UDUPI TALUK PROTESTANT CHRISTIAN CREDIT CO-OPERATIVE SOCIETY LIMITED ,UDUPI vs. INCOME TAX OFFICER, WARD-1, , UDUPI

ORDER

PER SOUNDARARAJAN K., JUDICIAL MEMBER

1. Whether on the facts and in the circumstances of the case, the appellate authority was justified in denying the benefit of deduction u/s. 80P(2)(a)(i) of the Act to the appellant holding the 'concept of mutuality' was dislodged in appellant society.

2. Whether or not the appellant is entitled for deduction in respect of its Business profits of Rs. 64,36,986/- u/s. 80P(2)(a)(i) of the Act considering Sec. 2(f) and Sec. 60 of Karnataka Co-operative Societies Act, 1959 vis-à-vis the judgement of Hon'ble Apex Court in The Mavilayi Service Co-op. Bank Ltd. & Ors. vs. C.I.T. Calicut & anr. [Civil Appeal No. 7343-7350/2019.] 3. Without prejudice, the appellant is entitled for deduction in respect of the income from Business that arose to it from its Associate Members to the extent of permissible cap specified under Sec. 18 of Karnataka Co-operative Societies Act, 1959 and only the excess income beyond the permissible cap is chargeable u/s. 56 of the Act subject to deduction against it for administrative expenses u/s. 57(iii) of the Act.

4. Whether the appellate authority was justified in sustaining the addition made by the Respondent in the impugned order disallowing the Provision for Employees Gratuity Fund Rs. 8,22,430/- and Legal fees of Rs. 42,750/- aggregating to Rs. 8,65,180/- even when CBDT Circular No. 37/2016 dated 02-11-2016 gives the relief in respect of any disallowance of business expenditure by way of deduction under Chapter — VI A of the Act to the extent profits so enhanced by such disallowance.

5. Both the authorities below passed the impugned Orders contrary to established principles laid down by the Hon'ble Supreme Court and jurisdictional High Court.”

2. The assessee is a co operative credit society registered under the provisions of the Karnataka Co-operative Societies Act and providing credit facilities to its members. During the A.Y., the assessee filed their return of income declaring a total income of Rs. 31,090,/- and claimed a deduction of Rs. 99,02,248/- under the provisions of section 80P(2)(a)(i) of the Act. In the assessment, the AO disallowed the deduction claimed by the assessee u/s. 80P(2)(a)(i) of the Act on the ground that the assessee had also transacted with nominal members who are all general public. Further, the AO had 3. As against the said order, the assessee filed an appeal before the Ld.CIT(A) and contended that the deduction claimed u/s. 80P is in order since the nominal members are also classified as members in the byelaws as well as under the provisions of the Karnataka Co-operative Societies Act. Insofar as the addition made u/s. 40A(7)(b) of the Act, the assessee contended that it is against the above said provision and insofar as the addition made by disallowing 30% of the legal fees for not deducting the TDS, the assessee submitted that even after the addition made to the total income, the same again qualified for deduction under section 80P of the Act and therefore no tax effect would be there by adding this 30% to the total income. The Ld.CIT(A) considered the grounds and dismissed the appeal by stating that the assessee had given loans to general public who are all nominal members. Insofar as the addition made on the provision for employees gratuity fund, the Ld.CIT(A) had relied on the provision and confirmed the addition. Similarly, in respect of the 30% deduction made u/s. 40(a)(ia) of the Act, the Ld.CIT(A) had observed that the disallowance made by the AO is in accordance with the provision. As against the said order of the Ld.CIT(A), the assessee is in appeal before this Tribunal.

In view of the above said circular, we are remitting this issue to the file of AO to pass orders afresh by considering the above said circular.

Order pronounced in the open court on 09th January, 2025.