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Facts
The case involves cross-appeals concerning assessment year 2017-18, pertaining to an order by NFAC, Delhi. The primary issue is the denial of deduction under Section 80P(2)(a)(i) to a co-operative credit society. A secondary issue concerns the addition of Rs. 1,43,48,000/- made under Section 69A for cash deposits during the demonetization period.
Held
The tribunal held that the assessee, a co-operative credit society, is eligible for deduction under Section 80P(2)(a)(i) as it is not a co-operative bank and its activities are confined to members. Regarding the demonetization period deposits, the tribunal found that since the members were identifiable and KYC compliant, the AO should have made further inquiries rather than making an addition under Section 69A.
Key Issues
Whether a co-operative credit society is eligible for deduction under Section 80P(2)(a)(i) and if cash deposits made by its identifiable members during demonetization can be treated as undisclosed income under Section 69A.
Sections Cited
80P, 80P(2)(a)(i), 80P(4), 194A(3)(v), 69A
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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY, HON’BLE & SHRI NARENDRA KUMAR BILLAIYA, HON’BLE
Assessee by : Shri Sushant Alme, A/R Revenue by : Ms. Kavitha Kaushik, Sr. D/R सुनवाई की तारीख/Date of Hearing : 13/10/2025 घोषणा की तारीख /Date of Pronouncement: 16/10/2025 आदेश/O R D E R PER NARENDRA KUMAR BILLAIYA, AM: & 10/01/2025 by NFAC, Delhi [hereinafter ‘the ld. CIT(A)’] pertaining to AY 2017-18. 2. Both the appeals were heard together and are disposed off by this common order for the sake of convenience and brevity.
I.T.A. No. 1570/Mum/2025 2
3. The grievance of the assessee reads as under:- “1. On the facts and in the circumstances of the case and in law, the Ld. Assessing Officer has failed to appreciate that the appellant is a Co-operative Credit Society exclusively engaged in providing credit facilities to the members and therefore, entire income received by the Appellant Society is eligible for deduction u/s 80P(2)(a)(i) of the Income Tax Act, 1961 therefore, he was not justified denying the bonafide claim of deduction u/s 80P(2)(a)(i) of the Income Tax Act, 1961. However, the Ld. Assessing Officer and National Faceless Appeal Centre (NFAC) has erred in observing that the Co-operative Credit Societies are Co-operative Bank and thus covered u/s 80P(4) of the Income Tax Act, 1961. 2. On the facts and in the circumstances of the case and in law, the Ld. Assessing Officer and NFAC has wrongly observed that the Appellant Society is accepting deposit from general public by obtaining nominal membership. In fact, the appellant Society is transacting business of acceptance of deposit and granting of loan only to their members and in view of the said fact the disallowance of claim of deduction u/s 80P of the Act is arbitrary and bad in law.
On the facts and in the circumstances of the case and in law, the Ld. Assessing Officer has rightly observed that the appellant Society has accepted deposits and providing credit facilities to the members which is akin to the primary activity of any bank. However, they failed to appreciate that the Co-operative Society accepting deposit and providing credit facilities only to their members is not a Co-operative Bank and therefore, eligible for deduction u/s 80P of the Act.
On the facts and in the circumstances of the case and in law, the Ld. Assessing Officer as well as NFAC has failed to appreciate that the appellant Society exclusively engaged in the business of providing credit facilities to the members and in order to comply the statutory requirements, it has made fixed deposits in Co-operative Bank and therefore entire income of the appellant Society is eligible for deduction u/s 80P(2)(a)(i) of the Act. However, NFAC has wrongly observed that interest on fixed deposit is taxable under the head "Income from Other Sources" eligible for deduction u/s 80P(2)(d) of the Act.
On the facts and in the circumstances of the case and in law, the Ld. NFAC has wrongly interpreted provisions of section 194A(3)(v) of the Act pertaining to TDS on interest income paid by Co-operative Societies to its members if gross receipts of the Society exceed Rs. 50 crores as it has nothing to do with provision of section 80P of the Act.
On the facts and in the circumstances of the case and in law, the Ld. NFAC has wrongly relied on the decisions related to concept of mutuality in the case of Secundrabad Club and Bangalore Club claiming deduction under concept of mutuality. However, the Ld. NFAC failed to appreciate that the appellant Society has not claimed any deduction/ exemption under the concept of mutuality and 3 therefore, the said decision are not applicable/ binding in appellant's case. Therefore, relying on the said judgments the Ld. NFAC has wrongly sustained disallowance.
The appellant craves leave to add, amend, alter, modify, substitute, vary, delete, and rescind all or any of the above grounds) of appeal before or at the time hearing.” 4. At the very outset, it has been brought to our notice that the impugned quarrel has been decided by the Co-ordinate Bench in assessee’s own case in & 1527/Mum/2025 pertaining to AYs 2018-19 & 2015-16 respectively. The ld. D/R could not bring any distinguishing decisions in favour of the revenue. 5. We have carefully considered the orders of the authorities below and the order of the Co-ordinate Bench brought to our notice. We find force in the contention of the ld. Counsel. The Co-ordinate Bench (supra) on similar set of facts, in assessee’s own case, held as under:- “6. I have heard the counsels for both the parties, perused the material placed on record, judgements cited before me and also the orders passed by the revenue authorities. The assessee is a Co-operative Credit Society registered under Maharashtra Co-operative Societies Act, 1960 and Classified as "Resource Society" u/s 12 of the Maharashtra Co-operative Societies Act, 1960. It is wholly & exclusively engaged in accepting deposits and providing credit facilities to its members and no business is transacted with a person other than member of that society. As such the credit society is working as a self-help group under the concept of mutuality. The Object of the Society is to inculcating the habit of thrift, self help and co-operation among the members and to provide credit facilities to the members and thereby to up-lift the standard of living of the members. As per provisions of Maharashtra Co-operative Societies Act, 1960 and Bye-laws of our Society, the activities of the society are confined to members only and a person other than member cannot have any transaction with the society. Whereas, in case of Co-operative Bank, they are doing the business of Banking with public and their activities are not restricted to the members. Therefore, the Co-operative Credit Societies are not hit by the provision of section 80P(4) of the Act and hence, income of the Society is fully deductible u/s. 80P(2)(a)(i) of the Income Tax Act. 1961. The Appellant Society has filed its ITR return on 30/09/2015 showing NIL income after taking benefit of bonafide claim of deduction u/s 80P(2)(a)(i) of the Act.
7. However, the AO was of the view that assessee is having two types of members i.e., nominal and active, whereas nominal members do not have any voting right and are such persons, who are made members just to avail loans and in this way assessee 4 has failed to differentiate the extent of income obtained from nominal members and active members, therefore, found not eligible for deduction.
As per assessee, the society is giving credit to its members only and not to general public at large. Thus cannot be said to be the cooperative bank / bank under the Banking Regulation Act. It was categorically submitted that assessee is having only one type of members and do not accept nominal members, in this regard a detailed affidavit has been filed by the assessee, which is taken on record.
After having taken into consideration, the submissions of the parties, in my view the provisions of section 80P of the Act, are benevolent provisions which was enacted by the Parliament in order to encourage and promote the growth of Co-operative sector in the economic life of the country and in pursuance of the declared policy of the Government. Therefore, the same must be read liberally and in favour of the assessee as culled out from the judgments of the Courts. It is trite that such provision has to be construed so as to effectuate the object of the legislature and not defeat the same. Relied in this regard is placed upon the decision in the case of CIT v/s. Mahindra & Mahindra Ltd. (193)4SCC 392].
As has been seen from the record that the AO while disallowing claim of deduction u/s 80P of the Act has wrongly relied upon the judgment of Supreme Court in the case of THE CITIZEN CO OPERATIVE SOCIETY LIMITED VS. ACIT 9(1) HYDERBAD. In fact the said Society was accepting deposits from non- members and purportedly nominal members and there were two class of members, one who were made nominal members and accepted huge deposits from the said class of members and said amount was utilized for advancing loan to regular members. Therefore, there was no nexus between the nominal members as regards deposits and advances. However, in the case of appellant, they have not admitted any nominal members and only regular members are contributing deposits. The funds raised from regular members are utilized for lending to the regular members only. The appellant Society has not accepted nominal members and carried any financial transaction but in order to bring the Appellant Society under the clutches of Apex Court (Supra) decision, the Assessing Officer has wrongly observed that the Society is doing financial transaction with non members. Therefore, the ratio laid down in case of The Citizen Co Operative Society Limited (supra) is not applicable to the appellant Society's case.
The Hon'ble Bombay High Court Judgment in the case of Quepem Urban Co- operative Credit Society Ltd in Tax Appeal No. 22, 23 & 24 of 2015 have resolved this issue and held that the Co-operative Credit Societies do not fulfill condition no. 1 and 3 of the definition of Primary Cooperative Bank as define in section 5ccv of the Banking Regulation Act, 1949.
The Hon'ble Bombay High Court while delivering the judgment has examined whether the Appellant is a primary Co-operative Bank as defined in Part V of the Banking Regulation Act, 1949. Section 5(ccv) of the Banking Regulation Act,1949 5 defines a primary co-operative Bank to mean a co-operative Society which cumulatively satisfies the following three conditions:
The primary object or principal business of which is the transaction of banking business.
The paid-up share capital and reserves of which are not less than one lakh of rupees and 3 The bye-laws of which do not permit admission of any other co-operative society as a member
The Hon'ble High Court then concluded that it is an accepted position that condition no.(2) is satisfied as the share capital in an excess of rupees one lakh. However, the appellant's has not satisfied the condition no.(1) and (3) of the definition of primary co-operative bank and therefore, the Appellant is not a co- operative Bank but it is Cooperative Credit Society thus entitled for deduction u/s 80P of the Act. The Appellant Society relies on the said decision of the Jurisdictional High Court. The Appellant Society relies on the said decision as the facts of the case are similar.
The SLP filed before the Hon'ble Supreme Court by the Income Tax Department is also withdrawn on 20-01-2020 and therefore this jurisdictional Bombay High Court judgment is a final and binding on lower authorities.
According to the doctrine of precedents, the decision of the jurisdictional High Court is binding on all lower judicial authorities. Therefore, as per precedents, the aforesaid, judgement in the case of Quepem Urban Co-operative Credit Society Ltd. is binding on all lower authorities.
The Assessing Officer at para no. 5 of its order has wrongly observed that the Society has two type of members i.e. 1. Nominal members 2. Active members. Further, on the wrong presumption, he has tried to apply the Hon'ble Supreme Court judgement in the case of The Citizen Co Operative Society Limited. In fact, as per the provisions of section 43 and 44 and Bye-laws of the Society, the transactions of acceptance of deposit and loan are confined to regular members. The Appellant Society has not admitted any nominal members and Affidavit to this effect is enclosed herewith.
We find reliance from the decision of Hon'ble Supreme Court in this regard, recent Hon'ble Supreme Court judgment in the case of PCIT VS. M/S ANNASAHEB PATIL MATHADI KAMGAR SAHAKARI PATHPEDI LIMITED CIVIL APPEAL NO. 8719/2022, has further analyzed the issue whether, Co-operative Credit Societies are bank or not. While dismissing the Appeal filed by the revenue, the Hon'ble Supreme Court has observed that "the assesses Society cannot be termed as bank/Co-operative bank and that being a credit Society they are entitled to exemption u/s 80P(2)(a)(i) of the Act. Even otherwise on merit also and taking into CBDT circulars and even definition under the banking regulation act the Assessee Society cannot to be said to be a Co-operative Bank and therefore section 6 80P (4) shall not be applicable and that the assessee Society shall be entitled to exemption/ benefit under section 80(P)(2) of the Income Tax Act".
The Ld. Commissioner of Income Tax (A)/FAC while disallowing the claim of section 80P has wrongly relied on the judgment of Hon'ble Gujarat High Court in the case of Katlary Kariyana (2022)215 DTR 0125(Guj) and Supreme Court in the case of Totgar's Co-operative Sales Society Ltd (2010) 322 ITR 283 (SC) and observed that the interest received on fixed deposits is not eligible for deduction u/s 80P of the Income Tax Act, 1961.
In this connection, Bench noticed that, as per the provisions of section 66 the Maharashtra Co-operative Societies Act, 1960, the Society is required appropriate 25 % of the net profit to Reserve fund. In addition to this, as per section 144-10A of the MCS Act, 1960, Co-operative Credit Societies are required to maintain the Statutory Liquidity Ratio (SLR) of not less than 25% of the deposits accepted from members. In view of this, in order to comply the provisions of said Act, the Society is required to make mandatorily investment of Reserve Fund & SLR in the securities specified in section 70 of the MCS Act, 1960. Therefore, these investments are mandatorily required to carry on the business of providing credit facilities to the members. Further, as per the Bye-laws of the Society, providing credit facilities and making investment is core business activity. Making investment is a core business activity at par with providing credit facilities to the members. The Appellant Society has not made investment of surplus funds but all the investments are made as per the statutory compliance and provisions of Bye-laws of the Society. Therefore, interest income received on such investment is a income attributable to providing credit facilities to members and same is Income from business unlike Co-operatives Banks and the same is eligible for deduction on u/s 80P(2)(a)(i) of the Income Tax Act, 1961. 21. The Ld DR could not place on record any documentary evidence to counter the factual submissions made by the assessee. Therefore, considering the entire facts and circumstances of the present case, I am of the view that assessee is entitled for deduction u/s 80P(2)(a)(i) of the Act.” 5.1. Respectfully following the decision of the Co-ordinate Bench, we direct the AO to allow the deduction u/s 80P(2)(a)(i) of the Act. 6. We now take up the revenue’s appeal in . The solitary grievance is the deletion of addition of Rs. 1,43,48,000/- made u/s 69A of the Act. 7. Briefly stated the facts of the case are that while scrutinizing the return of income, the AO noticed that the assessee has made cash 7 deposit during the demonetization period. The details of which are as under:-
7.1. The assessee was asked to explain the source of the cash deposits made during the demonetization period with documentary evidence. On receiving no plausible reply and referring to various circulars issued in respect of the demonetized currency, the AO made the addition of Rs. 1,43,48,000/- u/s 69A of the Act. 7.2. The assessee challenged the addition before the ld. CIT(A) and explained that major part of the said amount is received in the normal course of business activities of the society as the amounts were received from identifiable persons, members, who are KYC compliant and having PAN. After considering the facts and the submissions and the SOPs issued in respect of the demonetized currency, the ld. CIT(A) observed that the AO is not correct in not considering the nature and source of cash deposits which were clearly explained by the assessee by furnishing details of accounts in which cash was deposited by its members. The ld. CIT(A) further observed that the AO ought to have verified the explanation of the assessee by making necessary enquiries when the identity of the depositors who are members of the society are known. Merely because SBN notes are accepted, the same does not become undisclosed income under the Income Tax Act.