SREESHARADA CREDIT CO-OPERATIVE SOCIETY LTD,UDUPI vs. ITO WARD- 1&TPS , UDUPI

The learned departmental representative submitted that delay is enormous, cause shown is not sufficient and therefore it should not be condoned. He relied up on the decision of the honourable supreme court in Pathapati SubbaReddy(Died) by L. Rs. v. Special Deputy Collector (LA), reported in MANU/SC/0285/2024 : 2024:INSC:286,

We have carefully considered the rival contentions and perused the affidavit as well as the application for condonation of delay filed by the assessee. In fact, the delay caused in filing of these appeals is 247 days.

Provision stipulates that where an appeal is not filed within the prescribed period of limitation, the same may be admitted if "sufficient cause" for such failure is shown. The court may, in its own discretion, proceed to condone the delay, if it is satisfied, that the Appellant had "sufficient cause" for not preferring the appeal within such period. The law of limitation is founded on public policy. The object of limitation is 8. to put a quietus on stale and dead disputes. A person ought not to be allowed to agitate his claim after a long delay. Rules of limitation are not meant to destroy the rights of parties. They are meant tosee that parties do not resort to dilatory tactics, but seek their remedy promptly. Theobject of providing a legal remedy is to repair the damage caused by reason of legalinjury. The law of limitation fixes a lifespan for such legal remedy for the redress of thelegal injury so suffered. Time is precious and wasted time would never revisit. While there is no arithmetical formula, through decades of judicial application,certain yardsticks for judging the sufficiency of cause for condonation of delay have evolved. Mere good cause is not sufficient enough to turn back the clock and allowresuscitation of a claim otherwise barred by delay. The court ought to be cautious while undertaking such an exercise, being circumspect against condoning delay which is attributable to the applicant. Although the actual period of delay might be instructive, it is the explanation for the delay which would be the decisive factor. 9. Hon supreme court as relied by the ld DR in Pathapati Subba Reddy (Died) by L. Rs. v. Special Deputy Collector (LA), reported in MANU/SC/0285/2024 : 2024:INSC:286, summarized the principles governing the exceptions imagined under "sufficient cause" vis-à-vis substantive justice as under:-

The burden to establish sufficient cause lies upon the party seeking condonation, and the court must be satisfied that the cause is real, bona fide, and free of negligence. Sufficiency of cause is to be determined contextually, on the totality of circumstances, with due regard to the conduct of the applicant and the prejudice caused to the opposite party. The inquiry is not mechanical but principled, resting on the dual pillars of bona fides and diligence.

The expression "sufficient cause" is not itself a loose panacea for the ill of pressing negligent and stale claims. The expression is to be construed with justice-oriented flexibility so as not to punish innocent litigants for circumstances beyond their control.

Courts must not condone gross negligence, deliberate inaction, or casual indifference, for to do so would undermine the maxim interest reipublicae ut sit finis litium and destabilise the certainty that limitation law seeks to secure.

The expression "sufficient cause" must be construed in a manner that advances substantial justice while preserving the discipline of limitation. The courts are not to be swayed by sympathy or technical rigidity, but rather by a judicious appraisal of whether the applicant acted with reasonable diligence in pursuing the remedy. Where explanation is bona fide, plausible, and consistent with ordinary human conduct, courts have leaned towards condonation. Where negligence, want of good faith, or a casual approach is discernible, condonation has been refused. i. Length of the delay may be instructive but not determinative.

When it comes to condonation of delay, the length of delay is immaterial, and what matters is the acceptability of the explanation. A short delay may still warrant dismissal if unsupported by sufficient cause, whereas even a long delay may be condoned if justified by circumstances demonstrating bona fides.

Delay by itself is not inherently indicative of negligence. In certain cases, unavoidable circumstances such as illness, fraud, miscommunication, or bona fide mistake may stretch over long periods, yet remain excusable if they are explained with candour and supported by material. Conversely, an unexplained delay of even a few days may reveal inaction or deliberate disregard of statutory timelines, and therefore disentitle the party to indulgence.

The quantum of delay has no direct nexus in law with sufficiency of the cause. The law are independent and diverse factors. Hence the extent of delay should not determine whether the cause is sufficient or not. Section 5 of the Limitation Act does not say that such discretion can be exercised only if the delay is within a certain limit. Length of delay is no matter, acceptability of the explanation is the criterion. The criterion for condoning the delay is sufficiency of reason and not the length of the delay.

The decisive factor is the adequacy of the cause shown, not the length of delay. What is critical is whether the party seeking condonation acted with reasonable diligence during the prescribed period and whether the reasons advanced demonstrate a genuine inability to file within time. Thus, the test is qualitative rather than quantitative.

This is not to say that the length of delay is irrelevant. A long delay naturally casts a heavier burden on the applicant to furnish cogent,

The length of the delay functions as a contextual indicator but not a determinative factor. It alerts the court to the degree of rigour required in examining the explanation, yet the ultimate focus remains on whether "sufficient cause" has been shown. The doctrine thereby preserves both the integrity of statutory timelines and the imperative of doing justice in deserving cases.

Thus, in exercising discretion Under Section 5 of the Limitation Act the courts should adopt a pragmatic approach. A distinction must be made between a case where the delay is inordinate and a case where the delay is of a few days. Whereas in the former case the consideration of prejudice to the other side will be a relevant factor so the case calls for a more cautious approach but in the latter case, no such consideration may arise and such a case deserves a liberal approach. No hard-and-fast Rule can be laid down in this regard. The court has to exercise the discretion on the facts of each case keeping in mind that in construing the expression "sufficient cause", the principle of advancing substantial justice is of prime importance. ii. Technical Considerations vis-à-vis Substantive Justice.

In construing "sufficient cause" it must be borne in mind that Rules of procedure are handmaids of justice. Procedural rigidity should not become an instrument of injustice. In the context of Section 5 of the Limitation Act, this balance assumes special significance. Courts have repeatedly underscored that while limitation provisions are founded on Page 7 of 19 sound principles of finality and certainty, their application cannot be divorced from the overarching objective of ensuring that litigants are not shut out from the doors of justice merely on account of technicalities.

When technical considerations of limitation conflict with the imperative of substantial justice, the latter should ordinarily prevail. Rules of limitation are not designed to destroy the rights of parties but to prevent inordinate delay in seeking remedies. Thus, the interpretation of "sufficient cause" must be liberal and purposive, aimed at advancing the cause of justice rather than defeating it. This is why the courts, while construing applications for condonation of delay, emphasize the bona fides of the applicant over the sheer arithmetical length of the delay.

Where strict adherence to these Rules results in injustice, the Court is duty bound to apply a liberal interpretation of "sufficient cause" so as to balance technical requirements with the demands of justice. A litigant does not stand to benefit by lodging an appeal late, and therefore, a pragmatic and justice-oriented approach must inform the judicial discretion Under Section 5. This decision continues to be the most frequently cited authority for the proposition that the judiciary should incline towards justice rather than technicality. Therefore, when courts interpret "sufficient cause, " they are expected to exercise discretion in a manner that fosters justice, fairness, and equity, keeping in mind the realities of litigation.

When a Court of Law deals with an application to condone the delay filed Under Section 5 of the Limitation Act, such application will have to be generally viewed in a liberal and lenient way to do substantial justice between the parties. Section 5 of the Limitation Act must be liberally construed and applied so as to advance substantial justice. It is undoubtedly true that a justice oriented approach is necessary while deciding application Under Section 5 of Limitation. However, it cannot be Page 8 of 19 said that in every case delay must necessarily be condoned. It is a condition precedent for Section 5 of the Limitation Act that there must be a sufficient reason for condoning the delay.

However, while substantial justice must be advanced, the law of limitation is equally binding, and "sufficient cause" must be shown in substance, not in empty form. This ensures that the balance between justice and certainty is not skewed in favour of unmerited litigants.

However, at the same time, the courts must be mindful that strong case on merits is no ground for condonation of delay. When an application for condonation of delay is placed before the court, the inquiry is confined to whether "sufficient cause" has been demonstrated for not filing the appeal or proceeding within the prescribed period of limitation. The merits of the underlying case are wholly extraneous to this inquiry. If courts were to look into the merits of the matter at this stage, it would blur the boundaries between preliminary procedural questions and substantive adjudication, thereby conflating two distinct stages of judicial scrutiny. The purpose of Section 5 of the Limitation Act is not to determine whether the claim is legally or factually strong, but only whether the applicant had a reasonable justification for the delay.

Test of "sufficient cause" cannot be substituted by an examination of the merits of the case. Condonation of delay is a matter of discretion based on explanation for the delay, not on the prospects of success in the case. If merits are considered, a litigant with a stronger case may be favoured with condonation despite negligence, while a weaker case may be rejected even if sufficient cause is made out. This would lead to an inequitable and inconsistent application of the law, undermining the uniform standard that the doctrine of limitation is designed to maintain.

Another practical reason why merits must not be considered at the stage of delay condonation is that it risks prejudicing the mind of the court against one party even before the matter is substantively heard. By glancing into merits prematurely, the court may inadvertently form a view that colours the fairness of the subsequent adjudication. The judicial discipline required at this stage demands that only the cause for delay be scrutinized, and nothing more. This ensures that the ultimate adjudication of rights occurs in a neutral and unprejudiced setting.

The law of limitation is meant to apply uniformly across cases, regardless of the intrinsic strength or weakness of the claims involved. To import merits into condonation proceedings would effectively dilute this uniformity." Shivamma (Dead) by L.Rs. vs. Karnataka Housing Board and Ors. (12.09.2025 - SC) : MANU/SC/1262/2025

Briefly stated the facts for assessment year 2018 – 19 shows that assessee filed its return of income at Rs. Nil on 26 September 2018. The return was picked up for limited scrutiny assessment for verification of deduction from total income under chapter VI – A. Notice under section 143 (2) was issued on 28 September 2019, the assessee furnished the necessary details stating that assessee is a co-operative society registered under cooperative societies act and carrying on the business by sanctioning loan to its members from amounts are available with it which is collected from members. The assessee stated that it has a total income of ₹ 2,680,554/– which is offered for deduction under section 80 P (2) (a) (i) as business income. The learned assessing officer was also confronted with the details that it is a credit cooperative society collecting deposits from its members are paying them interest and further loans were advances to its member according to the rules and regulation of the society and further it receives interest from the members. It funds also are invested its surplus funds in other cooperative societies and earn interest income from them which is not immediately required. Such business income including the interest income is offered as business income and, it is attributable to the business, claimed the deduction under section 80 P (2) (a) (i) of the income tax act.

The learned assessing officer examined the gross receipts of the assessee and found that assessee has received interest income on investment of ₹ 2,818,393 from the other cooperative societies, therefore assessee is not eligible for deduction under section 80 P (2) (a) (i) of The Act and interest income is charge able to tax as income from other sources and not business income. Therefore a show cause notice was issued to the assessee in the form of the draft assessment order stating that though the interest income received by the assessee is 28,18,393/– but the assessee has claimed deduction under section 80 P of only ₹ 2,680,554/– why the above deduction should not be denied treating the interest income as income from other sources.

The assessee has given a submission stating that jurisdictional High Court order in case of Tumkur merchants and state bank of India state cooperative credit society Ltd covers the issue in favour of the assessee. The learned assessing officer rejected the contention and followed the decision of the Totgars cooperative sales l society Ltd versus income tax officer 188 taxmann 282 (Supreme Court) and also the decision of the honourable Karnataka High Court and held that such interest income is not eligible for deduction under section 80 P (2) (a) (i) of the act as it is chargeable to tax as income under the head income from other sources under section 56 of the act. Accordingly, the assessment order was passed under section 143 (3) read with section 143 (3A) and 143 (3B) of the acts on 6 April 2021 denying the above deduction.

The assessee preferred an appeal before the learned CIT – A unsuccessfully wherein after considering the submissions of the assessee he relying on the decision of the honourable Karnataka High Court in case of principal Commissioner of income tax versus Totgars sales cooperative society (2017) 83 taxmann.com 140 has decided the issue against the assessee holding that assessee is not eligible for deduction under section 80 P (2) (a) (i) or alternatively under section 80 P (2) (d) of the act. Thus, the assessee is in appeal before us.

The learned authorised representative vehemently supported the claim of the assessee in the return of income and stated that assessee is entitled to deduction under section 80 P (2) (a) (i) of the act as the interest income received from the cooperative banks is business income of the assessee. He further submitted that there is no finding in the assessment order that such interest income is income from other sources. He submits that the case of the assessee squarely covered by the decision of the honourable Karnataka High Court by two decisions which have already considered the decision of the honourable Supreme Court which is relied upon by the learned assessing officer. Therefore, the assessee should be allowed the deduction.

The learned departmental representative advocate Mr Ghale , vehemently supported the decision of the learned lower authorities and submitted that the issue is squarely covered by the decision of the honourable Karnataka High Court in case of Totgars credit cooperative societies wherein the honourable High Court after considering the decision of the honourable Supreme Court has categorically held that interest income earned by the assessee from the cooperative banks is income from other sources and not business income and therefore the income earned by the assessee from interest from cooperative societies are not allowable as deduction under section 80 P of the act in any of the clauses. He further stated that the recent decision of the honourable Karnataka High Court has also followed the decision of the Totagar credit cooperative societies and therefore the issue is squarely covered in favour of the revenue.

We have carefully considered the rival contention and perused the orders of the learned lower authorities. We find that the assessee is a members credit cooperative society who has earned interest from the bank to the tune of ₹ 28 lakhs which was forming part of the business income, as claimed by the assessee in its return of income and surplus of ₹ 26 lakhs arising to the assessee from the activities of the business was claimed as deduction under section 80 P (2) (a) (i) of the act. We have carefully considered the decision of the learned assessing officer we do not find any reason that why the interest income should not be considered as business income of the assessee. Merely because the assessee has received interest income from cooperative societies it cannot be said that such income should always be taxed under the head income from other sources only. The stand of the assessing officer is that such interest income is income from other sources, not income from business, therefore, not eligible for deduction under section 80 P (2) (d) of the act. Claim of the assessee is that such interest income is attributable to the business of the assessee of borrowing and lending with members and therefore it is eligible for deduction u/s 80 P (2) (a) (i) of the Act.

We find that the decision of the honourable Karnataka High Court in case of Tumkur Merchants Souharda Credit Cooperative Ltd. vs. Income-tax officer Word-V, Tumkur [2015] 55 taxmann.com 447 (Karnataka)/[2015] 230 Taxman 309 (Karnataka)[28-10-2014] has categorically discussed this issue and held that assessee is eligible for deduction under section 80 P (2) (a) (i) of the act as under:- 6. From the aforesaid facts and rival contentions, the undisputed facts which emerges is, the sum of Rs. 1,77,305/- represents the interest earned from short- term deposits and from savings bank account. The assessee is a Cooperative Society providing credit facilities to its members. It is not carrying on any other business. The interest income earned by the assessee by providing credit facilities to its members is deposited in the banks for a short duration which has earned interest. Therefore, whether this interest is attributable to the business of providing credit facilities to its members, is the question. In this regard, it is necessary to notice the relevant provision of law i.e., Section 80P(2)(a)(i): "Deduction in respect of income of co-operative societies: 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. (2) The sums referred to in sub-section (1) shall be the following, namely: (a) in the case of co-operative society engaged in— (i) carrying on the business of banking or providing credit facilities to its members, or (ii) to xx xx xx (vii) the whole of the amount of profits and gains of business attributable to any one or more of such activities." 7. The word 'attributable' used in the said section is of great importance. The Apex Court had an occasion to consider the meaning of the word 'attributable' as supposed to derive from its use in various other provisions of the statute in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC) as under: 'As regards the aspect emerging from the expression "attributable to" occurring in the phrase "profits and gains attributable to the business of the specified industry (here generation and distribution of electricity) on which the learned Solicitor-General relied, it will be pertinent to observe that the legislature, has Page 14 of 19 deliberately used the expression "attributable to" and not the expression "derived from". It cannot be disputed that the expression "attributable to" is certainly wider in import than the expression "derived from". Had the expression "derived from" been used, it could have with some force been contended that a balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity. In this connection, it may be pointed out that whenever the legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor-General, it has used the expression ''derived from", as, for instance, in section-80J. In our view, since the expression of wider import, namely, "attributable to'', has been used, the legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity.' 8. Therefore, the word "attributable to" is certainly wider in import than the expression "derived from". Whenever the legislature wanted to give a restricted meaning, they have used the expression "derived from". The expression "attributable to" being of wider import, the said expression is used by the legislature whenever they intended to gather receipts from sources other than the actual conduct of the business. A Cooperative Society which is carrying on the business of providing credit facilities to its members, earns profits and gains of business by providing credit facilities to its members. The interest income so derived or the capital, if not immediately required to be lent to the members, they cannot keep the said amount idle. If they deposit this amount in bank so as to earn interest, the said interest income is attributable to the profits and gains of the business of providing credit facilities to its members only. The society is not carrying on any separate business for earning such interest income. The income so derived is the amount of profits and gains of business attributable to the activity of carrying on the business of banking or providing credit facilities to its members by a co-operative society and is liable to be deducted from the gross total income under Section 80P of the Act.

In this context when we look at the judgment of the Apex Court in the case of M/s. Totgars Co-operative Sale Society Ltd., on which reliance is placed, the Supreme Court was dealing with a case where the assessee-Cooperative Society, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing agricultural produce of its members was retained in many cases. The said retained amount which was payable to its members from whom produce was bought, was invested in a short-term deposit/security. Such an amount which was retained by the assessee - Society was a liability and it was shown in the balance sheet on the liability side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in Section 80P(2)(a)(i) of the Act or under Section 80P(2)(a)(iii) of the Act. Therefore in the facts of the said case, the Apex Court held the assessing officer was right in taxing the interest income indicated above under Section 56 of the Act. Further they made it clear that they are confining the said judgment to the facts of that case. Therefore it is clear, Supreme Court was not laying down any law.

In the above decision it is held that if the interest income is attributable to the business of the assessee cooperative societies, deduction u/s 80 P (2) (a) (i) of The Act cannot be denied to the assessee. Further the decision of the honourable supreme court was also considered in paragraph no 9 of the decision.

In Principal Commissioner of Income-tax, Hubli vs. Totagars Co-operative Sale Society [2017] 78 taxmann.com 169 (Karnataka)/ [2017] 392 ITR 74 (Karnataka) [05-01-2017] it is held that: 7. However, the contention being taken by the learned counsel is untenable. For the issue that was before the ITAT, was a limited one, namely whether for the purpose of Section 80P(2)(d) of the Act, a Co-operative Bank should be considered as a Co-operative Society or not? For, if a Co-operative Bank is considered to be a Co-operative Society, then any interest earned by the Co-operative Society from a Co-operative Bank would necessarily be deductable under Section 80P(1) of the Act. 8. The issue whether a Co-operative Bank is considered to be a Co- operative Society is no longer res integra. For the said issue has been decided by the ITAT itself in different cases. Moreover the word "Co- operative Society" are the words of a large extent, and denotes a genus, whereas the word "Co-operative Bank" is a word of limited extent, which merely demarcates and identifies a particular species of the genus Co- operative Societies. Co-Operative Society can be of different nature, and can be involved in different activities; the Co-operative Society Bank is merely a variety of the Co-operative Societies. Thus the Co-operative Bank which is a species of the genus would necessarily be covered by the word "Co-operative Society".

Admittedly, the interest which the assessee respondent had earned was from a Co-operative Society Bank. Therefore, according to Sec. 80P(2)(d) of the I.T. Act, the said amount of interest earned from a Co- operative Society Bank would be deductable from the gross income of the Co-operative Society in order to assess its total income. Therefore, the Assessing Officer was not justified in denying the said deduction to the assessee respondent.

The learned counsel has relied on the case of Totgars Co- operative Sale Society Ltd. v. ITO [2010] 322 ITR 283/188 Taxman 282 (SC). However, the said case dealt with the interpretation, and the deduction, which would be applicable under Section 80P(2)(a)(i) of the I.T. Act. For, in the present case the interpretation that is required is of Section 80P(2)(d) of the I.T. Act and not Section 80P(2)(a)(i) of the I.T. Act. Therefore, the said judgment is inapplicable to the present case. Thus, neither of the two substantial questions of law canvassed by the learned counsel for the Revenue even arise in the present case.

Further in Principal Commissioner of Income-tax, Hubballi vs. Totagars Co- operative Sale Society [2017] 83 taxmann.com 140 (Karnataka)/ [2017] 395 ITR 611 (Karnataka)/ [2017] 297 CTR 158 (Karnataka) [16-06-2017] the honourable High court was also drawn attention to both the above decisions and in Para no 19 it held as under: - "19. In our opinion, it would not make a difference, whether the interest income is earned from investments/deposits made in a Scheduled Bank or in a Co-operative Bank. Therefore, the said decision of the Co-ordinate Bench is distinguishable and cannot be applied in the present appeals, in view of the binding precedent from the Hon'ble Supreme Court."

Thus, all the three decisions of the honourable Karnataka High court considered the decision of Totgars, Co-operative Sale Society Ltd. vs. Income-tax Officer, Karnataka [2010] 188 Taxman 282 (SC)/ [2010] 322 ITR 283 (SC)/ [2010] 229 CTR 209 (SC) [08-02-2010]. All the above three decisions are on the issue of deduction u/s 80 P of the Act in respect to Page 17 of 19 interest income earned by the assessee from cooperative societies either u/s 80 P (2) (a) (i) or 80 P (2) (d) of The Act. Before us, the claim of the assessee is not u/s 80P (2) (d) of the Act but 80P (2) (a) (i) of the Act. In this case there are three decisions of the Honourable High court, which cannot stand together, present an issue before us and that in such circumstances the correct thing is to follow that judgment which appears t to state the law accurately or nearer to facts before us. 24. accurately than the other conflicting judgment We find that the issue before us the facts of the case are more nearer to the decision of the Honourable Karnatak High court in case of Tumkur Merchants [ supra] and Decision of Principal Commissioner of Income-tax, Hubli vs. Totagars Co-operative Sale Society [2017] 78 taxmann.com 169 (Karnataka)/[2017] 392 ITR 74 (Karnataka)[05-01-2017] as those decision deals with deduction u/s 80 P (2) (a) (i) of the Act.

In the case of the Decision of Honourable Supreme court of Mavilayi Service Co-operative Bank Ltd. vs. Commissioner of Income Tax, Calicut [2021] 123 taxmann.com 161 (SC)/[2021] 279 Taxman 75 (SC)/[2021] 431 ITR 1 (SC)[12-01-2021] has also held that Section 80P being a beneficial provision must be construed with the object of furthering the co-operative movement generally.

In view of above facts , respectfully following the decision of the honourable High Court Tumkur Merchants [ supra] and Decision of Principal Commissioner of Income-tax, Hubli vs. Totagars Co-operative Sale Society [2017] 78 taxmann.com 169 (Karnataka)/[2017] 392 ITR 74 (Karnataka)[05-01-2017] we direct the learned assessing officer to allow the deduction to the assessee of the interest earned by the assessee from cooperative societies of ₹ 2,680,554/– under section 80 P (2) (a) (i) of the income tax act 1961, we reverse the orders of the learned lower authorities and allow the appeal of the assessee.