the assessee is a cooperative society and claimed to be engaged in the business of advancing loan and accepting deposit from the members. For the year under the dispute, the assessee has declared taxable income at NIL after claiming deduction under section 80P(2)(a)(i) of the Act for Rs. 18,29,480/- only. 5. The return was selected for limited scrutiny to verify the deduction claimed by the assessee under section 80P(2)(a)(i) of the Act. The AO from the financial statement of the assessee observed that the assessee is catering two type of members i.e. regular member and Printed from counselvise.com ITA No.588/Bang/2025 Page 3 of 7 . nominal member. On question by the AO, the assessee vide submission dated 3rd December 2018 claimed that it has two class of members being “A class” and “B class” members and there is no nominal member. the assessee also claimed that it provided loans and accepted deposits only from regular member as mandated by the by-laws. 6. However, the AO dismissed the assessee’s submission. The AO held that on examining the records, it was observed that the assessee, a co-operative society, was engaged in providing credit facilities not only to its regular members but also to its nominal and associate members, who are not considered real members under the Co-operative Societies Act. These nominal or associate members are essentially part of the general public and not entitled to the same rights as regular members. As per the decision of the Hon'ble Supreme Court in the case of Citizen Co-operative Society Ltd. v. ACIT reported in 84 taxmann.com 114, the principles of mutuality fail in such cases, and income earned from such non-members is not eligible for deduction under section 80P(2)(a)(i) of the Act. 6.1 It was also found by the AO that the assessee had made investments in banks that are not part of the society, and the interest earned from such investments also do not qualify for deduction. Therefore, the AO concluded that the entire deduction claimed under section 80P(2)(a)(i) of the Act amounting to ₹18,29,480/- is not admissible and has to be added to the total income of the assessee. 7. The aggrieved assessee preferred an appeal before the learned CIT(A). The assessee through the grounds of appeal raised, reiterated Printed from counselvise.com ITA No.588/Bang/2025 Page 4 of 7 . its claim that the society has not dealt with or earned interest income by way of providing credit facility to nominal member or general public. It has only dealt with regular member. It was also claimed that the interest income from deposits held with bank are eligible for deduction under section 80P(2)(a)(i) of the Act. 8. However, the learned CIT(A) noted that the assessee had not furnished any submission or supporting documents in support of the grounds of appeal, despite being provided with several opportunities. In the absence of any submission, the learned CIT(A) held that the assessee had nothing to say against the detailed and well-reasoned order passed by the AO after considering all relevant facts and circumstances. Accordingly, the learned CIT(A) confirmed the disallowance made by the AO. 9. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us. 10. The learned AR before us filed a paper book running from pages 1 to 30 and contended that notices under section 250 of the Act were issued to an incorrect email ID and, therefore, could not be responded. However, the learned CIT(A) proceeded to dismiss the appeal ex parte. Furthermore, the learned AR argued that the ld. CIT(A) failed to appreciate that the Karnataka Co-operative Societies Act, 1959 permits the existence of nominal and associate members. Hence, there was no violation of the principle of mutuality as alleged. Printed from counselvise.com ITA No.588/Bang/2025 Page 5 of 7 . 11. On the other hand, the learned DR vehemently supported the order of the authorities below. 12. We have heard the rival contentions and perused the materials available on record. The issue in this appeal relates to the disallowance of the assessee’s claim for deduction under section 80P(2)(a)(i) of the Act. The assessee is a cooperative society and engaged in the business of accepting deposits and providing loans to its members. The claim for deduction was disallowed by the AO on the ground that the society had dealt with nominal and associate members, who, according to the AO, are not entitled to benefit under section 80P(2)(a)(i) of the Act. This view was upheld by the learned CIT(A), as the appeal was dismissed ex parte due to non-compliance. 12.1 However, we find that the assessee has submitted that notices under section 250 were sent to the wrong email ID, due to which the opportunity to present its case before the learned CIT(A) was lost. Further, the assessee has contended that it dealt only with regular members as per the by-laws and that the Karnataka Co-operative Societies Act, 1959 permits nominal and associate members. 12.2 We also note that the Bangalore Bench of the Tribunal, in the case of Sri Ananthapadmanabha Credit Co-operative Society Ltd. in ITA No. 2193/Bang/2024, dealt with identical facts and circumstances, where it was held as under: 16. We have heard the rival contentions of both the parties and perused the materials available on record. The main issue before us is whether the assessee, a cooperative society registered under the Karnataka Cooperative Societies Act (KCS Act), is eligible for deduction under section 80P(2)(a)(i) of the Act, despite having different classes of members, particularly associate and Printed from counselvise.com ITA No.588/Bang/2025 Page 6 of 7 . nominal members. In this regard, we note that section 18 of the KCS Act places a restriction only on associate members, limiting them not more than 15% of the total membership. The learned AR argued that the society has only 14 associate members, which is well within the permitted limit. However, we observe that the AO has not verified this fact, and for the sake of justice and fair play, we find it appropriate to set aside this issue to the AO. We direct the AO to examine the status and number of members in light of section 18 of the KCS Act and to verify whether the society’s associate members comply with the prescribed limit. The AO further directed that if any member not found in conformity of the section 18 of the KCS Act, then only the proportionate income earned from those associate member be excluded from for deduction under section 80P(2)(a)(i) of the Act. Accordingly, whereas income pertaining to regular member and nominal member continue to be allowable as deduction. 12.3 Following the above decision and considering the facts and circumstances of the present case, we are of the view that the matter needs to be re-examined by the AO. Therefore, we set aside the order of the lower authorities and restore the issue to the file of the Assessing Officer. The AO is directed to provide a proper opportunity to the assessee, consider all submissions and documents, and then decide the issue afresh as per law and in line with the directions laid down in the case of Sri Ananthapadmanabha Credit Co-operative Society Ltd. supra. Hence the ground of appeal of the assessee is hereby allowed for statistical purposes. 13. In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in court on 13th day of August, 2025 Sd/- Sd/- (KESHAV DUBEY) (WASEEM AHMED) Judicial Member Accountant Member Bangalore Dated, 13th August, 2025 / vms / Printed from counselvise.com ITA No.588/Bang/2025 Page 7 of 7 . Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore Printed from counselvise.com "