SRI KENGAL CREDIT CO-OPERATIVE SOCIETY,RAJAJINAGAR BENGALURU vs. INCOME TAX OFFICER WARD - 2(2)(2), BENGALURU

PER KESHAV DUBEY, JUDICIAL MEMBER:

These appeals at the instance of the assessee are directed against the separate orders of the ld.CIT(A)/NFAC, Delhi vide DIN & Order No. ITBA/NFAC/S/250/2025-26/1081791367(1) dated 15.10.2025 for the AY 2014-15, vide DIN & Order No. ITBA/NFAC/S/250/2025-26/1081796530(1) dated 15.10.2025 and for the AY 2015-16, vide DIN & Order No. ITBA/NFAC/S/250/2025-26/1081824684(1) dated 16.10.2025 all passed u/s 250 of the Income Tax Act, 1961 (in short “the Act”). Since the issue involved in all these appeals is common and inter- related, these are clubbed together, heard together and disposed of by this common order for the sake of convenience & brevity.

ITANos.235 to 237/Bang/2026 Sri Kengal Credit Co-operative Society Ltd., Bengaluru Page 2 of 17 2. At the outset, the ld. A.R. of the assessee submitted that there is a delay of 24 days in filing all these appeals before this Tribunal. The ld. A.R. of the assessee also drew our attention to an affidavit dated 4.2.2026 in original sworn before the notary public stating the reasons for delay, which is reproduced below for ease of reference and convenience:

ITANos.235 to 237/Bang/2026 Sri Kengal Credit Co-operative Society Ltd., Bengaluru Page 3 of 17

ITANos.235 to 237/Bang/2026 Sri Kengal Credit Co-operative Society Ltd., Bengaluru Page 4 of 17

ITANos.235 to 237/Bang/2026 Sri Kengal Credit Co-operative Society Ltd., Bengaluru Page 5 of 17 3. The main reason cited for delay in filing these appeals was solely attributable to the ill health of the assessee’s counsel Shri V. Srinivasan in the end of December, 2025, who was unable to prepare and file the appeals within the prescribed period.

3.1 Perused the record and having heard learned counsel for the assessee as well as ld. DR, it is perceived that the explanation offered in the condonation application is plausible and sufficient cause has been shown by the assessee, which prevented them from filing these appeals within the specified period before this Tribunal and accordingly, we are inclined to condone the short delay of 24 days in filing these appeals before this Tribunal and admit all these appeals for adjudication on merits of the case.

ITANos.235 to 237/Bang/2026 Sri Kengal Credit Co-operative Society Ltd., Bengaluru Page 6 of 17

Grounds in ITA No.236/Bang/2026:- 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.

ITANos.235 to 237/Bang/2026 Sri Kengal Credit Co-operative Society Ltd., Bengaluru Page 7 of 17 5. Brief facts of the case are that assessee is a credit co- operative society engaged in providing credit facilities to its members. During the year under consideration, the assessee claimed deduction u/s 80P of the Act. The AO after taking into account various aspects concerning the legal implications and verdicts of the court was of the considered view that the case needs to be handled at par with jurisdictional decision of the Hon’ble High Court of Karnataka and other decisions referred by the assessee. However, it is not out of place to bring forth that decision of the jurisdictional High Court of Karnataka allowing the deduction claimed u/s 80P of the Act has not been considered by the revenue in toto. In other words, the AO’s contention is that the revenue has preferred a plea before the apex court substantiating the stand that claim of deduction u/s 80P of the Act is not to be considered for the various reasons and legality of the aspect. The AO held that since the matter is pending before the apex court, the logical conclusion at this juncture in the instant case cannot be considered at par with judicial decision on the issue under question and accordingly the claim of deduction made u/s 80P of the Act was not considered for AY 2014-15 and 2015-16. The said disallowance made had been upheld by the ld. CIT(A)/NFAC on the ground that assessee is to be considered as a bank and not a credit co-operative society on the nature of functions performed.

ITANos.235 to 237/Bang/2026 Sri Kengal Credit Co-operative Society Ltd., Bengaluru Page 8 of 17 members. Thus, there is no dispute on this aspect of the matter. We also observed that the AO himself stated in the assessment order that the assessee had relied upon certain judgment of Hon’ble jurisdictional High Court of Karnataka in its favour that the provisions of section 80P(4) of the Act could not be applicable to the credit co-operative society. However, since the matter is pending before the Hon’ble Apex Court, the deduction claimed u/s 80P of the Act was denied. On perusal of the order of ld. CIT(A)/NFAC, we also observed that ld. CIT(A)/NFAC considered the assessee as bank and not as a credit co-operative society based on the nature of functions performed by the society.

6.1 We are of the considered opinion that the aforesaid issue relating to the denial of deduction by invoking the provisions of section 80P(4) of the Act is squarely covered in favour of the assessee by the judgment of Hon’ble jurisdictional High Court in the case of CIT vs. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha, Bagalkot reported in (2014) 369 ITR 86 (Kar. HC). Furthermore, we are of the considered opinion that Hon’ble Supreme Court in the case of PCIT Vs. Anna Saheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd. reported in (2023) 454 ITR 117 has also held that the provisions of section 80P(4) of the Act will not be applicable to a credit co-operative society that deals only with its members. The relevant paragraph are reproduced below for ease of reference & convenience:-

“2. The High Court considered the following question of law—

"Whether on the facts and in the circumstances of the case and in law, the Tribunal is justified as claimed by the assessee on the ground that the assessee, a co- operative credit society and is not a bank for the purpose of s. 80P(4) of the Act ?" 3. Apart from the fact that against the relied upon decision in the case of Quepem Urban Co-operative Credit Society Ltd. (supra), the special leave petition has been dismissed, having heard learned counsel appearing on behalf of the respective parties, the issue involved in the present appeal is squarely covered against the

ITANos.235 to 237/Bang/2026 Sri Kengal Credit Co-operative Society Ltd., Bengaluru Page 9 of 17 Revenue in view of the decision of this Court in Mavilayi Service Co-operative Bank Ltd. & Ors. vs. CIT & Anr. (2021) 318 CTR (SC) 609 : (2021) 197 DTR (SC) 361 : (2021) 7 SCC 90. This Court, in the aforesaid decision has specifically observed and held that primary Agricultural Credit Societies cannot be termed as Co-operative Banks under the Banking Regulation Act and, therefore, such credit societies shall be entitled to exemption under s. 80P(2) of the IT Act, 1961. 4. Ms. Aakansha Kaul, learned counsel appearing on behalf of the appellant/Revenue has tried to submit that the respondent/assessee will fall under the definition of Co-operative Bank as their activity is to give credit/loan. However, it is required to be noted that merely giving credit to its members only cannot be said to be the Co-operative Banks/Banks under the Banking Regulation Act. The banking activities under the Banking Regulation Act are altogether different activities. There is a vast difference between the credit societies giving credit to their own members only and the banks providing banking services including the credit to the public at large also. 5. There are concurrent findings recorded by CIT(A), Tribunal and the High Court that the respondent/assessee cannot be termed as banks/co-operative banks and that being a credit society, they are entitled to exemption under s. 80P(2) of the IT Act. Such finding of fact is not required to be interfered with by this Court in exercise of powers under Art. 136 of the Constitution of India. Even otherwise, on merits also and taking into consideration the CBDT circulars and even the definition of bank under the Banking Regulation Act, the respondent/assessee cannot be said to be Co-operative Bank/Bank and, therefore, s. 80(P)(4) shall not be applicable and that the respondent/assessee shall be entitled to exemption/benefit under s. 80P(2) of the IT Act. 6. In view of the above and for the reasons stated hereinabove, the present appeal deserves to be dismissed and is accordingly dismissed, answering the question against the Revenue and in favour of the assessee. 7. The appeal is accordingly dismissed. No costs.”

In view of the above, respectfully following the decision of the Jurisdictional High Court of Karnataka as well as Hon’ble Apex Court, we have no hesitation to hold that the denial of deduction claimed u/s 80P(2)(a)(i) of the Act is contrary to the provisions of law and judgments of the Hon’ble Apex Court as well as Hon’ble jurisdictional High Court and accordingly we direct the AO to allow the deduction u/s 80P as claimed by the assessee for the AY 2014- 15 & AY 2015-16.

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ITANos.235 to 237/Bang/2026 Sri Kengal Credit Co-operative Society Ltd., Bengaluru Page 11 of 17 prosecuting the appeal and also order for the refund of the institution fees as part of the costs.

9.1 In respect of claim of deduction u/s 80P of the Act, the assessee during the course of assessment proceeding submitted that it is a co-operative society engaged in providing long term loans only to its member. Based on this, the assessee society is claiming deduction u/s 80P(2)(a) of the Act which is available to the society engaged in the business of lending to its members. The AO however, on perusal of the bye laws of the society seen that as compared to the regular members, the nominal and associated members do not have equal rights in the society as explained in the bye laws of the society. Further, the nominal/associate members cannot participate in the affairs of the society as compared to the regular members, though the nominal/associate members were provided with loan and other facilities. Thereby, there is absence of mutuality and the concept of mutuality itself gets defeated. The AO was of the opinion that the issue of principles of mutuality can be seen in two parts. One, the participation of the associate/nominal members in administration of the society by way of attending the AGM, Voting, Election, etc. The other is the contribution of the nominal/associate members to the profit of the society; however, there was no sharing of excess with nominal/associate members by the assessee by way of

ITANos.235 to 237/Bang/2026 Sri Kengal Credit Co-operative Society Ltd., Bengaluru Page 12 of 17 dividends/bonus. The ld. AO held that since the assessee had advanced loans, deposits taken to/from non-voting/non-profit sharing members and earning profit from them and the profit was shared only with the voting members (ordinary members) and hence the mutuality did not exist among all class of members. The ld. AO by relying on the decision of Hon’ble Supreme Court in the case of M/s. Citizen Co-operative Society Vs. ACIT in Civil appeal no.10245 of 2017 dated 08.08.2017 disallowed the claim of deduction u/s 80P of the Act amounting to Rs.3,62,16,761/-.

9.2 Further, with regard to the cash deposits during the demonetization period amounting to Rs.2 Crores in Karnataka State Co-operative Apex Bank Ltd., the AO noted that being in the business of banking for its members, it was quite astonishing to know that the assessee had accepted such specified bank notes during the demonetization period. The AO held that though the SBN accepted by the assessee had no value, a value has been created by the assessee by making an entry in the cash book and corresponding ledger account of the assessee. Hence, the said entry becomes unexplained. Therefore, section 68 of the Act squarely applies in the case of the assessee and all such amounts received by way of SBNs after 08.11.2016 become unexplained. In view of the above, the old and banned notes which were received by the assessee being unauthorized, having no value to it but the same was recorded in the books of accounts, accordingly, such SBN receipts was held to be unexplained credits in the books of accounts u/s 68 of the Act r.w.s. 115BBE of the Act. Thus, the AO completed the assessment proceedings on a total assessed income of Rs.5,73,67,161/-.

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11.1 Further, with respect to addition of Rs.2 Crores made u/s 68 r.w.s. 115BBE of the Act on account of unexplained cash deposits during the demonetization period, the ld. CIT(A)/NFAC held that the assessee had failed to substantiate the source of such deposits and credible member-wise evidence. The explanation offered does not discharge the onus cast u/s 68 of the Act. Accordingly, the said addition was also confirmed by the ld. CIT(A)/NFAC.

ITANos.235 to 237/Bang/2026 Sri Kengal Credit Co-operative Society Ltd., Bengaluru Page 14 of 17 the SBNs do not have any value after 08.11.2016 and no transaction of SBNs has to be made after 08.11.2016. It has been held that the entry passed in the books of accounts creating a value for these SBNs makes the entry unexplained u/s 68 of the Act.

13.1 Surprisingly, the ld. CIT(A)/NFAC on a different foot held that the assessee is primarily engaged in the business of banking and hence not entitled to claim deduction u/s 80P(2)(a)(i) of the Act. Further, the ld. CIT(A)/NFAC also held that the assessee has failed to substantiate the source of deposits with credible member-wise evidence and the explanation offered does not discharge the onus u/s 68 of the Act, whereas the AO has disallowed by holding that entry passed in the books of accounts creating a value for these SBNs makes the entry unexplained. We have already held in the appeals in ITA No.235 & 236/Bang/2026 for AYs 2014-15 & 2015- 16 that assessee is a co-operative society engaged in providing credit facilities to its members and therefore, the provisions of section 80P(4) of the Act would not be applicable to such credit co- operative society as it is not a co-operative bank. Further, with regard to AO’s reliance on the judgment of the Apex Court in the case of Citizen Co-operative Society (supra), we are of the considered opinion that the judgment of Hon’ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. reported in 431 ITR 1 (SC) clearly supports the case of the assessee and the mere presence of nominal/associate members cannot be a ground to deny the deduction claimed by the assessee. The relevant paragraph of the judgment is reproduced below for ease of reference and convenience:-

“45. To sum up, therefore, the ratio decidendi of Citizen Cooperative Society Ltd. (supra), must be given effect to. Section 80P of the IT Act, being a benevolent provision enacted by Parliament to encourage and promote the credit of the co- operative sector in general must be read liberally and reasonably, and if there is ambiguity, in favour of the assessee. A deduction that is given without any reference

ITANos.235 to 237/Bang/2026 Sri Kengal Credit Co-operative Society Ltd., Bengaluru Page 15 of 17 to any restriction or limitation cannot be restricted or limited by implication, as is sought to be done by the Revenue in the present case by adding the word "agriculture" into Section 80P(2)(a)(i) when it is not there. Further, section 80P(4) is to be read as a proviso, which proviso now specifically excludes co-operative banks which are co-operative societies engaged in banking business i.e. engaged in lending money to members of the public, which have a licence in this behalf from the RBI. Judged by this touchstone, it is clear that the impugned Full Bench judgment is wholly incorrect in its reading of Citizen Cooperative Society Ltd. (supra). Clearly, therefore, once section 80P(4) is out of harm's way, all the assessees in the present case are entitled to the benefit of the deduction contained in section 80P(2)(a)(i), notwithstanding that they may also be giving loans to their members which are not related to agriculture. Also, in case it is found that there are instances of loans being given to non-members, profits attributable to such loans obviously cannot be deducted. 46. It must also be mentioned here that unlike the Andhra Act that Citizen Cooperative Society Ltd. (supra) considered, 'nominal members' are 'members' as defined under the Kerala Act. This Court in U.P. Cooperative Cane Unions' Federation Ltd., Lucknow v. Commissioner of Income Tax, Lucknow-I [1997] 11 SCC 287 referred to section 80P of the IT Act and then held: "8. The expression "members" is not defined in the Act. Since a cooperative society has to be established under the provisions of the law made by the State Legislature in that regard, the expression "members" in Section 80-P(2)(a)(i) must, therefore, be construed in the context of the provisions of the law enacted by the State Legislature under which the cooperative society claiming exemption has been formed. It is, therefore, necessary to construe the expression "members" in Section 80-P(2)(a)(i) of the Act in the light of the definition of that expression as contained in Section 2(n) of the Cooperative Societies Act. The said provision reads as under: "2. (n) 'Member' means a person who joined in the application for registration of a society or a person admitted to membership after such registration in accordance with the provisions of this Act, the rules and the bye-laws for the time being in force but a reference to 'members' anywhere in this Act in connection with the possession or exercise of any right or power or the existence or discharge of any liability or duty shall not include reference to any class of members who by reason of the provisions of this Act do not possess such right or power or have no such liability or duty;"" Considering the definition of 'member' under the Kerala Act, loans given to such nominal members would qualify for the purpose of deduction under section 80P(2)(a)(i).”

We are also of the considered opinion that the expression “Member” is not defined in the Income Tax Act. Therefore, it has to be construed in the context of provision of law enacted under the State Legislature. The definition of Member given u/s 2 (f) of the Karnataka Co-operative Societies Act, 1959 also includes nominal and associate member. Income Tax Act has not drawn any distinction between regular member and nominal or associate member. Therefore, the transaction with nominal or associate member cannot be considered as the one with non-members or

ITANos.235 to 237/Bang/2026 Sri Kengal Credit Co-operative Society Ltd., Bengaluru Page 16 of 17 public and the assessee shall be given benefit of section 80P of the Act as held by the Apex Court in the case of Mavilayi Service Co- operative Bank Ltd. (supra) and accordingly we allow this ground of the appeal of the assessee.

13.2 With regard to cash deposits of Rs.2 Crores in Karnataka State Co-operative Apex Bank Ltd., the assessee during the course of assessment proceeding had filed the details of amounts credited in the bank account by giving name of the members, PAN and address with reference no. 4239283871 dated 26.07.2017 and that there was no doubt about the source of credit expressed by AO. Further, we also observed that the AO has also categorically stated that all these entries are recorded in the books of accounts of the assessee. The only contention of the AO is that as the assessee has accepted the SBNs after 08.11.2016 which had no value, however, a value has been created by the assessee by making an entry in the cash book and corresponding ledger accounts of the assessee. We are of the considered opinion that on the one hand, the AO himself held that the SBNs accepted after 08.11.2016 had no value, then we are unable to understand how the same after recording in the cash book becomes a value for addition u/s 68 of the Act. Admittedly, the assessee may not be authorized to receive the SBNs but this is not in the dominion of taxation u/s 68 of the Act. The provision of section 68 of the Act says that if the nature and source of the sum credited in the books of accounts of the assessee is not explained to the satisfaction of the AO, then it can be added as unexplained cash credit in the hands of the assessee. In the present case, the assessee had appropriately explained from where the SBN notes have come and such notes have also been deposited in the bank accounts and therefore, addition u/s 68 of the Act is unwarranted. The assessee had clearly demonstrated the nexus of cash deposit with the

ITANos.235 to 237/Bang/2026 Sri Kengal Credit Co-operative Society Ltd., Bengaluru Page 17 of 17 amount of cash received from members along with the PAN and address and therefore, addition made by the AO are not sustainable and accordingly we allow this ground of appeal of the assessee.

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

Copy to:

Asst. Registrar, ITAT, Bangalore.