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Facts
The assessee, a registered Souharda Sahakari Sangha, claimed deduction under section 80P. The AO disallowed the deduction as it was not considered a co-operative society under the Act. Additions were also made for disallowance of interest expenses under section 40(a)(ia) and unexplained cash deposits under section 68.
Held
The Tribunal held that entities registered under the Karnataka Souharda Sahakari Act, 1997, are eligible for deduction under section 80P of the Act, following a Karnataka High Court judgment. The addition under section 40(a)(ia) was also allowed for deduction under 80P. The addition under section 68 was remanded to the AO for fresh examination.
Key Issues
Whether the assessee, a Souharda Sahakari Sangha, is eligible for deduction under section 80P of the Act. Whether cash deposits are unexplained and liable for addition under section 68.
Sections Cited
80P, 143(1), 40(a)(ia), 68, 115BBE, 194A(3)(v), 2(19)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI LAXMI PRASAD SAHU & SHRI KESHAV DUBEY
Per Laxmi Prasad Sahu, Accountant Member :
This is an appeal filed by the assessee against CIT(A)’s order videDIN & Order No: ITBA/NFAC/S/250/2024-25/1074332934(1)dated 11.03.2025.
Briefly stated the facts of the case are that assessee is registered in the name and style of Sri Sri Vaishnavi Pattina Souhardha Sahakari Sangha Niyamitha under the Karnataka Souharda Sahakari Act, 1997 vide No.Sa.Ni- 14:V-1:RGN:Sou.Ka:3707:2014-15 dated 23.10.2014, filed its return of income on 13.12.2017 declaring total income of Rs.Nil, after claiming deduction under section 80P of the Act to the tune of Rs.16,14,282/-. The same was processed under section 143(1) of the Act. Subsequently, the case was selected for scrutiny and statutory notices were issued to the assessee. The assessee filed detailed written submissions / documents and registration certificate. From the registration certificate submitted by the assessee it was noticed that the assessee is not a Co-operative Society as per section 80P((1) r.w.s. 2(19) of the I T. Act. Therefore, the deduction under section 80P(2) of the I T Act was not allowed on the profit earned by the assessee and the assessee is also not registered under Karnataka Co-operative Societies Act. Therefore, it is not eligible for deduction under section 80P(2) of the Act. The AO further observed that the assessee has debited of Rs.70,96,520/- towards interest paid in the P/L account and as per submission of the assessee, there was no TDS deduction on such interest payment. Accordingly, 30% of such interest paid was disallowed under section 40(a)(ia) of the Act. Further, it was noted that during the demonetization period, the assessee has deposited cash in Specified Bank Notes (SBNs) in Axis Bank account No.914020058002513 amounting to Rs.22,44,500/- and in Vikas Co-operative Bank in account No.0040003000003 of Rs.64,81,000/-. In this regard, assessee was asked to submit source of cash deposits with supporting evidences for such cash deposit of Rs.87,25,500/-. Assessee submitted that cash was deposited out of the working capital which is reflected in the cash book were received from members of the society but the assessee did not support the evidence with the cash book, list of members, complete address, KYC etc., who deposited the cash in support of its claim. In the absence of the details of the cash depositors, the genuineness / creditworthiness of the depositors could not be verified. Therefore, the entire deposit was treated as unexplained and AO invoked section 68 of the Act and applied section 115BBE of the Act. for the said addition.
Aggrieved from the above Order, assessee filed appeal before the CIT(A). The learned CIT(A) discussed the issue in detail considering the submissions of the assessee and dismissed the appeal of the assessee.
Aggrieved from the Order of the CIT(A), assessee filed appeal before the Tribunal. The learned Counsel reiterated the submissions made before the lower authorities and submitted that the AO has wrongly noted that the assessee has not furnished the details of the cash deposits which is completely wrong. Assessee has filed written submissions which is placed at Paper Book Page Nos.1 to 9, and is placed on record. The details were furnished which is evident from the Paper Book Page Nos.23-26 and he further submitted that the assessee is eligible for deduction under section 80P(2) of the Act. In fact the assessee was registered under the Karnataka Souharda Sahakari Act, 1997 but this issue has been put to rest by the jurisdictional Hon’ble High Court in its judgment in the case of Swabhimani Souharda Credit Cooperative Ltd. vs. Government of India reported in (2020) 122 taxmann.com 37 (Karnataka) in Writ Petition No.48414/2018 and 14381/2019, Order dated 16.01.2020 that the Souharda Cooperative Society registered in the State of Karnataka is also eligible for claim of deduction under section 80P of the Act. He further submitted that once it is treated as a Co-operative Society in terms of section 80P of the Act, following the judgment of Hon’ble High Court noted supra, the provision of section 194A(3)(v) of the Act is not applicable. As per this section of the Act, the Co-operative Societies are not required to withhold tax if the payment is made to members or any other Co-operative Society. Without prejudice, he further submitted that if the addition is confirmed under section 40(a)(ia) of the Act, the addition made will be part of the business profit. Therefore, in terms of CBDT Circular No. 37/2016 dated 02.11.2016 will apply to the assessee and such income disallowed under section 40(a)(ia) of the Act is eligible for deduction under section 80P of the Act.
On the other hand, learned DR relied on the Order of authorities and further submitted that in the case of cash deposited during demonetization period, the complete details of the members have not been filed before the AO as required and he further submitted that assessee has not satisfied the condition precedent in section 68 of the Act and stated that those members who have deposited cash with the assessee and have withdrawn immediately are required to be examined in depth.
In the rejoinder, the learned Counsel submitted that the cash was deposited by the members only in their different accounts maintained with the assessee. Therefore, it cannot be added in the hands of the assessee. It has just assisted the members as a conduit. Therefore, no addition should be made in the hands of the assessee.
Considering the rival submissions and on perusal of the entire material available on record and Orders of authorities below, it is noted that assessee is registered in the State of Karnataka in the name and style as mentioned above with the registration number under the Karnataka Souharda Act, 1997, and the assessee is not allowed deduction under section 80P of the Act on its business profit earned for the reasons that it does not fall under section 2(19) of the Act. However, this issue has been settled by the jurisdictional Hon’ble High Court in the case mentioned supra relied on by the learned Counsel in which it has been held that the entities registered under Karnataka Souharda Sahakari Act, 1997, would fit in the definition of Co-operative Society as per 2(19) of the I T Act. Therefore, deduction under section 80P(2) of the Act cannot be denied to such entities. The relevant part of the judgment is as under :
“The assessees claim to be Co-operatives registered under the provisions of the Karnataka Souharda Sahakari Act, 1997 ['Souharda
Act' for short] and engaged in the business of promoting interest of all its members. The assessees approached the Writ Court seeking declaration that the Souharda Act would fall within the meaning of the phrase 'any other law for the time being in force in any state for the registration of Co-operative Societies' inter alia seeking a direction that Income-tax Act, 1961 ['Act' for short] is not excluded from the definition clause of 2(e) of the Souharda Act. The petitioner in W.P.No.48414/2018 [W.A.No.406/2020] has also challenged the notice issued under section 148 of the Act. Thus, in substance, the prayer was that the petitioners are entitled to seek deduction in respect of their income in terms of the scheme envisaged under section 80P of the Act. Writ Court after hearing both the parties, allowed the writ petitions holding that the entities registered under the Souharda Act fit into the definition of "Cooperative Society" as enacted under section 2(19) of the Act and therefore, subject to all just exceptions, assessees are entitled to stake their claim for the benefit of section 80P of the Act. The impugned notice dated 30-3-2018 [Annexure-D] in W.P.No.48414/2018 has been quashed. Being aggrieved by the said common order, the Revenue has preferred the present appeal.”
Respectfully following the above judgment, we hold that the assessee is eligible for deduction under section 80P(2) of the Act on its business profit earned during the year. Therefore, we allow this ground. Further, in the case of addition made under section 40(a)(ia) of the Act, since we have decided that the assessee is eligible for deduction under section 80P(2) of the Act on its profits earned, therefore, the addition made under section 40(a)(ia) of the Act is also eligible for deduction under section 80P(2) of the Act, following the Circular No.37/2016 dated 02.11.2016 issued by the CBDT. Accordingly, this ground is also allowed in favour of the assessee. Further, in respect of addition made under section 68 of the Act, we found substance in the submissions of learned DR that this issue needs to be examined afresh in light of section 68 of the Act. We further direct the AO to examine in depth those accounts in which members have deposited cash and they have immediately withdrawn the money. The AO is directed to give reasonable opportunity of being heard to the assessee and decide the issue as per law and assessee is directed to substantiate its case with documentary evidence and not seek unnecessary adjudication for early disposal of the case.
In the result, appeal filed by the assessee is partly allowed for statistical purposes.