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Income Tax Appellate Tribunal, “B” BENCH, PUNE
Before: SHRI R.K. PANDA & MS. ASTHA CHANDRA
आदेश / ORDER
PER ASTHA CHANDRA, JM :
The above two appeals filed by the assessee are directed against the separate orders both dated 15.07.2025 of the Ld. Commissioner of Income Tax (Appeals)/NFAC, Delhi [“CIT(A)”/“NFAC”] pertaining to Assessment Year (“AY”) 2020-21. For the sake of convenience, both these appeals were heard together and are being disposed of by this common order.
AY 2020-21 2. The assessee has raised the following grounds of appeal :-
1. On the facts and in the circumstances of the case and in law, the Ld. NFAC-CIT (A). Delhi, has erred in confirming the action of Ld. Assessing officer (A.O.) in making addition of Rs. 1,11,08,542/- on account of disallowance of deduction under section 80P (2)(a) and (b) to the total income of the assessee on the ground that the entire Rs.1,11,08,542/- is entirely in the form of Interest and shares held in The Satara DCC Coop Bank Ltd. Therefore, it is not the income earned by the society from its regular course of business, le. providing credit facilities to its members. Hence, it is not the operational income of the society and is to be treated as Income from Other Sources. The Ld. A.O. has failed to appreciate that as per the Statement of Facts, the appellant has earned interest and dividend income of Rs.39,16,874/- and Rs. 12,00,000/- resp. from investment with other co-operative banks which is a business income of the appellant society and is eligible for deduction under section 80P of the Income Tax Act, 1961. Therefore, the disallowance is not justified in law and the addition be deleted.
2. On the facts and in the circumstances of the case and in law, the Ld. NFAC-CIT (A), Delhi, ought to have appreciated the fact that a co- operative bank is a co-operative society within the meaning of Co- operative societies act and hence is eligible to claim deduction u/s 80P (2)(d) of the IT Act, 1961. Alternatively, deduction under section 80P(2)(d) of The Act should have been allowed to interest and dividend income on investments in co-operative society.
The Ld. CIT(A) erred by confirming the addition of. Rs. 52,56,122/- on account of Other Payable shown under Current Liabilities and provisions due to no submission of response. The Ld. CIT(A) has failed to appreciate that the appellant has submitted details of liabilities in the Statement of facts and in submission Dt. 15/07/2025 vide Ack. No. 332779621150725. Therefore, the disallowance is not justified in law and the addition be deleted.
That the appellant craves leave to add to, alter, amend, modify, substitute, delete and /or rescind all or any of the grounds of appeal on or before the final necessity, so arises.”
3. Briefly stated the facts are that the assessee is a Co-operative Society registered under the Maharashtra Co-operative Societies Act carrying on the business of providing credit facility to its members. For AY 2020-21, the assessee filed its return of income on 18.12.2020 declaring total income of Rs.2,47,680/- u/s 139(1) of the Income Tax Act, 1961 (the “Act”). The case of the assessee was selected for complete scrutiny under the E-assessment Scheme, 2019 on the issue of Deduction from total income under VI-A and High liabilities as compared to low income. Accordingly, statutory notice(s) u/s 143(2)/142(1) of the Act as well as show cause notice(s) were issued and served upon the assessee from time to time requesting the assessee to file the requisite details/documents. However, the assessee failed to respond to any of the said notices. Consequently, the Ld. Assessing Officer (“AO”) completed the assessment u/s 144 r.w.s. 144B of the Act making addition on account of disallowance of the claim of deduction u/s 80P(2) of the Act of Rs.1,11,58,542/- and outstanding liabilities in books of account of Rs.52,56,122/- u/s 41(1) of the Act, vide order dated 26.09.2022.
4. Aggrieved, the assessee filed an appeal before the Ld. CIT(A)/NFAC who dismissed the appeal of the assessee by observing as under : “5.3 I have gone through the details placed on records. The appellant had availed deduction of Rs 1,11,08,542/- u/s 80P(2)(a)(i) of the Act and claimed another deduction of Rs 50,000/- under section 80P(2)(b). As per the statement of facts submitted by the appellant amount of 1,11,58,542/- is entirely in the form of interest received on Fixed Deposits and shares held respectively in The Satara District Central Co-operative Bank Ltd. I am of the view that the interest income earned by the society to the tune of Rs. 1.11,58,542/- is not the income which is earned by the society from its regular course of business ie, providing credit facilities to its members, it is the income earned by the society from its surplus funds deposited with cooperative Banks. Hence, it is not the operational income of the society, it is to be treated as income from other sources. Further, section 80(P)(2)(d) provides deduction in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co- operative society. However, in the said case the deposits/investments were made with the co-operative Banks and not with the cooperative societies. 5.4 Further, the appellant has claimed that a co-operative bank is a co- operative society within the meaning of Co-operative societies act and hence is eligible to claim deduction u/s 80P of the IT Act, 1961. In this regard it is stated as under. 5.5 Section 80P(2)(d) of the Act provides for deduction in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society. To become eligible for deduction, the investment has to be made in another Co-operative Society. The Hon'ble SC in Totgar's case 322 ITR 383 has held that the assessee would not be eligible for deduction under Section 80P(2)(d) in relation to interest income earned from Co-operative banks. It is common for the appellants in the cases involving this issue to rely on the Hon'ble Kamataka HC decision in the case of Totgar's Co-operative sale society 392 ITR 74 and argue that it is held in this decision that a co-operative bank is considered to be a co-operative society. However, the Hon'ble HC in the later decision in the same case reported in 395 ITR 611 has clearly held that what Section 80P(2)(d) of the Act envisages is that such interest or dividend earned by an assessee co-operative society should be out of the investments with any other co-operative society. 5.6 The words 'Co-operative Banks' are missing in clause (d) of subsection (2) of Section 80P of the Act. Even though a co-operative bank may have the corporate body or skeleton of a co-operative society, its business, viz., banking is entirely different, which is governed and regulated by the provisions of the Banking Regulation Act, 1949. It was further held that the amendment of Section 194A(3) (v) of the Act excluding the Co-operative Banks from the definition of "Co- operative Society by Finance Act, 2015 and requiring them to deduct income tax at source under Section 194A of the Act also makes the legislative intent clear that the Co-operative Banks are not that specie of genus co-operative society, which would be entitled to exemption or deduction under the special provisions of Chapter VIA in the form of Section 80P of the Act. Co-operative banks also accept deposit from both members and non-members whereas the co-operative societies are limited to accept deposits and give loan to its members only. Thus, Co- operative banks do not operate on the principle of mutuality. If the assessee co-operative society parks its funds as investment in co-operative banks and earns interest receipts, it does not promote the principle of mutuality. 5.7 It is also pertinent to refer the section 80P(4) of the Act which clearly states that : "The provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. Explanation -For the purposes of this sub-section, - (a) "co-operative bank" and "primary agricultural credit society "shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949)." It is clear from the plain reading of section 80P(4) that the cooperative bank have been excluded from the purview of the section 80P. The co-operative society is based on the concept of mutuality and its function is limited to its members. The reason behind the granting benefit of section 80P to the co- operative society is that it does not deal with non-members. Co-operative banks are regulated by Reserve Bank of India under the Banking Laws (Application to Co-operative Societies) Act 1965. But Co-operative societies are registered under the Co-operative societies Act, 1912 and regulated by State Act only. 5.8 The Hon'ble Supreme Court of India, in the case of Mavilayi Service Co- operative Bank Ltd. v. Commissioner of Income Tax, Calicut [123 taxmann.com 161(SC)] has held that limited object of section 80P(4) is to exclude co-operative banks that function at par with other commercial banks i.e. which lend money to members of public. "39. The above material would clearly indicate that the limited object of section 80P(4) is to exclude co-operative banks that function at par with other commercial banks i.e. which lend money to members of the public. Thus, if the Banking Regulation Act, 1949 is now to be seen, what is clear from section 3 read with section 56 is that a primary co- operative bank cannot be a primary agricultural credit society, as such co-operative bank must be engaged in the business of banking as defined by section 5(b) of the Banking Regulation Act, 1949, which means the accepting, for the purpose of lending or investment, of deposits of money from the public. Likewise, under section 22(1)(b) of the Banking Regulation Act, 1949 as applicable to co-operative societies, no co-operative society shall carry on banking business in India, unless it is a co-operative bank and holds a licence issued in that behalf by the RBI. As opposed to this, a primary agricultural credit society is a co-operative society, the primary object of which is to provide financial accommodation to its members for agricultural purposes or for purposes connected with agricultural activities.
As a matter of fact, some primary agricultural credit societies applied for a banking licence to the RBI, as their bye-laws also contain as one of the objects of the Society the carrying on of the business of banking. This was turned down by the RBI in a letter dated 25-10-2013..." 5.9 The Assessing Officer has rightly drawn the Assessment Order by disallowing the claim of deduction u/s 80P(2) of the IT Act 1961. Hence, the grounds of appeal raised in regard to disallowance made by AO to the tune of Rs. 1,11,08,542/- uls 80P(2) is accordingly dismissed. 5.10 Ground nos. 4 and 5: These grounds of appeal pertain to disallowance of Rs 52,56,122/- as outstanding liabilities in books of accounts due to no submission of response. The appellant has contended that since the appellant society is a co- operative society solely engaged in the business of providing credit facilities to its members and acceptance of deposits from its members therefore the other payables shown under the head Current Liabilities and provisions in the Balance sheet are liabilities incurred in carrying out the day-to-day operations of the business and are regular in nature. Hence the disallowance is not warranted.
5.11 During the appellate proceedings the appellant has failed to submit relevant documents in support of its aforementioned claim, hence this ground of the appellant is dismissed.”
Dissatisfied, the assessee is in appeal before the Tribunal and all the grounds of appeal relate thereto.
The Ld. AR submitted that non-compliance before the Ld. AO was not deliberate but occurred due to certain unavoidable circumstances beyond the control of the assessee. Referring to pages 16 to 26 of the paper book, the Ld. AR submitted that the assessee made elaborate submissions before the Ld. CIT(A)/NFAC but he has not considered the submissions of the assessee and upheld the ex-parte order of the Ld. AO. He submitted that the assessee has a strong case on merits and therefore, prayed that in the interest of justice, the matter may be restored to the file of the Ld. AO to decide the issues afresh on merits, after affording an opportunity of hearing to the assessee.
The Ld. DR, on the other hand, heavily opposed the arguments advanced by the Ld. Counsel for the assessee and submitted that despite number of opportunities granted, the assessee never bothered to make any submission before the Ld. AO and strongly supported the order of the Ld. CIT(A)/NFAC.
We have heard the Ld. Representatives of the parties and perused the material available on record. It is an admitted fact that despite number of opportunities granted, the assessee did not make any submission before the Ld. AO which constrained him to pass an ex-parte order qua the assessee. The Ld. AR has submitted that such non- compliance was not intentional but resulted on account of certain unavoidable circumstances beyond the control of the assessee. We find that the Ld. CIT(A)/NFAC has decided the impugned issue(s) against the assessee upholding the ex-parte order of the Ld. AO. However, the issue relating to claim of deduction u/s 80(2) of the Act is covered in favour of the assessee by the catena of judicial pronouncements including the Pune Tribunal. We find that the assessee made elaborate submissions before the Ld. CIT(A)/NFAC in support of its claim of deduction u/s 80P(2) of the Act but the Ld. CIT(A)/NFAC failed to take the cognizance of the same and dismissed the assessee’s ground of appeal on this issue. The next issue involving addition u/s 41(1) of the Act on account of outstanding liabilities in the books of account is also dismissed by the Ld. CIT(A)/NFAC for lack of submission/documents in support of its claim. However, the Ld. AR has demonstrated that the assessee had filed the requisite details/documents before the Ld. CIT(A)/NFAC, which he has not considered at all while passing the impugned order. It is the submission of the Ld. Counsel for the assessee that the assessee has a strong case on merits and therefore an opportunity may be granted to the assessee to present and substantiate its case before the Ld. AO as may be required/called upon.
9. Under above circumstances and considering the totality of the facts of the case and in the interest of justice and without going into the merits of the appeal, we deem it fit and proper to set aside the impugned order of the Ld. CIT(A)/NFAC and restore the impugned issues to the file of the Ld. AO with a direction to decide the issues afresh on merits in light of the submissions already on record and such further submission(s) as may be made by the assessee during the course of fresh proceedings before him as per fact and law, after giving reasonable opportunity of being heard to the assessee. The assessee is also hereby directed to remain vigilant in accessing the email(s) and timely respond to the notices of hearing issued by the Ld. AO. The assessee shall appear and make its submissions before the Ld. AO on the appointed date without seeking any adjournment under any pretext, unless required for the sufficient cause, failing which the Ld. AO shall be at liberty to pass appropriate order as per law. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed for statistical purposes.
In the result, the appeal of the assessee is allowed for statistical purposes.
AY 2020-21 11. In this appeal, the assessee has challenged the order of the Ld. CIT(A)/NFAC whereby he confirmed the penalty of Rs.1,15,10,060/- u/s 270A of the Act levied by the Ld. AO pertaining to AY 2020-21 vide his order dated 15.07.2025.
Vide our above order of even date, we have set aside the main/quantum appeal of the assessee to the file of the Ld. AO for fresh adjudication on merits. Consequently, this appeal is also set aside to the file of the Ld. AO to decide it afresh as a result thereof. The grounds raised by the assessee are accordingly allowed for statistical purpose.
In the result, the appeal of the assessee is allowed for statistical purpose.
To sum up, both the appeals of the assessee are allowed for statistical purpose
Order pronounced in the open court on 28th November, 2025.