SHRI CHIDAMBAR SOUHARDA PATTINA SAHAKARI NIYAMITA,VIDHYARANYA PURA vs. INCOME TAX OFFICER, BMTC BUILDING

PER KESHAV DUBEY, JUDICIAL MEMBER:

This appeal at the instance of the assessee is directed against the order of the ld. Addl./JCIT(A)-3, Mumbai dated 29.12.2025 vide DIN & Order No. ITBA/APL/S/250/2025-26/1084175903(1) passed u/s 250 of the Income Tax Act, 1961 (in short “the Act”) for the assessment year 2017-18.

ITA No.431/Bang/2026 Shri Chidambara Souharada Pattina Sahakari Niyamita, Bengaluru Page 2 of 10 3. The ld. CIT(A) failed to appreciate that dismissal of an appeal for non-prosecution is not permissible under the income-tax Act, and that the appellate authority is statutorily required to pass a reasoned order on merits, even in the absence of the appellant. 4. The ld. CIT(A) erred in confirming the order of the Assessing Officer mechanically, without independent application of mind and without examining the facts, evidence and legal submissions available on record. 5. The ld. CIT(A) erred in upholding the disallowance of deduction claimed under section 80P(2)(a)(i) of the Act, without appreciating that the appellant is a co-operative/souharda society providing credit facilities exclusively to its members and is not carrying on banking business. 6. The authorities below failed to appreciate that the appellant is not a co-operative bank, and therefore, the provisions of section 80P(4) are not applicable to the appellant’s case. 7. The ld. CIT(A) failed to consider and follow binding judicial precedents of the jurisdictional High Court and ITAT, which clearly hold that souharda/credit co-operative societies providing credit facilities to members are entitled to deduction under section 80P(2)(a)(i). 8. The ld. CIT(A) erred in presuming lack of interest on the part of the appellant, without considering that non-appearance was due to nona fide and reasonable causes, and thereby violated the principles of natural justice. 9. The ld. CIT(A) erred in confirming levy of interest under sections 234A and 234B, which is consequential and liable to be deleted once the deduction under section 80P is allowed. 10. Without prejudice the addition is excessive arbitrary and unreasonable and liable to be reduced substantially. 11. The appellant craves leave to add, alter, amend, or withdraw any of the above grounds of appeal at the time of hearing. 12. For these and other grounds that may urged at the time of hearing of the appeal the appellant prays that the appeal may be allowed. Total Tax effect : Rs.13,41,167/-.

ITA No.431/Bang/2026 Shri Chidambara Souharada Pattina Sahakari Niyamita, Bengaluru Page 3 of 10 3. The brief facts of the case are that the assessee is a co- operative registered under the Karnataka Souharda Sahakari Act, 1997. The assessee filed its return of income for the AY 2017-18 on 22/03/2018 by claiming deduction u/s 80P of the Act amounting to Rs. 31,69,257/- & declared total income of Rs. NIL. Thereafter, the case was selected for LIMITED Scrutiny under CASS to verify “Low income in comparison to high loans/advances/investment in shares appearing in balance sheet & large deduction under chapter VI-A from total income”. Accordingly, the notices u/s 143(2) as well as u/s 142(1) of the Act were issued calling for details in connection with the return of income filed. In response to the notices, the assessee had furnished Audit report, financial statements, details of investments, Copy of ITR-V, Statement of Income, Registration Certificate and bye-laws of the Co-operative.

3.1 During the course of the assessment proceedings, the AO observed that the assessee is claiming deduction u/s 80P(2) of the Act as a Co-operative Society, however the assessee is a co- operative registered under the Karnataka Souharda Sahakari Act, 1997 and not under the Co-operative Societies Act, which is the Karnataka State Cooperatives Act,1959. In the opinion of the AO, the Karnataka State Legislature has already distinguished the fact that Co-operative Society is only those registered under the Karnataka State Co-operative Societies Act 1959 and those registered under the Karnataka Souharda Sahakari Act, 1997 are only “Co-operatives” and not Co-operative Societies. In view of the above, the AO disallowed the claim of deduction u/s 80P of the Act and added back to the returned income.

ITA No.431/Bang/2026 Shri Chidambara Souharada Pattina Sahakari Niyamita, Bengaluru Page 4 of 10

ITA No.431/Bang/2026 Shri Chidambara Souharada Pattina Sahakari Niyamita, Bengaluru Page 5 of 10 operative registered under the Karnataka Souharda Sahakari Act, 1997 and not a Co-operative Society registered under the Co- operative Societies Act, 1959 & accordingly, disallowed the claim of deduction u/s 80P of the Act and added back to the returned income. Thus, the only issue to be adjudicated in the present case is whether the assessee is eligible for deduction u/s 80P(2) as Co- operative Society. In our considered opinion, now this issue is no more Res Integra. The Jurisdictional High Court of Karnataka in the case of M/s. Swabhimani Souharda Credit co.-operative Ltd. versus Government of India reported in (2020) 421 ITR 670 has held that the entities registered under the Karnataka Souharda Sahakari Act, 1997 fit into the definition of “co-operative society” as enacted in Sec.2(19) of the Income Tax Act, 1961 and therefore subject to all just exceptions, they are entitled to stake their claim for the benefit of sec.80P of the said Act. The relevant observations of the Hon’ble High Court of Karnataka are reproduced below for ease of reference & convenience:-

“4. In the light of the rival submissions half heartedly made at the Bar, the following question of law arises for consideration:

“Whether an entity registered under the Karnataka Souharda Sahakari Act, 1997 fits into the definition of “co-operative society” as enacted by sec. 2(19) of the Income Tax Act, 1961 for the purpose of Section 80P thereof?”

(a) sec.80P of the 1961 Act provides for deduction in respect of income of Co-operative Societies is obvious going by its very text; sub-section (1) of said section reads as under:

“80P. (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub- section (2) in computing the total income of the assessee.”

The other provisions of this section being not of much relevance to the question being treated, are not reproduced, although they too have been looked into.

Sec. 2(19) which finds a place in the Dictionary Clause of the 1961 Act reads as under:

ITA No.431/Bang/2026 Shri Chidambara Souharada Pattina Sahakari Niyamita, Bengaluru Page 6 of 10 'co-operative society” means a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies;'

The provisions of sec.80P are enacted by the Parliament for promoting the co-operative movement in the Country in tune with what Father of the Nation Mahatma Gandhi preached to the countrymen; this Section needs to be liberally construed to effectuate the legislative object of encouraging & promoting the growth of co-operative movement vide Kanga & Palkhivala's The Law and Practice of Income Tax, 10th Edition, Lexix Nexis at page 1656; it is more so because the right to form a co-operative society itself is made a Fundamental Right, now enshrining in Article 19(1)(i) by virtue of 97th Amendment to the Constitution of India w.e.f. 15.10.2013;

(b) the object of enacting sec.80P of the 1961 Act may be defeated if a restrictive meaning is assigned to the definition of “co-operative society” as given u/s.2(19) inasmuch as the invokability of the provisions of sec.80P is dependent upon the entity seeking the benefit thereunder being a co-operative society; going by the text and context of these provisions, one can safely conclude that all entities that are registered under the enactments relating to co-operative societies, regardless of their varying nomenclatures need to be treated as co-operative societies; this view accords with the purposive construction of sec.80P r/w sec.2(19) of the 1961 Act;

(c) in the State of Karnataka, there have been two statutes enacted by the State Legislature that relate to registration & regulation of co-operative societies viz., the Karnataka Co- operative Societies Act, 1959 ie., Karnataka Act No.11 of 1959 and the Karnataka Souharda Sahakari Act,1997 ie., Karnataka Act No.17 of 2000; both these Acts are enacted pursuant to Article 246(3) r/w Entry 32, List-II of Schedule VII of the Constitution of India; there is no other Entry to which this Act is relatable; the Legislative Entries being only the fields of legislation need to be very broadly interpreted, is the settled position of constitutional jurisprudence vide UJAGAR PRINTS, ETC. vs. UNION OF INDIA, AIR 1989 SC 516; Chapter X of 1997 Act containing sec.67 enacts important co- operative principles that animate and brood through almost all the provisions of this Act;

(d) the Karnataka Souharda Sahakari Bill, 1997 has the following as the Statement of Objects & Reasons:

“1. the recognition, encouragement and voluntary formation of co-operatives based on self help, mutual aid, wholly owned, managed and controlled by members as accountable, competitive, self-reliant and economic enterprises guided by co-operative principles specified therein;

ITA No.431/Bang/2026 Shri Chidambara Souharada Pattina Sahakari Niyamita, Bengaluru Page 7 of 10 (e) the preamble to the 1959 Act reads as under:

“Whereas it is expedient (to promote voluntary formation, autonomous functioning, democratic control and professional management of cooperative societies) in the State of Karnataka; Be it enacted by the Karnataka State Legislature in the Tenth Year of the Republic of India as follows-”

Similarly, the preamble to the 1997 Act reads as follows:

“Whereas it is expedient to provide for recognition, encouragement and voluntary formation of co-operatives based on self-help, mutual aid, wholly owned, managed and controlled by members as accountable, competitive, self-reliant and economic enterprises guided by co-operative principles and for matters connected therewith; Be it enacted by the Karnataka State Legislature in the Forty-eighth Year of Republic of India as follows-”.

A perusal of these two preambles and various provisions of these two Acts leads one to an irresistible conclusion that both these Acts are cognate statutes that deal with cooperative societies, regardless of some difference in their nomenclature and functionality, the subject matter being the same;

(e) the word 'co-operative' is defined by sec.2(d-2) of 1959 Act as under:

“2(d-2): 'Co-operative' means a Co-operative registerd under the Karnataka Souharda Sahakari Act, 1997 (Karnataka Act 17 of 2000), and includes the Union Co-operative and the Federal Co-operative”

Similarly, the word 'co-operative' is defined by Sec. 2(e) of 1997 Act as follows:

“2(e): “Co-operative” means a co-operative including a co-operative bank doing the business of banking registered or deemed to be registered under Section 5 and which has the words 'Souharda Sahakari' in its name (and for the purposes of the Banking Regulation Act, 1949 (Central Act 10 of 1949), the Reserve Bank of India Act, 1934 (Central Act 2 of 1934), the Deposit Insurance and Credit Guarantee Corporation Act, 1961 (Central Act 47 of 1961) and the National Bank for Agriculture and Rural Development Act, 1981 (Central Act 67 of 1981), it shall be deemed to be a Co-operative Society”.

A close examination of these two definitions shows that they have abundant proximity with each other in terms of content and contours; it hardly needs to be stated that in both these definitions the word 'co-operative' is employed not as an adjective but as a noun; the definition of other relative concepts in the dictionary clauses of these Acts strengthens this view; this apart, sec.7 of the 1997 Act provides that the entity registered as a 'co- operative' shall be a body corporate, notwithstanding the conspicuous absence of the word 'society' as a postfix; sec.9 of the 1959 Act makes the entity once registered u/s.8 thereof a body corporate; both the entities have perpetual succession by operation of law; thus on registration be it under the 1959 Act or the 1997 Act, a legal personality is donned by them, so that inter alia they can own and possess the property;

(f) the employment of the word “Sahakari” in the very title of the 1997 Act is also not sans any significance; 'Sahakaar' in Sanskrit is the equivalent of 'sahakaara' in Kannada which means 'co-operation'; as already mentioned above both the 1959 Act and the 1997 Act employ this terminology; the 1997 Act is woven with the principles of co-operation; sec.4

ITA No.431/Bang/2026 Shri Chidambara Souharada Pattina Sahakari Niyamita, Bengaluru Page 8 of 10 of this Act bars registration of an entity unless its main objects are to serve the interest of the members in the area of co-operation and its bye-laws provide for economic and social betterment of its members through self-help & mutual aid in accordance with the cooperative principles; this apart, even sub-section (2) of sec.4 is heavily loaded with co- operative substance.

In the above circumstances, these writ petitions succeed; a declaration is made to the effect that the entities registered under the Karnataka Souharda Sahakari Act, 1997 fit into the definition of “co-operative society” as enacted in sec.2(19) of the Income Tax Act, 1961 and therefore subject to all just exceptions, petitioners are entitled to stake their claim for the benefit of sec.80P of the said Act; a Writ of Certiorari issues quashing the impugned notice dated 30.03.2018 at Annexure-D in W.P.No.48414/2018; other legal consequences accordingly do follow.

It is needless to mention that the other provisions of sec. 80P of 1961 Act and their effect on the claim of the petitioner-like-societies have been left to be addressed by the concerned authorities.”

9.1 Again, the Hon’ble Jurisdictional High Court of Karnataka in the case of Sri Matha Vividoddesha Pathina Souharda Sahakari Niyamitha v. Union of India reported in (2022) 285 Taxman 230 by following the own judgment in Swabhimani Souharda Credit Co- operative Ltd. v. Government of India (cited supra) has held as under:-

“2. Heard learned counsel for the petitioner, learned HCGP for respondent No. 3 and learned counsel for respondent Nos.1 and 2 and perused the material on record.

4.Per contra, learned counsel for respondent Nos.1 and 2 in addition to reiterating the various contentions urged in the Statement Objections submits that aggrieved

ITA No.431/Bang/2026 Shri Chidambara Souharada Pattina Sahakari Niyamita, Bengaluru Page 9 of 10 by the aforesaid order passed in Swabhimani Souharda Credit Co-operative Ltd. (supra), the respondents have preferred W.A.No.378/2020 along with connected matters and the same are pending adjudication. It is however fairly submitted that there is no interim order of stay in the appeal.

9.2 In view of the above, we respectfully following the above judgments of the Jurisdictional High Court of Karnataka held that the assessee registered under the Karnataka Souharda Sahakari Act, 1997 fit into the definition of “co-operative society” as enacted in Sec.2(19) of the Income Tax Act, 1961 and accordingly eligible for

ITA No.431/Bang/2026 Shri Chidambara Souharada Pattina Sahakari Niyamita, Bengaluru Page 10 of 10 deduction u/s 80P of the Act in accordance with law. Accordingly, we direct the AO to allow the deduction as claimed by the assessee u/s 80P(2) of the Act.

Order pronounced in the open court on 7th Sept, 2026

Sd/- Sd/- (Balakrishnan S.) (Keshav Dubey) Accountant Member Judicial Member

Bangalore, Dated 7th Sept, 2026. VG/SPS

Copy to:

Asst. Registrar, ITAT, Bangalore.