SHREE VIJAYA CO-OPERATIVE HOUSING SOCIETY LIMITED,BANGALORE vs. ITO, WARD- 6(2)(1), BANGALORE

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ITA 234/BANG/2026Status: DisposedITAT Bangalore30 July 2026AY 2017-20186 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal found that the assessee could not properly represent its case before the lower authorities. Therefore, in the interest of justice, the matter was remitted back to the Assessing Officer for a fresh decision.

What were the facts?

The assessee, a co-operative housing society, appealed against the CIT(A)'s order confirming disallowance of deduction under Section 80P and additions made to its income. The lower authorities had made additions based on estimations and the assessee's inability to properly represent its case.

What were the issues?

Whether the interest income earned by the society is eligible for deduction under Section 80P, and whether the additions made to the income were justified without proper substantiation.

Which sections of the Income-tax Act were involved?

Section 80P,Section 144,Section 68,Section 69A,Section 115BBE

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “B’’BENCH: BANGALORE

Before: SHRI PRASHANT MAHARISHI & SHRI KESHAV DUBEY

For Appellant: CA Gireesh T.L., A.R
Hearing: 07.05.2026Pronounced: 30.07.2026

PER KESHAV DUBEY, JUDICIAL MEMBER:

This appeal at the instance of the assessee is directed against the orders of the ld. CIT(A)/NFAC, New Delhi dated 12.12.2025 vide DIN & Order No. ITBA/NFAC/S/250/2025-26/1083620636(1) passed u/s 250 of the Income Tax Act, 1961 (in short “the Act”) for the assessment year 2017-18.

2.

The assessee has raised the following grounds of appeal: - 1. The order passed by the learned Commissioner of Income-tax (Appeals) under section 250 of the Income-tax Act, 1961 is bad in law, contrary to the facts and circumstances of the case, and is liable to be set aside. 2. The learned CIT(A) has erred in confirming the disallowance of deduction of Rs.88,71,443/- claimed by the appellant under section 80? of the Income-tax Act, 1961, which is unsustainable both in law and on facts.

ITA No.234/Bang/2026 Shree Vijaya Co-operative Housing Society Ltd., Bengaluru Page 2 of 6 3. The legislature used the phrase "attributable toll in Section 80P(2)(a)(i), which has a wider legal meaning than "derived from". This covers receipts from sources beyond the actual conduct of primary business. Further, if a society cannot immediately lend funds to members because there were no takers, depositing that money to earn interest is a business-related activity. The Learned AO referred to the Totgars case, in which the society was investing funds that were liabilities (amounts due to members). in the current case, the investments were made from the society’s own surplus profits and gains and the deposits received from the members hence the facts are very much different. The interest income so derived or the capital, if not immediately required to be lent to the members, then the said interest income is attributable to the profits and gains of the business of providing credit facilities to its members only. Hence the Interest income earned Rs 88,71,443 from Temporary deposit of surplus is eligible for deduction u/s 80P(2)(a)(i). With respect to the above, the order has been pronounced by the Honourable ITAT Bangalore. a. Shree Sharada Credit Cooperative Society Limited 2, Bhoovarha Complex, Vadiraja Road, Udupi Karnataka 576101, ITA No 1315 & 1316/EanÜ2025 Pronounced on 05-12-2025. 4. The learned CIT(A) erred in sustaining the addition of Rs.61,06,109/- being 10% of total bank deposits, which was made purely on estimation, without any statutory basis, and without identifying any specific unexplained credit as required under sections 68 or 69A of the Act.

5.

The learned CIT(A) failed to appreciate that the appellant is a duly registered co-operative society under the Karnataka Co-operative Societies Act, 1959, engaged in providing credit facilities to its members, and that the bank deposits represent genuine business receipts from members towards deposits and repayment of loans in the ordinary course of business.

6.

The learned CIT(A) erred in upholding the addition solely on the alleged non-filing of return and non-production of books during assessment proceedings, ignoring the fact that audited financial statements, balance sheet, and profit and loss account were subsequently produced and form part of the record.

ITA No.234/Bang/2026 Shree Vijaya Co-operative Housing Society Ltd., Bengaluru Page 3 of 6 7. The learned CIT(A) erred in sustaining the application of sections 68 and 115BBE to gross bank deposits without establishing that such deposits represented unexplained income. 8. The learned CIT(A) erred in mechanically relying on the judgment of the Hon'ble Supreme Court in Totgars Co-operative Sale Society Ltd., without appreciating that the said decision applies only where deposits represent liabilities payable to members or surplus funds invested unrelated to business, which is not the case of the appellant.

9.

The learned CIT(A) failed to apply the ratio laid down by the Hon'ble Karnataka High Court in Tumkur Merchants SouhardaCredit Co- operative Ltd. v. ITO (230 Taxman 309), wherein it was held that interest earned on temporary parking of business surplus with co- operative banks is attributable to the business of a credit co-operative society and eligible for deduction under section 80P(2)(a)(i).

10.

The learned CIT(A) failed to appreciate that under the Karnataka Cooperative Societies Act, 1959, the appellant is statutorily required to maintain reserve funds, liquidity funds, SLR deposits, and other compulsory funds, which are mandatorily required to be deposited with co-operative banks as a pre-condition for carrying on the business of providing credit facilities to members. 11. The learned CIT(A) erred in holding that interest earned on deposits of statutory and compulsory funds is not eligible for deduction under section 80P, despite such deposits being made under legal compulsion and having a direct nexus with the business activity of the appellant. 12. 12.The learned CIT(A) failed to follow the binding decision of the Hon'ble ITAT, Bengaluru Bench in YedamangalaVyavasaya Seva Sahakari PACS Ltd. v. ITO, Ward-I, Puttur (order dated 16.09,2025), wherein it was held that interest earned on statutory and mandatory deposits with cooperative banks is eligible for deduction under section 80P(2)(a)(i). 13. The appellant prays that interest income earned from statutory and mandatory deposits with co-operative banks be allowed as deduction under section 80P(2)(a)(i), and the interest earned from temporary deposits made out of surplus funds also qualified for deduction under section 80P(2)(a)(i) and that all additions made under sections 68, 69A, or 115BBE be deleted as arbitrary. 14. The appellant further prays that consequential adjustments be made to the total income computation, and that any penalties levied under sections 270A, 271A, 271B, or 271F be deleted.

ITA No.234/Bang/2026 Shree Vijaya Co-operative Housing Society Ltd., Bengaluru Page 4 of 6 3. At the outset, the ld. A.R. of the assessee vehemently submitted that the AO had passed an order u/s 144 of the Act to the best of his judgment as the assessee could not represent its case properly before the AO. The AO had accordingly held that as the total deposits in bank account is Rs.6,10,61,089/- and the assessee had failed to provide its balance sheet, profit & loss account and other information, 10% of deposits which works out to Rs. 61,06,109/- was assessed as income of the assessee. Further, the AO had held that the assessee is not entitled for deduction u/s 80P of the Act in respect of the interest income of Rs.88,71,443/- and added the same to the total income of the assessee. Thus, the AO completed the assessment proceedings on a total assessed income of Rs.1,49,77,552/- u/s 144 of the Act.

3.1 On perusal of the order of ld. CIT(A)/NFAC, we also observed that the ld. CIT(A)/NFAC categorically affirmed that given the persistent non-compliance, the assessment u/s 144 of the Act, the magnitude of cash deposits during the demonetization period and the absence of a reliable reconciliation even at the appellate stage, the estimation made by the AO was found to be reasonable and justified. The assessee had also not filed any rejoinder to the remand report despite having the opportunity to rebut the same. Thus, the ld. CIT(A)/NFAC held that assessee has failed to discharge the onus of explaining the nature and source of deposit.

4.

The ld. D.R. on the other hand, had no objection if the case is remitted back to the file of AO to examine the nature and source of cash deposit, identity and creditworthiness of the depositors along with the eligibility to claim deduction u/s 80P of the Act.

ITA No.234/Bang/2026 Shree Vijaya Co-operative Housing Society Ltd., Bengaluru Page 5 of 6

5.

Undisputedly, as held by lower authorities, the assessee could not represent its case properly before them. Before us, the ld. A.R. of the assessee undertake to submit all the necessary documents/records to substantiate its claim if the matter is remitted back to the file of AO. This being so, in the interest of justice, equity and fair play, we deem it fit and proper to remit the entire issues in dispute to the file of ld. AO to decide afresh in accordance with law. Needless to say, a reasonable opportunity of being heard must be granted to the assessee. The assessee is also directed to produce the details of members from whom claimed to have received the cash/cheques, which were deposited into the bank account along with their KYC, repayment schedules and reconciliation of the same with the bank statement. Further, the assessee shall also explain before the AO as to why they are eligible to claim deduction under section 80P of the Act despite the fact that as observed by the AO, the assessee have not filed any return either u/s 139(1) or 139(4) or 142(1) of the Act by claiming deduction u/s 80P of the Act. We make it clear that in case of further default, the assessee shall not be entitled for any leniency. It is ordered accordingly.

6.

In the result, appeal filed by the assessee is partly allowed for statistical purposes.

Order pronounced in the open court on 30th July, 2026

Sd/- Sd/- (Prashant Maharishi) (Keshav Dubey) Vice President Judicial Member

Bangalore, Dated 30th July,2026. VG/SPS

ITA No.234/Bang/2026 Shree Vijaya Co-operative Housing Society Ltd., Bengaluru Page 6 of 6

Copy to:

1.

The Applicant 2. The Respondent 3. The CIT 4. The DR, ITAT, Bangalore. 5 Guard file By order

Asst. Registrar, ITAT, Bangalore.

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