INCOME TAX OFFICER, UDUPI vs. SAGAR CREDIT CO-OPERATIVE SOCIETY, UDUPI

Per George George K, Vice President:

2. The Ld.CIT(A) has erred in deciding the appeal without going to the facts and circumstances of the case. 3. On the facts and circumstances of the case, whether CIT(A) is correct in setting aside the issue of disallowance U/s.80P(2)(a)(i)/80P(2)(d)

of the I.T.Act to the A.O. for verification, as section 251(1)(a) does not grant any such powers to the CIT(A) and the same has also been upheld by Honourable ITAT Chennai Bench order in the case of ACIT Vs Shri Mohamed Hassan in dated: 4-3-2022.

Assessee is a co-operative society registered under the Karnataka State Co- operative Societies Act, 1959. For the Assessment Year 2017-18, the return of income was filed on 28.02.2018 declaring ‘Nil’ income, after claiming deduction under section 80P(2)(a)(i) of the Act, amounting to Rs.1,75,21,375/-. The assessment was selected for scrutiny and notice under section 143(2) of the Act was issued on 13.08.2018. Assessee, during the course of assessment proceedings, was directed to justify the claim of deduction under section 80P(2)(a)(i) of the Act. The assessee was also directed to furnish the details of its members. On receipt of the details of the members, the AO observed that assessee’s main business was not with its regular members but with non-members / associate members. Therefore, the AO was of the view that assessee had violated the principles of mutuality and relying on the judgment of the Hon’ble Apex Court in the case of Citizen Co- operative Society Ltd., reported in (2017) 397 ITR 1 denied the entire claim of deduction under section 80P of the Act.. Incidentally, the AO also noticed that assessee was in receipt of a sum of Rs.1,16,85,866/- as interest income from investments with co-operative banks. The AO was of the view that the said interest income has to be assessed as income from other sources and relied on the judgment of the Hon’ble Karnataka High Court in the case of Totagars Co- operative Sale Society Ltd., (ITA No.100066/2016 reported in 395 ITR 611 (Karnataka)]. However, the AO did not make a separate addition as entire claim of deduction under section 80P(2)(a)(i) of the Act amounting to Rs.1,75,21,375/- was disallowed by the AO.

4. Aggrieved by the order of the Assessment denying the claim of deduction under section 80P of the Act, assessee filed appeal before the First Appellate Authority (FAA). The CIT(A) partly allowed the appeal of the assessee. The CIT(A), relying on the judgment of the Hon’ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd., & Ors. Vs. CIT, reported in 431 ITR 1, directed the AO to grant deduction under section 80P in respect of the assessee’s income out of providing credit facilities to its members. The relevant finding of the CIT(A) reads as follows:

“5.1.4 Considering the above, the AO is directed to verify and examine The Karnataka Co-op. Society Act, under which the assesse is registered, and find out whether extending credit facilities to non members are also one of the activity of the assesse, which is duly approved and registered by the KCS Act, then the assesse will be entitled to avail deduction in terms of section 80P(2)(a)(i)/80P(4) of IT Act in light of the judgement o Hon'ble Supreme Court in the case of The Mavilayi Service. Co-op Bank Ltd. (Supra). As a result, Ground Nos. 1 to 5 are partly allowed.”

5. Aggrieved by the order of the CIT(A), Revenue has filed the present appeal before the Tribunal. The grounds raised are with regard to claim of deduction under section 80P(2)(a)(i) of the Act in respect of interest received from co- operative banks. Alternatively, it has been submitted in the grounds that deduction under section 80P(2)(d) of the Act also cannot be granted. On perusal of the entire CIT(A)’s order, we are of the view that these grounds are misplaced. In other words, the issue raised in the memorandum of grounds does not arise out of the order of the CIT(A). The CIT(A) has not adjudicated on the issue of claim of deduction under section 80P(2)(a)(i) / 80P(2)(d) of the Act with respect to interest income received on investments with co-operative banks. The CIT(A) has only directed the AO to allow proportionate deduction under section 80P of the Act with regard to assessee’s income arising out of providing credit facilities to its members. Therefore, the order of the CIT(A) does not require any interference and we uphold the same.