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Facts
The assessee, a Souharda Co-operative Society, claimed deduction under section 80P. The AO disallowed the deduction and added Rs.99,20,508/- representing cash deposits of Specified Bank Notes (SBNs) during demonetization as unexplained income. The CIT(A) deleted the addition but disallowed the 80P deduction. Both parties appealed.
Held
The Tribunal held that entities registered under the Karnataka Souharda Sahakari Act, 1997, are to be treated as co-operative societies for the purpose of section 80P deduction. The Tribunal also found that the CIT(A) correctly deleted the addition related to SBN deposits, as the assessee had explained the source and nature of the deposits.
Key Issues
Whether a Souharda Co-operative Society registered under a State Act is eligible for deduction under section 80P? Whether cash deposits of SBNs during demonetization, explained as member deposits, can be treated as unexplained income under section 68?
Sections Cited
80P, 68, 115BBE, 143(2), 156, 270A, 271AAC, 234A, 234B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI. LAXMI PRASAD SAHU & SHRI. SOUNDARARAJAN K
Per Laxmi Prasad Sahu, Accountant Member :
These cross appeals are filed by the assessee as well as Revenue as per the grounds raised by both the parties against the Order passed by the CIT(A) vide DIN and Order No.ITBA/NFAC/S/250/2022-23/1072130343(1) dated 13.04.2025.
Grounds raised by the assessee:
1. The impugned order passed by the Learned CIT(A) and AO, to the extent prejudicial to the Appellant, is not justified in law and on facts and circumstances of the case.
, 517/Bang/2025 Page 2 of 13 2. The Learned CIT(A) and AO have erred in law and on facts in passing the order against the principles of natural justice.
3. The Learned CIT(A) and AO have erred in disallowing deduction claimed under section 80P of the Act on 'SB interest' and 'other income' to the extent of Rs.21,58,400/-.
4. Without prejudice to the above, the Learned CIT(A) and AO have erred in law in taxing gross receipt by ignoring the overriding principle in tax law that it is not the gross receipt that falls to be assessed but it is only the net income after all the expenditure to earn the income is deducted, that can be assessed to tax.
5. The Learned CIT(A) and AO have erred in not applying the principle of netting.
6. The Learned CIT(A) and AO impugned adjustments being merely based on presumption and surmises, are to be deleted.
The Learned CIT(A) and AO have erred in raising demand vide issue of notice under section 156 of the Act.
8. The Learned CIT(A) and AO has erred in levying intere'st under section 234Aand 234B of the Act.
9. The Learned AO has erred in initiating penalty proceedings by issuing of notice under section 270A of the Act.
10. The Learned AO has erred in initiating penalty proceedings by issuing of notice under section 271AAC of the Act.
Grounds raised by theRevenue :
1. On the facts and in the circumstances of the case and in law the ld. CIT(A)/NFAC erred indeleting the addition made u/s 68 of Rs. 99,20,508/- ignoring the fact that the assessee was not authorized to accept specified bank notes from its members.
2. On the facts and in the circumstances of the case and in law the ld. CIT(A)/NFAC erred in deleting the addition made u/s 68 of Rs. 99,20,508/- without appreciating the fact that the assessee society had brought into its books of account entries pertaining to SBNs which were no longer legal tenders at the time of making the said entries after 08.11.2016
3. Any other ground that may be raised subsequently.
2. Assessee has challenged the CIT(A)’s Order for not granting deduction under section 80P of the Act and not treating it as a Co-operative Society registered under the Co-operative Societies Act. The Revenue has challenged the deletion of Rs.99,20,508/- towards cash deposited during the demonetization , 517/Bang/2025 Page 3 of 13 period by the members in the assessee’s members account and it was added by the AO under section 68 of the Act.
Briefly stated the facts of the case are that assessee filed its return of income on 18.10.2017 declaring total income of Rs.Nil, after claiming deduction under section 80P(2)(a)(i) of the Act of Rs.21,58,400/-. Subsequently, the case was selected for scrutiny under CASS by way of issue of notice under section 143(2) of the Act dated 09.08.2018 and served to the assessee. Subsequently, other statutory notices were issued to the assessee. In pursuance of the notice, assessee submitted details. On perusal of the submissions, it was observed that the assessee has claimed deduction under section 80P of the Act and has also accepted & deposited cash during the demonetization period in specified Bank Notes( SBNs). In this regard, a show cause notice dated 12.12.2019 was issued to the assessee and was asked to submit reply by 17.12.2019. The contents of the show cause notice is reproduced by the AO in the Assessment Order. It was further observed that the assessee is registered as a souhadra Co-Operative Society under the Souharda Credit Co-operative Society in Karnataka. Since the assessee is not registered under the Karnakata Co-operative Societies Act, therefore, deduction u/s 80P claimed by the assessee was disallowed. Further, it was noticed that during the demonetization period as per the gazette notification No.2652 dated 08.11.2016 that the Specified Bank Notes (SBN) shall seize to be legal tender w.e.f. 09.11.2016 and the assessee was not authorized to collect the SBNs in the currency of Rs.500 and Rs.1000. However, the assessee has accepted and deposited it into various bank accounts as under:
In this regard, assessee submitted that these SBNs were receved from members and deposited in their savings account, loan account, RD, pigmy, etc. maintained with the assessee by its members. It is not the money of the assessee. The money was deposited by its members and therefore the assessee did not got any benefit on the same. The AO treated the entire amount of Rs.99,20,508/- as unexplained money and taxed under section 115BBE of the Act.
Aggrieved from the above Order, assessee filed appeal before the CIT(A). Assessee submitted detailed written submissions before CIT(A). After considering the submissions of the assessee, assessee did not allow deduction under section 80P(2)(a)(i) of the Act and he deleted the addition made under section 68 of the Act of Rs.99,20,508/-.
Aggrived from the above Order of the CIT(A), both the parties have filed appeal before the Tribunal.
, 517/Bang/2025 Page 5 of 13 7. During the appellate proceedings, the learned Counsel reiterated the submissions made before the lower authorities and he has filed written synopsis before us which is considered and placed on record.
In addition to the above, he submitted that the jurisdictional High Court has dealt this issue that SouhardaSahakari Samithi registered under the Souharda Co-operative Societies Act are to be treated equally as Co-operative Society registered under the Karnataka Co-operative Societies Act and it has been held that the Souharda Co-operative Society is also eligible for deduction under section 80P of the Act. In respect of Revenue’s appeal, assessee relied on the Order of the learned CIT(A).
The learned DR, regarding the grounds raised by the assessee, relied on the Order fo the lower authorities and in the case of Revenue’s appeal, relied on the Order of the AO and strongly submitted that the assessee was not authorized to accept the SBNs. However, it has accepted and deposited the same in various banks. As per the notification of the Government of India and Reserve Bank of India, the currency of Rs.500 and Rs.1000 seized as legal tender w.e.f. 09.11.2016 despite the fact, the assessee has accepted which are not legal tender. Therefore, the AO has correctly made the addition.
Considering the rival submissions, regarding the assessee’s appeal with regard to not granting deduction under section 80P of the Act treating it as not equivalent to registered under the Karnataka Co-operative Societis Act, we noted from the documents available before us and Order of the authorities below that the assesseeis registered under the Karnataka Souharda Co-operative Societies Act and the assessee has not been given benefit of section 80P of the Act. However, this issue has been put to rest by the Hon’ble jurisdictional High Court in the case of Swabhimani Souharda Credit Co-operative Vs. UoI reported in (2020) 122 taxmann.com 37 (Karnataka) in which it has been held as under:
“5. Having heard the learned counsel for the parties and having perused the petition papers, this Court is of a considered opinion that the answer to the above question needs to be in the affirmative for the following reasons: (a) sec. 80P of the 1961 Act provides for deduction in respect of income of Co-operative Societies is obvious going by its very text; sub-section (1) of said section reads as under: "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." The other provisions of this section being not of much relevance to the question being treated, are not reproduced, although they too have been looked into. Sec. 2(19) which finds a place in the Dictionary Clause of the 1961 Act reads as under: 'co-operative society" means a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies;' The provisions of sec.80P are enacted by the Parliament for promoting the co-operative movement in the Country in tune with what Father of the Nation Mahatma Gandhi preached to the countrymen; this Section needs to be liberally construed to effectuate the legislative object of encouraging & promoting the growth of co- operative movement vide Kanga & Palkhivala's The Law and Practice of Income Tax, 10th Edition, LexixNexis at page 1656; it is more so because the right to form a co- operative society itself is made a Fundamental Right, now enshrining in Article 19(1)(i) by virtue of 97th Amendment to the Constitution of India w.e.f. 15-10-2013; , 517/Bang/2025 Page 7 of 13 (b) the object of enacting sec.80P of the 1961 Act may be defeated if a restrictive meaning is assigned to the definition of "co-operative society" as given u/s.2(19) inasmuch as the invokability of the provisions of sec.80P is dependent upon the entity seeking the benefit thereunder being a co- operative society; going by the text and context of these provisions, one can safely conclude that all entities that are registered under the enactments relating to co- operative societies, regardless of their varying nomenclatures need to be treated as co-operative societies; this view accords with the purposive construction of sec.80P r/w sec.2(19) of the 1961 Act; (c) in the State of Karnataka, there have been two statutes enacted by the State Legislature that relate to registration & regulation of co-operative societies viz., the Karnataka Co-operative Societies Act, 1959 ie., Karnataka Act No. 11 of 1959 and the Karnataka Souharda Sahakari Act, 1997 ie., Karnataka Act No. 17 of 2000; both these Acts are enacted pursuant to Article 246(3) r/w Entry 32, List-II of Schedule VII of the Constitution of India; there is no other Entry to which this Act is relatable; the Legislative Entries being only the fields of legislation need to be very broadly interpreted, is the settled position of constitutional jurisprudence videUjagar Prints v. Union of India 1986 taxmann.com 529 (SC); Chapter X of 1997 Act containing sec.67 enacts important co-operative principles that animate and brood through almost all the provisions of this Act; (d) the Karnataka Souharda Sahakari Bill, 1997 has the following as the Statement of Objects & Reasons: "1. the recognition, encouragement and voluntary formation of co-operatives based on self help, mutual aid, wholly owned, managed and controlled by members as accountable, competitive, self-reliant and economic enterprises guided by co-operative principles specified therein; , 517/Bang/2025 Page 8 of 13 2. removing all kinds of restrictions that have come to clog the free-functioning of the cooperatives and the controls and interference by the Government except registration and cancellation; 3. promotion of subsidiary organization, partnership between co-operatives and also collaboration between co- operatives and other institutions; 4. registration of co-operatives, union cooperatives and Federal Co-operative in furtherence of the objectives specified above; 5. Conversion of co-operative societies registered under the Karnataka Co-operative Societies Act, 1959 as a co- operative under the proposed legislation. Hence the Bill." (e) the preamble to the 1959 Act reads as under: "Whereas it is expedient (to promote voluntary formation, autonomous functioning, democratic control and professional management of co-operative societies) in the State of Karnataka; Be it enacted by the Karnataka State Legislature in the Tenth Year of the Republic of India as follows-" Similarly, the preamble to the 1997 Act reads as follows: "Whereas it is expedient to provide for recognition, encouragement and voluntary formation of co- operatives based on self-help, mutual aid, wholly owned, managed and controlled by members as accountable, competitive, self-reliant and economic enterprises guided by co-operative principles and for matters connected therewith; Be it enacted by the Karnataka State Legislature in the Forty-eighth Year of Republic of India as follows-".
, 517/Bang/2025 Page 9 of 13 A perusal of these two preambles and various provisions of these two Acts leads one to an irresistible conclusion that both these Acts are cognate statutes that deal with cooperative societies, regardless of some difference in their nomenclature and functionality, the subject matter being the same. (e) the word 'co-operative' is defined by sec.2(d-2) of 1959 Act as under: "2(d-2): 'Co-operative' means a Co-operative registerd under the Karnataka Souharda Sahakari Act, 1997 (Karnataka Act 17 of 2000), and includes the Union Co- operative and the Federal Co-operative" Similarly, the word 'co-operative' is defined by Sec. 2(e) of 1997 Act as follows: "2(e): "Co-operative" means a co-operative including a co- operative bank doing the business of banking registered or deemed to be registered under section 5 and which has the words 'Souharda Sahakari' in its name (and for the purposes of the Banking Regulation Act, 1949 (Central Act 10 of 1949), the Reserve Bank of India Act, 1934 (Central Act 2 of 1934), the Deposit Insurance and Credit Guarantee Corporation Act, 1961 (Central Act 47 of 1961) and the National Bank for Agriculture and Rural Development Act, 1981 (Central Act 67 of 1981), it shall be deemed to be a Co- operative Society". A close examination of these two definitions shows that they have abundant proximity with each other in terms of content and contours; it hardly needs to be stated that in both these definitions the word 'co-operative' is employed not as an adjective but as a noun; the definition of other relative concepts in the dictionary clauses of these Acts strengthens this view; this apart, sec.7 of the 1997 Act provides that the entity registered as a 'co-operative' shall be a body corporate, notwithstanding the conspicuous absence of the word 'society' as a postfix; sec.9 of the 1959 Act makes the entity once registered u/s.8 thereof a body corporate; both , 517/Bang/2025 Page 10 of 13 the entities have perpetual succession by operation of law; thus on registration be it under the 1959 Act or the 1997 Act, a legal personality is donned by them, so that inter alia they can own and possess the property; (f) the employment of the word "Sahakari" in the very title of the 1997 Act is also not sans any significance; 'Sahakaar' in Sanskrit is the equivalent of 'sahakaara' in Kannada which means 'co-operation'; as already mentioned above both the 1959 Act and the 1997 Act employ this terminology; the 1997 Act is woven with the principles of co-operation; sec.4 of this Act bars registration of an entity unless its main objects are to serve the interest of the members in the area of co-operation and its bye-laws provide for economic and social betterment of its members through self-help & mutual aid in accordance with the cooperative principles; this apart, even sub-section (2) of sec.4 is heavily loaded with co-operative substance. In the above circumstances, these writ petitions succeed; a declaration is made to the effect that the entities registered under the Karnataka Souharda Sahakari Act, 1997 fit into the definition of "co- operative society" as enacted in sec.2(19) of the Income-tax Act, 1961 and therefore subject to all just exceptions, petitioners are entitled to stake their claim for the benefit of sec.80P of the said Act; a Writ of Certiorari issues quashing the impugned notice dated 30-3-2018 at Annexure-D in W.P.No.48414/2018; other legal consequences accordingly do follow. It is needless to mention that the other provisions of sec. 80P of 1961 Act and their effect on the claim of the petitioner-like-societies have been left to be addressed by the concerned authorities.”
Respectfully following the above judgment, we hold that the assessee is eligible for deduction under section 80P of the Act the and AO is directed to allow deduction under section 80P of the Act on the eligible profits.
During the course of hearing, learned Counsel for the assessee did not press grounds 3 and 4. Therefore, these grounds are dismissed as not pressed. Further, in the case of Revenue’s appeal regarding deletion of Rs.99,20,508/-, on , 517/Bang/2025 Page 11 of 13 careful perusal of the Order of the learned CIT(A), the learned CIT(A) has decided this issue as under:
“5.2 As regards ground of appeal no.2 against the addition of Rs.99,20,508/- u/s 68rws 115 BBE of the Act. appellant submitted during the appellate proceedings that cash received from its members towards their deposit account, daily deposit, loan recovery during the demonetization period. Information about the said collection was also submitted to the AO in the form of cash transaction 2016 report. He further submitted that in most of the cases amount received is in the range of Rs.500 to Rs.2,50.000 and none of its members deposited cash in excess of Rs.2,50,000/-. The major portion of the said amount is received in the normal course of business activities of the Society. The amounts were received from identifiable persons / members who are KYC compliant and having PAN. Appellant further submitted that CBDT has framed SOP for completing assessment of cash deposit accounts titled as `Operation Clean Money'. As per SOP, ultimate beneficiary of cash transactions should be established and the AO were instructed to forward such information to his counterpart who has jurisdiction over such beneficiary and such AO will carry on the assessment on such ultimate beneficiary. Appellant further submitted that it has accepted such amount in their fiduciary capacity as per the aims and objects of the society and cash deposited in the bank account is not owned by society. Thereby, appellant submitted that it has explained the nature, source of amount received from member who are KYC compliant and maintained books of account and recorded the cash received in the accounts. Appellant also submitted that statement showing month-wise cash deposit in bank accounts for the entire financial year 2016-17 which consist of demonetization period. As per SOP, if there is abnormal increase in cash deposit in bank account during demonetization period then in such cases the officers were instructed to prove and complete assessment accordingly. However, AO made addition u/s.68 of the Act by making observation that the assessee society has accepted SBN notes in violation of notification issued by RBI. AO further held that appellant failed to prove that the cash deposited during the demonetization period are normal business receipts and concealed its true income which otherwise is taxable and held that the deposits are undisclosed income and made addition of Rs.99.20,508/- u/s 68of the IT Act. This action of the AO is not correct consideringthe nature and source of cash deposits were clearly explained by the appellant by furnishing details of accounts in which cash was deposited by its members. If AO has any doubt about the ownership of the cash as contended by the , 517/Bang/2025 Page 12 of 13 appellant, he would have very well-made verification u/s. 133(6) / 131 and brought out the evidences pertaining to undisclosed nature of the cash deposits made by the appellant. On perusal of the assessment order, there is no such efforts made by the AO and his only premise was appellant accepted SBN notes contrary to the RBI Guidelines. Merely because SBN notes are accepted, same does not become undisclosed income as no violation of any of the provisions of the IT Act attracting taxation u/s.68 of the IT Act. Acceptance of deposits from the members by the appellant society, the society is not obliged to question the source of deposit as there is no nexus between depositors and the society as long as the account is KYC complied. Further, if AO has any doubts about any members depositing the cash as unexplained, he would have very well communicated the information to his counterpart who has jurisdiction over such member following the SOP issued by the CBDT. However, AO failed to do the same. AO has not brought any material stating that cash deposits made in each account has crossed more than 2.5 lac per member. During the period of demonetization, CBDT /Income-tax Department gave a statement that IT Department will not question the persons who has deposited cash upto 2.5 lacs in their accounts. This also goes against the observation made by the AO against the appellant society. In view of that there is no case for AO to consider cash deposits made by the appellant in its bank accounts obtained from its members who are KYC compliant as undisclosed income U/s.68. Therefore, the addition made by the AO of Rs.99,20,508/- u/s 68rws115BBEof the IT Act is hereby deleted. The ground of appeal no.2 is allowed.
6. In the result, appeal is partly allowed.”
13. On going through the above Order of the learned CIT(A), we noted that the members of the society have deposited their money in their accounts maintained with the assessee in different kind of accounts and the learned CIT(A) has examined that the members have furnished KYC and PAN and the members income is less than Rs.2,50,000/-. Accordingly, we do not find any infirmity in the Order of the learned CIT(A) and we find that he has done a good reasoned Order. Hence, we are dismissing the appeal of the Revenue as per above terms.
, 517/Bang/2025 Page 13 of 13 14. In the result, appeal of the assessee is partly allowed and appeal of the Revenue is dismissed.. A copy of the judgment be kept in the respective appeal files.
Pronounced in the court on the date mentioned on the caption page.