INCOME TAX OFFICER, WARD-1 & TPS, BAGALKOT vs. JYOTI CO-OP. CREDIT SOCIETY LIMITED, OPP. SBI, NAVANAGAR

At the time of hearing, the Ld.DR submitted that when there is a restriction on the number of associate/ nominal members, the deduction could not be granted when the membership of the associate/ nominal members of the assessee exceeds the limit. The Ld.DR further submitted that the deduction allowed u/s. 80P(2)(d) of the Act is also not correct in Page 4 of 12 view of the Hon’ble Juri ictional High Court judgment in case of PCIT vs. Totgars Co-operative Sales Society Ltd. The Ld.DR further submitted that the assessee was not authorised to accept the specified bank notes from its members after 08/11/2016 and therefore the addition made u/s 68 is in order. The Ld.DR also relied on the order of the Coordinate Bench of this Tribunal in ITA No. 666/Bang/2023 dated 30/11/2023. 4. The Ld.AR of the assessee submitted that the deduction claimed u/s. 80P(2)(a)(i) and 80P(2)(d) of the Act are concerned, the same is eligible for deduction in view of the judgment of the Hon’ble Supreme Court in case of Mavilayi Service Co-operative Bank Ltd. v. CIT reported in 431 ITR 1. The Ld.AR further submitted that the interest earned from the co-operative societies and co-operative banks are eligible for deduction since the co- operative banks are also a co-operative society and further submitted that the Ld.CIT(A) had relied on the various orders of this Tribunal and submitted that the relief granted by the Ld.CIT(A) are also in order. The Ld.AR further submitted that the Ld.CIT(A) had not granted the relief in respect of the interest received from the deposits made in other scheduled banks, commercial banks and any financial institutions and therefore the deduction allowed on the interest received from the co-operative banks and societies are in order. The Ld.AR further submitted that the addition made u/s. 68 of the Act for the reason that the assessee had deposited SBN notes during the demonetisation period is also not correct since the amounts deposited by the assessee are the monies deposited by the members upto 14/11/2016 from which date the assessee came to know about the RBI Notification dated 14/11/2016 prohibiting the assessee from collecting the SBN notes. Therefore whatever the amount collected from the members, were entered into the books of accounts and thereafter the said SBNs were deposited into the assessee’s bank account well before the appointed date i.e 31/12/2016 by the Government and therefore the same could not be treated as an unexplained cash credit u/s. 68 of the Act. The Ld.AR also filed a small paper book enclosing the written submissions as well as the order of the ITAT, Bangalore Bench in support of his arguments.

We have perused the assessment order as well as the Ld.CIT(A) order in respect of the denial of deduction claimed u/s. 80P(2)(a)(i) of the Act and found that the AO denied the deduction since the assessee had exceeded the permissible limit of associate / nominal members. As seen from the said finding of the AO, there is no doubt about the status of the assessee and the interest income was earned through the members. The assessee society also governed under the provisions of the Karnataka Co-operative Societies Act which permits the associate / nominal members as members of the society and the byelaws of the society also permitted the said members as members of the society. The only grievance of the AO is that because of the presence of more members, than the limit prescribed under the Karnataka Co- operative Societies Act, the assessee is not entitled for deduction u/s. 80P(2)(a)(i) of the Act. The AO had not pointed out any other defects such as the assessee is dealing with the third parties who are all not connected with the assessee society in order to deny the deduction claimed u/s. 80P(2)(a)(i) of the Act. The Ld.CIT(A) by taking into consideration all the material facts and also the judgment of Hon’ble Supreme Court cited (supra) had come to the correct conclusion that the assessee had been doing the business with its members only and therefore they are entitled for deduction u/s. 80P(2)(a)(i) of the Act. The Ld.CIT(A) had given the following findings in para 4.2.3 of its order which is extracted as below: “4.2.3 In this regard, it may be seen that the deduction under Section 80P(2)(a)(i) of the act has been allowed by the Hon'ble SC in the case of Mavilayi Service Co-operative Bank Ltd. V Commissioner of Income Tax, Calicut [2021] 123 taxmann.com 161 (SC) stating that the deduction has to be allowed irrespective of status of member, if the members are mentioned in the respective state act. In this case, the appellant is registered under 'The Karnataka State Co-operative Societies Act, 1959'. In the state act, the definition of Member given under Sec. 2 (f) of Karnataka Co-operative Societies Act also includes Nominal and Associate Member. Since, the Karnataka Co-operative

We do not find any error in the order passed by the Ld.CIT(A) since the same is in accordance with the principles laid down by the Hon’ble Supreme Court judgment cited (supra).

Further, we are of the view that the Co-operative Societies Act prescribed a ceiling on the membership and when any violation has been committed by the assessee, the authorities under the Co-operative Societies Act should take action on the assessee. Unless and until the status of the assessee has not been changed, then naturally, they are entitled for deduction on the incomes received from their members. Insofar as the order relied on by the Ld.DR, we are of the view that the said order speaks about the profits attributable to non-members and therefore the same are not eligible for deduction u/s. 80P(2)(a)(i) of the Act. In the present case, the interest income are earned from the members including the associate / nominal members who are all members of the society as per the judgment of the Hon’ble Apex Court cited (supra) and therefore the said order is of no assistance to the revenue.

On the other hand, we relied on the order of the Coordinate Bench of this Tribunal in case of Kavradi Co-operative Agricultural Bank vs. ITO in ITA No. 93/Bang/2024 dated 10/06/2024 wherein similar issue came up for adjudication and this Tribunal held that the assessee is entitled for deduction irrespective of the violation of exceeding the ceiling prescribed under the Karnataka Co-operative Societies Act. The findings of the Coordinate Bench of this Tribunal is as follows: “5.1 The first issue relates to the disallowance of deduction claimed u/s 80P(2)(i) of the Act by the AO on the basis that the assessee had violated the provisions of the Karnataka Co-operative Societies Act by having more number of nominal and associate members than prescribed under Page 7 of 12 section 18 of the Karnataka Co-operative Societies Act. We have perused the provision and found that the Act prescribed that the nominal members should not exceed 15% of the total members and not as stated by the ld AO. The statement of membership filed by the assessee shows that the nominal members are within 15% of the total members prescribed under the statute and therefore there is no violation of any of the provisions of the Karnataka Act. Further we are of the view that the ld. AO has no juri iction to look into the fact whether there is any violation committed by the assessee under the provisions of the Karnataka Cooperative Societies Act. It is for the