VYSYA OPERATIVE SOCIETY LIMITED,TIPTUR vs. INCOME TAX OFFICER, WARD-1 , TIPTUR

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ITA 1824/BANG/2025Status: DisposedITAT Bangalore18 June 2026AY 2017-1816 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the Assessing Officer (AO) exceeded his jurisdiction by expanding the scope of limited scrutiny to examine the cash deposits during the demonetization period. The AO did not follow the mandatory procedure outlined in CBDT instructions, which require prior approval from the Pr. CIT/CIT for expanding the scope of inquiry beyond the initially flagged issues. The Tribunal noted that the examination of deduction under Chapter VIA in a limited scrutiny cannot be construed as granting jurisdiction for complete scrutiny. Therefore, the addition of Rs. 44,62,500/- under Section 69A was deleted as it was made without jurisdiction and was bad in law. Consequently, the ground of appeal related to the Section 69A addition was allowed. The judgment does not explicitly address the other grounds raised by the assessee, such as the disallowance of Section 80P deduction, the applicability of Section 115BBE, or the levy of interest, as the appeal was allowed based on the jurisdictional issue concerning the expansion of scrutiny. The operative direction is to delete the addition made under Section 69A.

What were the facts?

The assessee, Vysya Co-operative Society Limited, is appealing an order by the CIT(A)/NFAC dated 23/06/2025 for Assessment Year 2017-18. The assessee is a co-operative society whose primary objects include providing credit facilities to its members and collecting deposits from them. The case was selected for limited scrutiny under CASS, focusing on 'Deduction under Chapter VIA'. During the assessment, the Assessing Officer (AO) observed cash deposits of Rs. 44,62,500/- made during the demonetization period and added this amount under Section 69A as unexplained money. The AO also disallowed a deduction of Rs. 13,17,414/- claimed under Section 80P(2)(a)(i). The assessee contended that the AO expanded the scope of limited scrutiny without proper approval and that the addition under Section 69A and the disallowance of Section 80P deduction were erroneous. The assessee also disputed the applicability of Section 115BBE and the levy of interest.

What were the issues?

1. Whether the Assessing Officer erred in expanding the scope of limited scrutiny to include the addition under Section 69A, without obtaining prior approval from the Pr. CIT/CIT, thereby making the assessment bad in law. 2. Whether the Assessing Officer erred in confirming the addition of Rs. 44,62,500/- under Section 69A of the Income Tax Act, 1961, as unexplained money, when the deposits were allegedly sourced from members. 3. Whether the Assessing Officer erred in disallowing the deduction of Rs. 13,17,414/- claimed under Section 80P(2)(a)(i) of the Act, on the grounds that the assessee was providing loan/credit facilities to nominal/associate members and carrying out activities in violation of co-operative laws. 4. Whether the Assessing Officer erred in holding that the provisions of Section 115BBE of the Income Tax Act, 1961, are applicable to the additions made under Section 69A. Assessee's Contentions: - The AO exceeded jurisdiction by expanding the scope of limited scrutiny without following CBDT guidelines, specifically regarding prior approval for additional issues. - The addition under Section 69A is bad in law and contrary to facts, as the cash deposits were sourced from members. - The disallowance of Section 80P deduction is erroneous and contrary to law, as the society operates on the principle of mutuality with its regular members and does not have nominal/associate members. - Section 115BBE is not applicable to the additions made under Section 69A. - Interest levied is erroneous and should be deleted. Revenue's Contentions: - The judgment records no specific contentions for the revenue on these grounds, other than implicitly supporting the orders of the lower authorities.

Which sections of the Income-tax Act were involved?

Section 69A,Section 80P(2)(a)(i),Section 115BBE,Section 143(2),Section 142(1),Section 144A

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: Smt. Suman Lunakar, CA
Hearing: 23.03.2026

PER KESHAV DUBEY, JUDICIAL MEMBER:

This appeal at the instance of the assessee is directed against the order of ld. CIT(A)/NFAC dated 23/06/2025 vide DIN & Order No. ITBA/NFAC/S/250/2025-26/1077476832(1) passed u/s. 250of 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:-

3.

The Brief facts of the case are thatassessee is a co-operative society falling within the definition of section 2(19) of the Act registered under the Karnataka Societies Registration Act. The assessee society is not governed by the Banking Regulation Act,1949. The object of the assessee society are:-

1.

To carry out the credit facilities to the members of the Society as is applicable to the Co-operative Society and to carry out the other credit facilities as are permitted by the Co-operative Societies Act. 2. To collect various types of deposits from the members to provide the necessary working capital to achieve the objects of the Society. 3. To formulae financial plans, to improve the financial positions of the members and to provide the financial assistance to the needy members. 4. To establish the funds out of profits of the society for the benefit of members, staff and their families who are in need and to formulate the necessary rules in this regard.

Thus, the primary object of the assessee-Society is accepting deposits from the members and providing loans and other credit facilities to its members. The operations of the assessee- Society are in Tiptur only. In the course of its operations, the members deposit monies into their accounts with the assessee and they withdraw the same as per their needs. The assessee society has only one class of members and they are all regular members, and all of them have the right to vote at a general meeting or an election of the members of the Board. There are no nominal or associate members. The Depositors and borrowers are members only and there was no granting of loan to general public. The principal object of the assessee-Society is to promote interest of all its

Page 5 of 16 members to attain their social and economic betterment through self-help and mutual aid in accordance with the co-operative principles. The assessee society has been filing its annual report of the activities and audited statements of accounts with the Registrar of Co-operative Societies regularly.

3.1 The assessee society filed its return of income for the AY 2017-18 on 09/11/2017 declaring total income of Rs.94,250/-. The assessee had declared gross total income of Rs.13,53,325/- and claimed Rs.12,59,072/- as deduction u/s. 80P of the Act. Subsequently, the assessee society had filed revised return of income on 10/10/2018 declaring income of Rs.94,250/- after claiming deduction u/s. 80P of the Act of Rs.13,17,414/-. The assessee had declared income under the head “Income from Profits and Gains from Business or Profession”.The case of the assessee was thereafter selected for Scrutiny on the basis of Computer Assisted Scrutiny Selection (CASS) under the “Limited Scrutiny”category in order to verify/ examine the following issue:-

• Deduction under Chapter VIA

Thereafter, notices u/s. 143(2) as well as notices u/s 142(1) of the Act along with the questionnaire were issued. In response the ld. A.R. of the assessee furnished the details viz activities of the society, balance sheet, income and expenditure statement and copy of the Bye-laws in Kannada.

3.2 During the course of assessment proceeding, the AO observed that the function of a society is mainly based on the principle of mutuality wherein, each and every member does have equal and identical rights and participation in the business of the society. Further, the AO is of the opinion that such a society can only be considered for deduction u/s. 80P(2)(a)(i) of the Act on the income Page 6 of 16 earned from the business. In the instant case, the assessee is carrying the main business of providing credit facilities to its members. The AO observed that the assessee society having one class of members and that is regular members. There are no nominal/ associate members in the society. All members are providing and utilizing the facilities provided by the society and thus they are contributors to the surpluses but are not participators in the business activity of the society. Accordingly, the principle of mutuality between the regular / normal members and nominal members is lost. Hence, the society cannot be considered a co-operative society eligible for deduction u/s. 80P(2)(a)(i) of the Act. The AO relied upon the Hon’ble Supreme Court in the case of Citizen Co-operative Society vs. Assistant Commissioner of Income Tax, Circle-9(1), Hyderabad in civil appeal no.10245 of 2017 dated 08/08/2017 and held that assessee society is to be treated as not a co-operative society eligible for benefit of deduction u/s. 80P of the Act and accordingly the claim of deduction u/s. 80P of the Act amounting to RS.13,17,414/- was disallowed and brought to tax.

3.3 During the course of the assessment proceedings, the AO also noticed that the assessee society as deposited a sum of Rs.44,62,500/- in cash during the demonetization period as detailed below: -

Sl. Name of the Bank Account No. Amount deposited No during demonetization period(in Rs.) 1. Merchants Co-operative 10105200001108 38,20,000/- Bank 2. TGMC Bank 30302622868 6,42,500/- TOTAL 44,62,500/- Page 7 of 16 The secretary of the society was asked to furnish the source of the above cash deposits during the demonetization period. The assessee society submitted that the cash had been deposited out of the amount received from the members of the society. The AO did not accept the explanation as the assessee society failed to furnish any receipt books counter foil for remitting the cash and ledger extract. As the assessee society failed to explain or produce any material evidence in support of the source of cash deposits during the demonetization period, the entire sum of Rs.44,62,500/- was added to the income of the assessee and brought to tax as unexplained cash credit u/s. 69A of the Act. The AO completed the assessment proceedings on a total assessed income of Rs.58,74,164/- as detailed below: - Particulars Amount (in Rs.) Income as returned by the assessee 94,250/- Addition made by disallowance of 80P 13,17,414/- Addition made to be taxed at special rate 44,62,500/- u/s. 115BBE Assessed Income 58,74,164

4.

Aggrieved by the assessment completed u/s. 143(3) of the Act dated 18/12/2019, the assessee preferred an appeal before the ld.CIT(A)/NFAC.

5.

With regard to the claim of deduction u/s. 80P of the Act, the ld.CIT(A)/NFAC held that the assessee did not adduce such further details duly reconciling details of the society involving its members particulars and ratios of investments, credits received, amounts paid back etc. as the case may be as applicable to this AY with reconcilable facts of case with assessee books of accounts so as to explain the entire gamut of transactions of assessee as involving its strict adherence to the provisions u/s. 80P of the Act as per law to contradict the observations of AO. Further, with regard to additions u/s. 69A of the Act, the ld.CIT(A)/NFAC held that the assessee could not explain with supporting proofs such as bank account Page 8 of 16 statement vis-à-vis with assessee audited books of accounts and relevant confirmations as obtained from such members confirming the assessee’s contention. Therefore, there exist no infirmity in assessing the cash deposits of demonetization period as involving unexplained cash deposits of the assessee as assessed by AO. The ld.CIT(A)/NFAC dismissed the appeal of the assessee as not maintainable as per facts available on records on merits as the assessee failed to adduce any supporting workings/ evidences as needed to advance the grounds of appeal to hold the order of AO as bad in law.

6.

Again, aggrieved by the order of ld.CIT(A)/NFAC dated 23/06/2025, the assessee has filed the present appeal before this Tribunal.

7.

Before us, the ld. A.R. of the assessee vehemently submitted that the assessee is a Co-operative society and the primary object of the assesse society is accepting deposits from the members, providing loans and other credit facilities to its members. Further, the assesse society is having only regular members and there are no nominal or associate members and accordingly prayed that the ld. AO grossly erred in disallowing the deduction u/s 80P(2)(a)(i) of the Act. Further, ld. A.R. of the assesse vehemently submitted that although the denial of deduction u/s 80P is within the scope of the selection of assesse case for limited scrutiny but the second addition u/s 69A of the Act is beyond its scope as the AO had not followed the procedure laid down by the CBDT for converting the limited scrutiny assessment to completed scrutiny.

8.

The ld. D.R. on the other hand supported the orders of the Authorities below. Further, the ld. DR also submitted the copy of the email of the ld. ITO, Ward-1,Tiptur.

9.

We have heard the rival submissions and perused the material available on record. It is an undisputed fact that the assessee is a co-operative society within the meaning of section 2(19) of the Act and registered under the Karnataka Co-operative Societies Act, 1959. It is also an undisputed fact that the primary object of the assessee society is accepting deposits from the members, providing loans and other credit facilities to its members. The operations of the assesse society are in Tiptur only. On perusal of the assessment order, we observed that the AO had disallowed the claim of deduction u/s 80P(2)(a)(i) of the Act amounting to Rs.13,17,414/- on the ground that the assesse society having one class of members in the society i.e. regular members and there are no nominal/associate members in the society. Further, all members are providing and utilizing the facilities provided by the society and thus they are contributors to the surpluses but are not participators in the business activity of the society and accordingly the principle of mutuality between the regular/normal members and nominal members is lost. On going through the above rationale cited by the AO, we could not understand what the ld. AO actually want to convey for rejecting the deduction u/s 80P(2)(a)(i) of the Act. In fact, we are of the opinion that the reason given by the AO to deny the deduction u/s 80P of the Act is completely absurd, baseless and without application of mind. Further, on perusal of the order of the ld. CIT(A)/NFAC, we are also surprised to note that even the ld. CIT(A)/NFAC without understanding the crux of the issues involved in the present case had held that the assessee did not adduce such further details duly reconciling details of the society involving its members particulars and ratios of investments, credits received, amounts paid back, etc. with reconcilable facts with books of accounts so as to explain the entire gamut of transactions of the assessee as involving its strict adherence to the provisions u/s 80P of the Act. Thus, in our considered opinion both Page 10 of 16 the Authorities below given their own reason best known to them for disallowing the claim of deduction u/s 80P of the Act that too without referring to any specific violation of the provisions of the Act. We are also of the considered opinion that the expression “Member” is not defined under the Income Tax Act and therefore, it has to be construed in the context of provision of law enacted under state legislature. The definition of member as given u/s 2(f) of the Karnataka Cooperative Society Act, 1959 also includes nominal and associated members. Further, the Income Tax Act has not drawn any distinction between regular member and nominal or associate member. Therefore, in our view the transactions with nominal or associate member also cannot be considered as the one with non- members or public and the assesse shall be given benefit of 80P of the Act as held by the Apex Court in the case of Mavilayi Service Cooperative Bank Ltd. Vs. CIT reported in (2021) 123 Taxmann.com 161 (SC). In the present case the assessee is repeatedly contending that there is only one class of members i.e. regular members and all of them have the right to vote at a general meeting or an election of the members of the Board. Further, during the course of assessment proceedings, the assessee had categorically stated that there are no Nominal/Associate members in the society as also observed by the AO in paragraph 4 of the Assessment order. Despite the said observation, the averments of the AO that principle of mutuality between the regular/normal members and nominal members is lost is completely meaningless & irrational. There are no such provisions in law that there should be principle of mutuality between the regular/normal members with nominal members. We are also unable to comprehend the averment of the AO that members are contributors but are not participators in the business activity. Therefore, we are of the considered opinion that the reason cited by the AO in disallowing the claim of deduction is completely absurd, meaningless & without any basis. We are of the considered opinion that the assessee society is eligible to claim Page 11 of 16 deduction u/s 80P(2)(a)(i) of the Act amounting to Rs.13,17,414/- and accordingly we direct the AO to allow the deduction as claimed by the assessee and accordingly allow this ground of appeal raised by the assessee.

9.1 Further, with regard to the addition on account of cash deposits during the demonetization period treated as unexplained cash credit u/s 69A of the Act amounting to Rs.44,62,500/-, the ld. A.R. of the assessee vehemently submitted that the case of the assessee was selected for scrutiny on the basis of CASS under the “Limited Scrutiny” category in order to verify/examine the issue of deduction under Chapter-VIA. It is submitted that the AO without converting the limited scrutiny to complete scrutiny by obtaining the prior approval of the Principal Commissioner of Income Tax had added the entire cash deposits during the demonetization period amounting to Rs. 44,62,500/- as unexplained cash credits u/s 69A of the Act. Further, it is submitted that the assessee vide letter dated 16/01/2020 had requested the AO to provide a copy of the approval obtained from the Principal Commissioner of Income Tax to convert the limited scrutiny into complete scrutiny, however no reply has been given by the AO. Further, during the course of proceeding before us, the Bench specifically requested the ld. DR to confirm whether the case which was initially selected for limited scrutiny had been subsequently converted to complete scrutiny. If so, the relevant order/document may kindly be submitted for consideration. The ld. DR however submitted the copy of the email of the Income Tax Officer, Ward-1, Tiptur in which the AO had categorically stated that on verification of records no such noting for conversion of limited scrutiny to complete scrutiny are available. Thus, the case of the assessee selected for limited scrutiny in order to verify/examine only deduction under chapter VIA, however, on going through the assessment order passed u/s 143(3) of the Act Page 12 of 16 dated 18/12/2019, we take a note of the fact that the AO on the ground of failure to explain/produce material evidence in support of the source of cash deposits during the demonetization period has added a sum of Rs. 44,62,500/- as unexplained cash credit u/s 69A of the Act, which in our opinion was not identified for examination under the limited scrutiny. Further, it is also an admitted fact that the AO had also failed to convert the limited scrutiny to complete scrutiny by following the due procedures as directed in various instructions/orders issued by the CBDT which is binding on him. On going through the various instructions/order issued by the CBDT regarding scope of the limited scrutiny under CASS, we take a note of the important directions as below:

9.2 The instruction No. 20/2015 dated 29.12.2015 clarifies the scope and applicability of the limited scrutiny cases. The procedure for handling “limited scrutiny” case clarified are as under: a) In “limited scrutiny” cases, the reasons/issues shall be forthwith communicated to the assessee concerned. b) The questionnaire under section 142(1) of the Act in “limited scrutiny” cases shall remain confined only to the specific reasons/issues for which case has been picked up for scrutiny. Further, the scope of enquiry shall be restricted to the “limited scrutiny” issues. c) These cases shall be completed expeditiously in a limited number of hearings. d) During the course of assessment proceedings in “limited scrutiny” cases, if it comes to the notice of the AO that there is potential escapement of income exceeding Rs.5 lakhs (for Metro Rs.10 lakhs) requiring substantial verification on any other issues then, the case may be taken up for complete scrutiny with the approval of the Principal CIT/CIT concerned.

Page 13 of 16 e) The Principal CIT/CIT shall accord the approval in writing after being satisfied about the merits of the issue necessitating “complete scrutiny”.

f) Further, such cases shall be monitored by the Range Head concerned and the procedure indicated at point No.(a), (b) & (c) above shall no longer remain binding in such cases.

9.3 Further the instruction No.5/2016 dated 14.7.2016 state that in order to ensure that maximum objectivity is maintained in converting a case falling under “limited scrutiny” into a “complete scrutiny” case, the AO while forming the reasonable view would ensure that: a) There exist credible material or information available on record for forming such view. b) This reasonable view should not be based on mere suspicion, conjecture or unreliable source and c) There must be direct nexus between the available material and formation of such view.

9.4 In the said instruction, it is further clarified that in cases under “limited scrutiny”, the scrutiny assessment proceeding would be confined only to issues under “limited scrutiny” and questionnaires, inquiry, investigation, etc. would be restricted to such issues.

9.5 Further, the CBDT vide F.No.225/402/2018/ITA.II dated 28.11.2018 has again reiterated that in “limited scrutiny” cases the AO shall not expand the scope of enquiry/investigation beyond the issues on which the case was flagged for “limited scrutiny”. Further, it is also provided that the scope of “limited scrutiny” may be expanded only if the matter is placed before the ld. PCIT/CIT for his administrative approval and subject to monitory limits as per earlier instruction dated 29.12.2015. The Page 14 of 16 CBDT vide F.No.225/402/2018/ITA.II dated 28.11.2018 also directed to adopt the following procedures while examining the additional issue-

i) The AO shall duly record the reasons for expanding the scope of ‘Limited Scrutiny’ to the extent where credible material or information has been /is provided by any law- enforcement/intelligence/regulatory authority or agency regarding tax-evasion by an assessee. ii) The same shall be placed before the Pr. CIT/CIT concerned and upon his approval, further issue can be considered during the assessment proceeding; iii) The AO shall issue an intimation to the assessee concerned that additional issue would also be considered during the course of pending assessment proceeding; iv) To ensure proper monitoring in these cases, provisions of section 144A of the Act may be invoked in suitable cases. v) Further , to prevent fishing and roving enquiries in these cases, it is desirable that these cases are invariably picked up for review/inspection by the administrative authority.

9.6 In the present case, admittedly the AO during the course of assessment proceedings only noticed that the assessee society had deposited a sum of Rs.44,62,500/- in cash during the demonetization period & proceeded to add Rs. 44,62,500/- as unexplained cash credit u/s 69A of the Act, which in our view was not the issues identified for examination under the notice u/s 143(2) of the Act under the “limited scrutiny”. We are further of the opinion that the AO has over stepped his jurisdiction without duly recording the reasons for expanding the scope of ‘Limited Scrutiny’. The same also not placed before the Pr. CIT/CIT concerned for his approval & the assessee had also not been intimated that additional issue would also be considered during the course of pending assessment proceeding. If we consider the Page 15 of 16 argument of the ld. D.R. that since the deduction under chapter VIA depends on the computation of profits and gains of business profession & thus the AO can verify all the receipts in the bank account, then in our view, it will completely frustrate the very objective of “limited scrutiny”.

9.7 Under these circumstances, in our opinion, even if some other issues comes to the notice of AO during the course of assessment proceedings, he cannot make any other addition/disallowance without obtaining prior approval from concerned PCIT/CIT as per the instruction issued by the CBDT cited (supra). In our opinion, the AO has exceeded the jurisdiction by calling for details and carrying out inquiries with respect to source of cash deposits during the demonetization period. Considering the facts of assessee’s case and also the CBDT instruction cited (supra) we are of the considered view that the AO has exceeded his jurisdiction in inquiring into those issues which are beyond the scope of “limited scrutiny” which is clear violation of mandate given by the CBDT in the above instructions/orders which are binding on the AO and accordingly without jurisdiction & bad in law. We are of the view that CBDT has specifically clarified that in a “limited scrutiny”, the scope of enquiry shall be restricted to the “limited scrutiny” issues. It will be confined only to issues and questionnaire, inquiry, investigation, etc. would be restricted to such issues in the “limited scrutiny”.

9.8 In view of the above, we are of considered opinion that the very exercise of jurisdiction to examine/scrutinize the cash deposits during the demonetization are not covered in the issue identified for the examination under the “limited scrutiny”. The examination of deduction claimed under chapter VIA in a limited scrutiny cannot be construed as giving jurisdiction to a complete scrutiny. The AO has expanded the scope of “limited scrutiny” without following due procedure as directed under various instructions/orders. Therefore Page 16 of 16 we are inclined to hold that the AO has exceeded his jurisdiction in adding a sum of Rs.44,62,500/- as unexplained cash credit u/s 69A of the Act and accordingly we direct the AO to delete the addition made u/s 69A of the Act. Thus, this ground of appeal of the assessee is also allowed.

10.

In the result, the appeal filed by the assessee is allowed.

Order pronounced in the open court on 18th June, 2026

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

Bangalore, Dated 18th June,2026. VG/SPS

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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