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Income Tax Appellate Tribunal, PUNE “A” BENCH : PUNE
Before: DR. MANISH BORAD & Ms. ASTHA CHANDRA
I.T.A.Nos.713 & 714/PUN/2024 (Assessment Years : 2017-18 & 2018-19) ITO, Ward-12(1), Pune The Government Servants vs. Maharashtra Co-operative Credit Society Limited, 503B, Narayan Peth, Ramanbaug Chowk, Pune. PAN : AABAT 0589 R (Appellant) (Respondent) For Assessee : Shri Pramod S. Shingte, CA For Revenue : Shri Ramnath P. Murkunde, DR Date of Hearing : 22.07.2025 Date of Pronouncement : 08.09.2025 ORDER PER DR. MANISH BORAD, AM:
These appeals at the instance of the Revenue are directed against the separate orders of Ld. Commissioner of Income Tax (Appeals)/NFAC, Delhi [“CIT(A)”] evenly dated 31/01/2024 framed under section 250 of the Income Tax Act, 1961 (“Act”) for the Assessment Years (AY) 2017-18 & 2018-19.
Since facts and issues are identical in both the appeals, they were heard together and disposed of by way of this consolidated order.
2 ITA.Nos.713 & 714/PUN./2024 (The Govt. Servents Maharashtra Co-op. Credit Society Limited, Pune) 3. For the sake of convenience and clarity, facts relevant to the A.Y. 2017-18 are taken up as a lead case.
Revenue has raised the following grounds of appeal in A.Y. 2017-18:-
“A. On the facts and circumstances of the case and in law, Ld. CIT(A) erred in, granting the relief without verification of the assessee details regarding (i) transactions with members (existing employees of Govt.), (ii) transactions with nominal members (who were members during their service but now superannuated) and (iii) nominal members who have joined the co-operative society only after their superannuation from Govt. service). Further, the Ld. CIT(A) faceless has kept silent on the issue of verification of the documents regarding members, Nominal Members and Non-Members by the JAO. B. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in, allowing the deduction without considering the facts that the assessee was given several opportunities at several stages, right from the issue of notice u/s 143(2) dt. 27.09.2018 during assessment proceedings, before the Ld. CIT(A)faceless, while order giving effect to the order of CIT(A) faceless by JAO, and at last again before the Ld. CIT(A) faceless, which was filed by the assessee against the order of order giving effect dated 13.01.2023. The assessee has never produced the details as called either before AO or Ld. CIT(A) till the order passed by the Ld. CIT(A) dt. 31.01.2024. C. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in, allowing the deduction without any verification of the details at his level and without laying any condition on the assessee that if necessary details are not produced before AO for verification the deduction shall not be allowed.”
Brief facts of the case are that assessee is a cooperative credit society and nil income declared in the e-return filed for the A.Y. 2017-18. Case selected for scrutiny under CASS to verify low income in comparison to high loans/advances/ investments in shares appearing in the balance sheet and 3 ITA.Nos.713 & 714/PUN./2024 (The Govt. Servents Maharashtra Co-op. Credit Society Limited, Pune) expenses debited to the profit & loss account for earning exempt income as per schedule BP of ITR is significantly lower as compared to investments made to earn exempt income. After validly serving notices u/s. 143(2) & 142(1) of the Act, assessee was asked to file copy of registration certification, list of members, details of persons from whom loans & advances are claimed along with its claim on large deduction u/s. 80P(2)(a)(i) of the Act. The Ld.AO on going through the details filed, observed that the assessee society has accepted deposits from nominal members, and that these deposits were kept in fixed deposit (FD) in the bank to get maximum returns and a small portion of these deposits were utilized to advance loans to members of first category i.e. ordinary members which deviates from concept of mutuality essential for claiming deduction u/s. 80P. The Ld.AO denied the claim u/s. 80P(2)(a)(i) of the Act at Rs. 3,67,02,901/- and the relevant observation of the Ld.AO denying the deduction u/s. 80P(2)(a)(i) is reproduced below:-
10. In this context, it is relevant to re-produce the necessary provisions of Income-tax Act, 1961 which is as under: Deduction in respect of income of co-operative societies. 80P. (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely:-
4 ITA.Nos.713 & 714/PUN./2024 (The Govt. Servents Maharashtra Co-op. Credit Society Limited, Pune) (a) in the case of a co-operative society engaged in (i) carrying on the business of banking or providing credit facilities to its members, or (ii) a cottage industry, or (iii) the marketing of agricultural produce grown by its members, or (iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or (v) the processing, without the aid of power, of the agricultural produce of its members, or (vi) the collective disposal of the labour of its members, or (vii) fishing or allied activities, that is to say, the catching, curing, processing. preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members, the whole of the amount of profits and gains of business attributable to any one or more of such activities: 11. On perusal of the provisions of section 80P(1) of the Act as enumerated above, it is clear that deduction u/s. 80P is allowable only to the society engaged in the certain business activities as specified u/s. 80P(2)(a) of the Act wherein it is categorically mentioned that profit and gains of business attributable to the activity of providing credit facilities to its members. The combined reading of section 80P(1) and section 80P(2) un-equivocally implies that any income earned by the Co-operative Credit society wherein it is providing credit facility to its members, shall be eligible for deduction u/s 80P of the Act. Here in this case, as has been duly discussed in the afore- mentioned paras, the assessee co-operative society is not only having business transactions with nominal members but also with certain non-members. It is therefore, undisputable that the assessee is not eligible for deduction us/80P(1) of the Act.
12. Concept of Mutuality The essence of the principle of mutuality lies in the commonality of the contributors and the participants who are also the beneficiaries. The contributors to the common fund must be entitled to participate in the surplus and the participators in the surplus are contributors to the common fund. The law envisages a complete identity between the contributors and the participants in this sense. The principle postulates that what is returned is contributed by a member. Any surplus in the common fund shall therefore not constitute income but will only be an increase in the common fund meant to meet sudden eventualities.
5 ITA.Nos.713 & 714/PUN./2024 (The Govt. Servents Maharashtra Co-op. Credit Society Limited, Pune) It is therefore well established law that the above mentioned conditions should be fulfilled so as to claim benefit on account of mutuality, which conditions have however, not been fulfilled in the case at hand, since the assessee apart from transacting with members has also went beyond the scope and transacted with non-members as well as nominal members. Therefore, the assessee has breached the concept of mutuality, essential for claiming deduction u/s 80P of the Income-tax Act.
Thus, considering the facts of the case that assessee failed to substantiate its eligibility for claimed deduction u/s 80P(2)(a)(i) of the Act, therefore, the assessee is found to be non-eligible for the claimed deduction of Rs. 3,67,02,901/- u/s 80P of the Act. Therefore, Rs. 3,67,02,901/- is hereby brought to tax as income from other source of the assessee society for the year under consideration. Penalty proceedings u/s 270A is initiated for mis-reporting of income separately.”
Aggrieved, the assessee preferred appeal before the Ld.CIT(A) and the Ld.CIT(A) after examining the details has held that Maharashtra Societies Act does not place bar or limitation on having transactions with nominal members and therefore, assessee is eligible for deduction u/s. 80P(2)(a)(i) of the Act. However, Ld.CIT(A) directed the Jurisdictional Assessing Officer (JAO) to carry-out certain exercise prior to allowing 80P(2)(a)(i) deduction relating to (i) the transactions with the members, who are existing employees of Government; (ii) the transactions with nominal members, who are members during their service but now superannuated; and (iii) nominal members those who have joined the co-operative society only after their superannuation from Government service.
Aggrieved, the Revenue is now in appeal before this Tribunal.
6 ITA.Nos.713 & 714/PUN./2024 (The Govt. Servents Maharashtra Co-op. Credit Society Limited, Pune) 8. Ld. Departmental Representative (DR) vehemently argued supporting the observations of the Ld.AO.
On the other hand, learned counsel for the assessee submitted that assessee-society has not carried-out any transactions with non-members. This fact has been substantiated with the certified list of members on multiple occasions before the Ld.AO, but still Ld.AO has rejected the claim. He submitted that assessee has no objection to the findings of the Ld.CIT(A) about eligibility for claiming deduction u/s. 80P(2)(a)(i) has been allowed subject to certain verification.
We have heard the rival contentions and perused the records placed before us. We observe that assessee is a credit cooperative society and the members of the society are State Government employees, who are either existing employees or those who have superannuated and also those who have joined after their superannuation and that the members of the society are employees of the present/post employees of Maharashtra State Government, Deduction u/s. 80P(2)(a)(i) has been claimed at Rs. 3,67,02,901/-. The Ld.AO on going through the list of 5575 members observed that series of nominal members is different from that of ordinary members. The Ld.AO further observed that loans received from the nominal members have been utilized majorly for earning
7 ITA.Nos.713 & 714/PUN./2024 (The Govt. Servents Maharashtra Co-op. Credit Society Limited, Pune) interest on FD and small amounts were given as loan to the members of the society. We observe that Ld.CIT(A) has exhaustively dealt with this issue and also considered the submissions of the assessee and decided the issue observing as follows:-
“6.1 The impugned assessment was being framed by the Jurisdictional Assessing Officer (JAO) under section 251/143(3) of the Act in order to give effect to the directions of the Ld. CIT(Appeals) who in first round of appellate proceeding had given following directions: "5. I have carefully considered the grounds of appeal, assessment order and submission of the appellant. Ground No. 1 in appeal is directly covered in favour of the appellant by the decision of apex court in the case of Mavilayi Service Coop bank Ltd. Vs CIT (431 ITR 1). The appellant Appellant is a Cooperative Credit Society registered under the Maharashtra Co-operative Society Act, 1960 is entitled to deduction under section 80P(2)(a)(i) of Income Tax Act, 1961 in respect of nominal/ associate members defined under the Maharashtra Co- operative Society Act, 1960. The Assessing Officer is directed to recompute the deduction under section 80P of the Act after considering the principles laid down by Hon'ble Supreme Court of India in the case Mavilayi Service Coop bank Ltd. Vs CIT (431 ITR 1). The appellant shall file necessary details before the JAO as required by him. The ground of appeal no. 1 is taken as disposed off accordingly." 6.2 Accordingly, JAO sought details of members/non-members of the appellant society so that in accordance with the directions of the Hon'ble Apex Court in Mavilayi case, the proportionate profit attributable to giving of credit facility to the non-members could be excluded while computing the 80P(2) deduction. However, details/information/evidence filed by the appellant subsequently were not found satisfactory by the JAO and he disallowed the entire claim of 80P deduction to the appellant. 6.3 After giving finding in Para 45 for ascertaining the status of an entity as a co-operative society, in para 46 and 47, Hon'ble Apex Court in Mavilayi judgment had distinguished the Kerala co-operative society Act vis-à-vis the Multipurpose co-operative society Act in Citizens case to come to a finding that wherever the Parent co-operative society Act permitted giving of credit to nominal members as distinguished from non-members/general
8 ITA.Nos.713 & 714/PUN./2024 (The Govt. Servents Maharashtra Co-op. Credit Society Limited, Pune) public, the same is also to be allowed benefit of 80P(2)(a)(i) deduction. 6.4 In this context, vide submission dated 28.11.2022, appellant had submitted is that while initially all members of the co-operative society, being employees of the State Government were members of the co-operative society. However, after their retirement from Govt. service, they become nominal members. The appellant has further submitted that Bye-laws of the society which is sanctioned by the Registrar of the co-operative societies (an officer appointed by the State Govt.) permit taking of deposits from these retired employees. 6.5 In this regard, the Jurisdictional Hon'ble ITAT Pune in the case of Mandeshwari Urban Development Co-op Bank Ltd. (1153/PUN/2018) & others dated 18.07.2022 has held as under: "9. We heard the rival submissions and perused the material on record. The issue in the present appeal relates to the applicability of exemption under clause (v) of sub-section (3) of section 1944 of the Act, in the case of a cooperative bank. The provisions of section 194A requires the cooperative bank to deduct tax from interest payment one time deposit, as the amount of such payment exceed the prescribed threshold limit. Further, the provisions of section 194A(3) (v) provides a general exemption from tax deduction at source on the payment of interest by all the cooperative societies to its members. Now, it is settled position of law that the cooperative bank is also a specie of cooperative societies, is entitled to the benefit of general exemption provided to all the cooperative societies from deduction of tax on payment of interest to its members. But the issue in the present appeal relates to whether a nominal member, who is not a registered member of the society, can be treated as a member of the cooperative society whether the exemption is available under clause (v) of sub-section (3) of section 194A of the Act. There is no dispute as to the fact that the above categories of persons mentioned above are nominal members of the societies as per bye-laws of the appellant society. The provisions of Maharashtra Cooperative Societies Act also permit admission of such nominal members. The term "member" has been defined by the Maharashtra Cooperative Societies Act to include a nominal members. The Hon'ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. vs. CIT, 431 ITR 1 (SC) which dealt with the exemption u/s 80P in respect of society registered under the provisions of Kerala Cooperative Societies Act, while interpreting the term "member" of society after making reference to the judgement of the Hon'ble Supreme Court in the case of 9 ITA.Nos.713 & 714/PUN./2024 (The Govt. Servents Maharashtra Co-op. Credit Society Limited, Pune) U.P. Co op. Cane Union Federation Ltd. vs. CIT, 237 ITR 574 (SC) by holding as under :- "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 in 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 to construe the expression "members" in Section 80-P(2)(a) (i) of the Act in the light of the definition of that 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 in 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 any liability or duty shall not include reference to any class of members who by reason of the provisions of this Act do not possess such right or power or have no such liability or duty;"" Considering the definition 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)." 6.6 Therefore, prima-facie, the appellant is found to be eligible for 80P(2) deduction as the Maharashtra co-operative societies Act does not place bar or limitation on having transactions with nominal members. Hence, disallowance of entire claim of Rs. 3,67,02,901/- is hereby deleted. However, before allowing the 80P(2) deduction, while giving appeal effect, the appellant should furnish details before the JAO of (i) transactions with members (existing employees of Govt.), (ii) transactions with nominal members (who were members during their service but now superannuated) and (iii) nominal members (those who have joined the co-operative society only after their superannuation from Govt. service). To substantiate the details,
10 ITA.Nos.713 & 714/PUN./2024 (The Govt. Servents Maharashtra Co-op. Credit Society Limited, Pune) the appellant may file an Affidavit regarding the authenticity of the details being so furnished. Further, in accordance with provisions of the Act, the investment by the appellant co- operative society with any other co-operative society resulting in interest or dividend income is to be allowed deduction under section 80P(2)(d) of the Act. The JAO shall give sufficient opportunity to the appellant to file the necessary details/information.”
The above findings of the Ld.CIT(A) that Maharashtra Co-operative Societies Act place no bar or limitation on having transactions with nominal members remain uncontroverted by the revenue authorities. Therefore, so far as the findings of the Ld.CIT(A) holding that assessee is eligible for deduction u/s. 80P(2)(a)(i) of the Act of Rs. 3,67,02,901/- needs no interference. Further, we also fail to find any infirmity in the findings of the Ld.CIT(A) giving directions to the JAO to verify such claim after examining the details to be furnished before the JAO as referred to in para 6.6 of the impugned order (supra). We therefore, fail to find any infirmity in the order of the Ld.CIT(A) and the effective grounds raised by the Revenue for A.Y. 2017-18 are dismissed.
So far as A.Y. 2018-19 is concerned, the issues raised by the revenue are common except in the change of figures. Therefore, our findings in A.Y. 2017-18 shall apply mutatis mutandis in the grounds raised in A.Y. 2018-19 also. Accordingly, the grounds of appeal raised by the Revenue for A.Y. 2018-19 are also dismissed.
11 ITA.Nos.713 & 714/PUN./2024 (The Govt. Servents Maharashtra Co-op. Credit Society Limited, Pune) 13. In the result, both the appeals filed by the Revenue are dismissed.
Order pronounced in the open Court on 08.09.2025.