SHRI MAHAVEER CO-OPERATIVE CREDIT SOCIETY LTD,ALAGUR vs. INCOME TAX OFFICER, ALAGUR

should be allowed to the assessee, (ii) Further the disallowance of Rs.75,000 was confirmed for non-deduction of tax at source for the audit fees.
3. Briefly stated the facts of the case show that assessee is registered under the Karnataka Co-operative Societies Act [KCS Act] , filed its return of income on 16.5.2017 declaring gross total income of Rs.19,10,651 and claimed deduction u/s. 80P(2)(a)(i) of the same amount resulting into taxable income at Nil. The return of income was picked up for scrutiny by issue of notice u/s. 143(2) on 17.8.2018. During the course of assessment proceedings, the ld. AO disallowed the entire deduction u/s. 80P(2)(a)(i) relying on the decision of Hon’ble Supreme
Court in the case of Citizen Co-operative Society Ltd. In the assessment order, the ld. AO held that in view of the decision of Hon’ble Supreme Court in the case of Citizen Co-operative Society, the assessee is not entitled to deduction u/s.
80P(2)(a)(i). With respect to interest income from investment in other co- operative banks also, interest income earned from Belgaum District central
Cooperative bank Limited of Rs 20,88,556/- was not allowed as deduction u/s 80P (2) (d) of the Act. Further it was also found that assessee has debited a sum of Rs.75,000 towards audit fees, but did not furnish any details for TDS, therefore
30% of 75,000 i.e., Rs.22,500 was further disallowed. Accordingly assessment order was passed u/s. 143(3) of the Act on 29.11.2018. Accordingly, total income of was computed at Rs.19,33,151/-.
4. The assessee aggrieved with the same, preferred appeal before the ld. CIT(A). It was submitted that the amount of investment made by the assessee is in terms of provisions of KCS Act and therefore assessee is entitled to deduction u/s.
80P(2)(a)(i) of the Act on the whole of the income. It was further stated that BDCC Bank is prima facie a co-operative society and as per Banking Regulation
Act, it is a co-operative bank being a co-operative society carrying on the business of banking. Therefore, interest income earned by the assessee from that bank is eligible for deduction u/s. 80P(2)(d) of the Act. With respect to the disallowance u/s. 40(a)(ia) on account of non-deduction of tax at source, the audit
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fees paid of Rs.75,000, the assessee contested that recipient of the income has already offered the same as income of the recipient and therefore no disallowance can be made.
5. The ld. CIT(A) confirmed the disallowance u/s. 80P(2)(a)(i) and held that deduction u/s. 80P is allowable to the society that provides credit facilities to its regular or nominal members only and not to anybody else. With respect to deduction u/s. 80P(2)(d) on interest income of Rs.22,02,796 from BDCC Bank, he held that interest income is received from a co-operative bank and the meaning of the word “co-operative society” cannot be extended to include the co-operative banks also. Accordingly deduction u/s. 80P(2)(d) was also denied. Regarding disallowance of audit fees, he held that no Form 26A issued by the auditor of recipient to prove his claim that auditor has offered the income for taxation, disallowance was confirmed.
6. Accordingly assessee is in appeal before us. The ld. AR submitted a paperbook containing 91 pages and also a case law compilation of 8 different authorities.
The ld. AR submitted that the ld. CIT(A) has confirmed the disallowance without verifying the facts of the case, but merely relied upon the decision of the Hon’ble
Supreme Court and has not considered the mutuality concept of the society. He submitted that as per section 18 of the KCS Act, even nominal and associate members are also valid members of the society and any business done with associate members does not violate the mutuality concept. Further the business done with nominal members is hardly 1.82% of the total business. He further relied upon the decision of the coordinate Bench dated 10.11.2022 wherein the coordinate Bench has remanded the case back to the AO to consider and then allow the claim u/s. 80P(2)(a)(i) of the Act. It was further contested that even otherwise on the interest income from BDCC Bank amounting to Rs.20,88,556, the ld. AO has not given any deduction wherein according to KCS Act, 25% of the profit is required to be invested into statutory reserve fund with BDCC Bank.
It is an investment with Apex Bank. Even otherwise, it is a co-operative society
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carrying on the business of banking and interest therefrom is eligible for deduction u/s. 80P(2)(d) of the Act. With respect to disallowance of 30% of audit fees, it was submitted that no opportunity was provided to the assessee to produce the relevant forms that recipient of the income has offered the income for taxation.
7. The ld. DR vehemently supported the orders of the ld. lower authorities and submitted that assessee is correctly denied deduction u/s. 80P(2)(a)(i) and 80P(2)(d) of the Act. He relied on the decision of Honourable Supreme court in case of Citizen Cooperative bank Ltd and decision of Honourable Karnataka High court in case of Totgars Cooperative Society Ltd. Further with respect to disallowance of audit fees, as the assessee failed to submit declaration from the recipient of income that they have offered the above sum as income in their return of income, no infirmity can be pointed out in the order of the ld. lower authorities.
8. We have carefully considered the rival contention and the orders of the ld. lower authorities. The assessee is a co-operative society registered under the Karnataka state co-operative societies Act. Fact stated before us shows that out of the total loan granted by the assessee only 1.81% of the total loan is granted to associate members and 98.18 percentage of the loan is granted to the regular members. It is also a fact that the