BASAVAN BAGEWADI TALUKA PRIMARY TEACHERS CO-OPERATIVE SOCIETY LIMITED,BIJAPUR vs. INCOME TAX OFFICER, WARD-1, & TPS, , BIJAPUR

First, we take ITA No.869/Bang/2024 for the AY 2020-21 as the lead case. The grounds of appeal as raised by the assessee in this appeal are as follows:

Brief facts of the case are that the assessee is a credit co- operative society filed its return of income for the assessment year 2020-21 on 24.12.2020 declaring total income of Rs.Nil after claiming deduction u/s 80P(2)(a)(i) of the Act amounting to Rs.96,40,390/-. The assessee case was selected for scrutiny under CASS. Accordingly, notices u/s 143(2) as well as 142(1) of the Act were issued calling for information from time to time for which the assessee filed reply. During the course of assessment proceedings, the AO found that the assessee has claimed deduction u/s 80P(2)(a)(i) of the Act amounting to Rs.96,40,390/-. Thereafter, a show cause letter dated 7.9.2022 was issued to the assessee for which the assessee filed its reply on 8.9.2022 and 13.9.2022. 3.1 The assessee submitted that main business of the society is lending to its members and hence earning interest is the main source of business. Further, assessee submitted that whenever there is an idle fund due to no advance in the month, the society used to keep them in the short-term deposit with banks. Further, the assessee submitted that even as per the rules, the society have to keep the RFD with VDCC Bank as per the Karnataka Government Society Act and therefore, interest earned on the deposit with bank are its business income. The AO after considering the reply of the assessee held that the basic condition for claiming deduction u/s 80P(2)(a)(i) of the Act being a cooperative society is to provide credit facilities to its members only. However,

2 Aggrieved by the assessment completed u/s 143(3) r.w.s. 144B of the Act dated 20.9.2022, the assessee preferred an appeal before the ld. CIT(A)/NFAC.

3 During the course of appellate proceedings, the assessee furnished the details of registered members of the society and bank statements along with the breakup of interest earned from members and interest earned from co-operative banks but could not submit the breakup of investment or the exigencies by which it was required statutorily to put the surplus money as investment with co-operative banks. The Ld. CIT(A)/NFAC following the judgement of the Hon’ble Apex court in the case Mavilayi Service Co-operative Bank Ltd. (431 ITR 1) (SC) as well as Hon’ble High Court of Karnataka in the case of Principal CIT Vs. Totgars Co-operative Sale Society (2017) (395 ITR 611) held that the assessee is not entitled to deduction either u/s 80P(2)(a)(i) of the Act or u/s 80P(2)(d) of the Act in respect of interest income from Co-operative Banks/scheduled banks and directed the AO to consider the interest earned as “income from other sources” and not to allow the deduction u/s 80P(2)(d) as well as u/s 80P(2)(a)(i) of the Act on such interest income and accordingly partly allowed the appeal of the assessee.

4. Aggrieved by the order of ld. CIT(A)/NFAC, the assessee has filed the present appeal before this Tribunal. The assessee has also filed paper book comprising 130 pages enclosing therein the written submission as well as various case laws relied upon by them.

Before us, the ld. A.R. of the assessee submitted that the deposits made with co-operative banks and district co-operative banks are out of the statutory obligations and the assessee society have to keep the RFD with VDCC bank as per the Karnataka Government Society Act and it is not a voluntary investment intended to earn interest income and accordingly interest on deposit with banks are the business income of the assessee society. Further, AR of the assessee submitted that as per section 57(2) of the Karnataka State Co-operative Act, 1959, Co-operative societies are required to set aside 25% of their net profit every year as a reserve which must be mandatorily invested as per section 58 of the same Act. The ld. A.R. argued that since these deposits are not freely available for the daily business of the society, and cannot be withdrawn without prior approval from the