GOPMAHAL SAMABAY KRISHI UNNAYAN SAMITY LTD.,PASCHIM MEDINIPUR vs. ACIT, CIR. 38, MIDNAPUR

PER RAKESH MISHRA, ACCOUNTANT MEMBER:

The captioned appeals filed by the assessee are against separate orders of the Commissioner of Income Tax (Appeals)-NFAC, Delhi
[hereinafter referred to as “the Ld. CIT(A)”] passed u/s 250 of the Income
Tax Act, 1961 (hereinafter referred to as “the Act”) for AY 2015-16 &
2017-18 respectively dated 09.06.2023, which have been passed
I.T.A. Nos.: 76 & 77/KOL/2024
Assessment Years: 2015-16 & 2017-18
Gopmahal Samabay Krishi Unnayan Samity Ltd.
Page 2 of 17

against the assessment orders u/s 143(3) of the Act dated 11.12.2017
and 24.12.2017, respectively.
2. The Registry has informed that both the appeals filed by the assessee are barred by limitation of time by 161 days. The assessee has filed an application seeking condonation of delay dated 06.01.2024
which is as under:
“This is to certify that we have no formal Board of Directors since
14/03/2018. At present the Co-operative Society has neither any Board of Director nor Special officer to take any higher decision. So we were confused that whether to file an Appeal in the Hon’ble Income Tax Appellate Tribunal or not.
In the meantime, as per guidance of our Tax consultant, we filed a ‘Rectification of orders passed by CIT’ (Rectification Reference Number:
344103570020723) as on 2nd July, 2023 and was waiting for reply from respective Authority. But no reply has been received till date.
Therefore it is very difficult for us to take any decision to file an appeal before
The Hon’ble Income Tax Appellate Tribunal, Kolkata. Finally in discussion with our Ex-Board of Directors, we decided to file an appeal before The Hon’ble Income Tax Appellate Tribunal, Kolkata.
Hence there is 160 days delay in filing the appeal which may be condoned.”
2.1. Considering the application for condonation of delay and the reasons stated therein, we are satisfied that the assessee was prevented by reasonable and sufficient cause from filing the instant appeals within statutory time limit. We, therefore, condone the delay and admit the appeals for adjudication on merit.
3. The assessee is in appeal before the Tribunal raising the following grounds of appeal:
I. I.T.A. No.76/KOL/2024; AY 2015-16
“1. That the learned Commissioner of Income tax (Appeals), National
Faceless Appeal Centre, Delhi was not justified in upholding the action of the Assessing Officer denying the deduction of Rs. 18,12,400/- u/s.
80P(2)(a)(i) and 80P (2)(a)(iv) of the Income Tax Act, 1961 although the I.T.A. Nos.: 76 & 77/KOL/2024
Assessment Years: 2015-16 & 2017-18
Gopmahal Samabay Krishi Unnayan Samity Ltd.
Page 3 of 17

assessee is not a Co-operative bank, but a Primary Agricultural Co-operative
Society.
2. That the learned Commissioner of Income tax (Appeals), National Faceless
Appeal Centre, Delhi erred in law as well as in facts, in not allowing the deduction u/s.80P(2)(a)(i) to the extent of the profit earned on providing credit facilities to its members.
3. That on the facts and in the circumstances of the case, the learned
Commissioner of Income tax (Appeals), National Faceless Appeal Centre,
Delhi was wrong in facts and law in not allowing the deduction u/s.80P(2)(a) (iv) to the extent of the profit earned on supplying the agricultural implements, seeds, livestock or other articles intended for agriculture to its members.
4. That on the facts and in the circumstances of the case the learned
Commissioner of Income tax (Appeals) should have allowed the deduction u/s.80P(2)(d) to the extent of whole income by way of interest or dividends derived by the society from the investments with other co-operative societies.
5. That on the facts and in the circumstances of the case the learned
Commissioner of Income tax (Appeals) should have allowed the expenditure of “Provision of Gratuity Payable” of Rs.3,00,000/- u/s 40A(7) of The Income
Tax Act,1961 as the assessee maintained its books of accounts on accrual basis, it should be allowed as expenditure paid or payable. There is no sense to add back the ‘Provision of Gratuity Payable’ with the profit because, the appellant is a Primary Agricultural Co-operative Credit Society and is eligible to claim deduction of its 100% profit u/s 80P (2) under Chapter
VI-A.
The relevant portion of the Circular No.37 2016 dated 02 11 2016 issued by the Central Board of Direct Taxes, Department of Revenue, Ministry of Finance, Government of India, relating to the subject Chapter VIA deduction on enhanced profits, is quoted hereunder The issue of the claim of higher deduction on the enhanced profits has been a contentious one. However, the courts have generally held that if the expenditure disallowed is related to the business activity against which the Chapter VIA deduction has been claimed, the deduction needs to be allowed on the enhanced profits.
6. The hearing notice under section 250 has been served thru email on 01
06 2023 was not received by the appellant. Because it was communicated to very old email id which is not at their profile as primary email id. The primary email id is different. Even the appeal order has been served again to the wrong email id, The appellant found the Appeal order only after logged in to their income tax portal Therefore there was no communication to appellant email id. Therefore, the appeal order is invalid without given any opportunity of being heard.
I.T.A. Nos.: 76 & 77/KOL/2024
Assessment Years: 2015-16 & 2017-18
Gopmahal Samabay Krishi Unnayan Samity Ltd.
Page 4 of 17

The relevant portion of the Circular No.37 2016 dated 02 11 2016 issued by the Central Board of Direct Taxes, Department of Revenue, Ministry of Finance, Government of India, relating to the subject Chapter VIA deduction on enhanced profits, is quoted hereunder. The issue of the claim of higher deduction on the enhanced profits has been a contentious one. However, the courts have generally held that if the expenditure disallowed is related to the business activity against which the Chapter VIA deduction has been claimed, the deduction needs to be allowed on the enhanced profits.
6. The hearing notice under section 250 has been served thru email on 01.06.2023 was not received by the appellant. Because it was communicated to very old email id which is not at their profile as primary email id. The primary email id is different. Therefore there was no communication to appellant. Even the appeal order has been served again to the wrong email id, The appellant found the Appeal order only after logged in to their income tax portal. Therefore the appeal order is invalid without given any opportunity of being heard.
7. That in exercise of the power to grant deductions under aforementioned subsections of Section 80P of the Income Tax Act, 1961, the learned
Commissioner of Income tax (Appeals) should have applied his judicial mind and examine the records of the case and could have come to the conclusion that the conditions precedents u/s 80P were satisfied and requirements of law are fulfilled on the facts and circumstances of the case
8. That the Penalty Proceeding u/s. 270A of the Income Tax 1961, will not be initiated as there was no under reporting of Appellants Income as the accounts has been audited by Co-operative Auditor, Government of West
Bengal.
9. That the appellant craves leave to supplement, amend, add, substitute, cancel, delete or otherwise modify all or any of the grounds herein before or at the time of hearing, if necessary, so arises.”
4. We will first take up the appeal for A.Y. 2015-16. Brief facts of the case are that the assessee had filed the return of income for the AY
2015-16 disclosing total income of Rs. ‘NIL’ and the case was selected for limited scrutiny under CASS. The assessee is a Samabay Krishi
Unnayan Samity i.e. a Credit Cooperative Society working in Ghatal.
The assessee had computed net profit at Rs. 18,12,404/- and the entire amount was claimed as deduction u/s 80P of the Act. In the course of assessment proceedings, it was noted by Ld. AO on verification of the I.T.A. Nos.: 76 & 77/KOL/2024
Assessment Years: 2015-16 & 2017-18
Gopmahal Samabay Krishi Unnayan Samity Ltd.
Page 6 of 17

books of account that the assessee Society had earned income by providing credit facility to outsiders i.e. non-members as well. Therefore, the Ld. AO issued a show cause notice to the assessee requiring the assessee to explain as to why the deduction as claimed u/s 80P of the Act should not be disallowed. It was also required to explain why the income should not be computed after disallowing deduction on account of gratuity payable and provision for leave salary. The assessee responded that it was a Primary Agricultural Credit Society and the banking business was not governed by the Banking Regulation Act,
1949 and the same was mentioned in the bye-laws. It was stated that the banking business and its area of operation was confined to a taluk and the principal object of which was to provide for long term credit for agricultural and rural development activities. It was stated that in banking business the area was limited but the customers could not be limited to members only and non-members were also customers. The assessee disputed the applicability of the decision in the case of Citizen
Co-Op Society Ltd. vs. ACIT, Circle-9(1), Hyderabad as they have multi-states banking business. A reference was also made to the clarification made by the CBDT vide Circular No. 133 of 2007 dated 9th
May, 2007 wherein it was stated that sub-section (4) of section 80P of the Act will not apply to an assessee which is not a cooperative bank.
The assessee also relied upon Circular No. 18 of 2015 dated 2nd
November, 2015 with the subject ‘Interest from non-SLR securities of banks’ which was not found to be relevant by the Ld. AO. The Ld. AO noted that in the Bye-laws of the Society it was stated that the Society would provide credit facility to the members i.e. the facility should be confined to the members only. But the Society was engaged in the activities of accepting deposits under various schemes and giving loans against such deposits to non-members also. In reality, such activity of I.T.A. Nos.: 76 & 77/KOL/2024
Assessment Years: 2015-16 & 2017-18
Gopmahal Samabay Krishi Unnayan Samity Ltd.
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the Society was that of finance business and could not be termed as a cooperative Society which is meant only for its members and providing credit facility to its members. Therefore, the deduction claimed by the assessee Society u/s 80P of the Act to the tune of Rs. 18,12,404/- was disallowed and added back to the total income of the assessee. As regards a sum of Rs. 3,00,000/- on account of gratuity payable, the assessee accepted that it was a mistake while preparing the accounts.
Hence, an amount of Rs. 3,00,000/- was added back to the total income of the assessee u/s 40A(7) of the Act and the total income was computed at Rs. 21,12,400/-.
5. Aggrieved with the assessment order the assessee filed an appeal before the Ld. CIT(A). In response to the notice of hearing issued, the assessee only prayed for early hearing. The finding of the Ld. CIT(A) is as under and accordingly he partly allowed the appeal of the assessee:
“7.1 Ground No.1 raised by the appellant relates to challenging the findings of the AO where, the AO has denied the claim of deduction of Rs.
18,12,404/- in terms of section 80P(2)(a)(i)/80P(4) of IT Act. I have considered the submission of the appellant carefully. The main issue under dispute is regarding denial of deduction u/s.80P(2)(a)(i)/80P(4) of IT Act, as according to AO, the assessee has been engaged in providing credit facilities to non-members i.e. the persons who are not registered as Member of the Society and working as a Co-op. Bank. At the outset, it is mention that the long standing controversy on this issue have finally been settled recently by the decision of Hon'ble Supreme Court in the case of The Mavilayi Service
Co-op Bank Ltd dated 12.1.2021 wherein, benefit of section 80P has been extended even in those cases, where credit facilities have been provided to non-members if providing credit facilities to non-members are incorporated in the memorandum of activities of the society and which is duly registered by the Competent Authority of the concerned State Government.
7.2 While deciding the issue, Hon'ble Supreme Court in para 45 onwards in its judgement has held the issue as under.
45. To sum up, therefore, the ratio decided of Citizen Cooperative Society
Ltd. (supra), must be given effect to Section 80P of the IT Act, being a benevolent provision enacted by Parliament to encourage and promote the credit of the co-operative sector in general must be read liberally and I.T.A. Nos.: 76 & 77/KOL/2024
Assessment Years: 2015-16 & 2017-18
Gopmahal Samabay Krishi Unnayan Samity Ltd.
Page 8 of 17

reasonable, and if there is ambiguity, in favour of the assessee. A deduction that is given without any reference to any restriction or limitation cannot be restricted or limited by implication, as is sought to be done by the Revenue in the present case by adding the word agriculture into Section 80P(2)(a) (i) when it is not there. Further, section 80P(4) is to be read as a proviso, which proviso now specifically excludes co-operative banks which are co-operative societies engaged in banking business i.e. engaged in lending money to members of the public, which have a licence in this behalf from the RBI. Judged by this touchstone, it is clear that the impugned Full Bench judgment is wholly incorrect in its reading of Citizen Cooperative Society Ltd. (supra). Clearly, therefore, once section 80P(4) is out of harm's way, all the assesses in the present case are entitled to the benefit of the deduction contained in section 80P(2)(a)(i) notwithstanding that they may also be giving loans to their members which are not related to agriculture. Also, in case it is found that there are instances of loans being given to non-member profits attributable to such loans obviously cannot be deducted.
46. It must also be mentioned here that unlike the Andhra Act that Citizen Cooperative Society Ltd. (supra) considered, nominal members are members as defined under the Kerala Act. This Court is U.P.
Cooperative Cane Unions Federation Ltd., Lucknow v. Commissioner of Income Tax, Lucknow-I (1997) 11 SCC 287 referred to section 80P of the IT Act and then held:
8. The expression members is not defined in the Act.
Since a cooperative society has to be established under the provisions of the law made by the State Legislature in that regard, the expression members in Section 80-P(2)(a) (i) must, therefore, be construed in the context of the provisions of the law enacted by the State Legislature under which the cooperative society claiming exemption has been formed. It is, therefore, necessary construe the expression members of Section 80-P(2)(a)(i) of the Act in the light of the definition of the expression as contained in Section 2(n) of the Cooperative Societies Act.
The said provision reads as under:
2.(n) Member means a person who joined the application for registration of a society or a person admitted to membership after such registration in accordance with the provisions of this Act, the rules and the bye-laws for the time being in force but a reference to members anywhere in this Act in connection with the possession or exercise of any right or power or the existence or discharge of and liability or duty shall not include reference to any class of members who by reason of the provision of this Act do not possess such right or power or have no such liability or duty, Considering the definition
I.T.A. Nos.: 76 & 77/KOL/2024
Assessment Years: 2015-16 & 2017-18
Gopmahal Samabay Krishi Unnayan Samity Ltd.
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of member under the Kerala Act, loans given to such nominal members would qualify for the purpose of deduction under section 80P(2)(a)(i).
47. Further, unlike the facts in Citizen Cooperative Society Ltd. (supra), the Kerala Act expressly permits loans to non-members under section 59(2) and (3), which reads as follows:
59. Restrictions on loans (i) A society shall not make a loan to any person or a society other than a member:
Provided that the above restriction shall not be applicable to the Kerala State Co-operative Bank.
Provided further that, with the general or special sanction of the