PANDALAPAKA PRIMARY AGRICULTURAL CO-OP CREDIT SOCIETY LTD,EAST GODAVARI vs. INCOME-TAX OFFICER-WARD-1, KAKINADA

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I.T.A.Nos.437 & 438/VIZ/2024 Pandalapaka Primary Agricultural Co-op Credit Society Ltd., 6. Being aggrieved by the order of the Ld. AO, assessee filed an appeal before Ld. CIT(A). The main contention before Ld. CIT(A) is that the Ld. AO has erred in taxing the same income twice. Ld. CIT(A) agreed to the submissions of the assessee and deleted the addition of Rs. 58,02,237/-. With respect to the disallowances of Rs. 49,53,669/- claimed as deduction under section 80P of the Act the Ld. CIT(A) confirmed the order of the Ld. AO.

4. The CIT(Appeals), National FacelessAssessment Centre is not justified in denying the claim for deduction of Rs. 49,53,669 under section80P of the Income-tax Act, 1961.

5. All the above grounds of appeal

are mutually exclusive and without prejudice to one another.

6. The appellant craves leave to add to; alter; modify; amend or delete all or any of the above grounds of appeal.”

8. Ground Nos. 1, 2 & 3 challenges the issuance of notice under section 148(b) of the Act without giving the minimum prescribed time as allowed

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I.T.A.Nos.437 & 438/VIZ/2024 Pandalapaka Primary Agricultural Co-op Credit Society Ltd., under the section. On this issue, Ld. Authorised Representative [hereinafter “Ld.AR”] vehemently argued that the notice under section 148(b) was issued on 22.03.2022 requesting the assessee to submit its response on or before 29.03.2022. The Ld.AR submitted that no “7” clear days were allowed in the notice for filing the response. He vehemently argued that the “2” days being the date of issuance of notice and the end date for compliance should be excluded for the consideration of “7” clear days permissible under the Act.

I.T.A.Nos.437 & 438/VIZ/2024 Pandalapaka Primary Agricultural Co-op Credit Society Ltd., section 148A(b) of the Act. On this issue, Ld.AR placed reliance in the case of Union of Inda & Ors. v. Rajeev Bansal [(2024) 8 NYPCTR 1291 (SC)] wherein in Para No. 106 of the order, the Hon’ble Supreme Court has held that the Ld.AO were deemed to have been inhibited from acting in pursuance of the section 148A(b) notice till the relevant material was supplied to the assessees. Ld.AR also placed reliance in the case of Anurag Gupta v. ITO by the Hon’ble Bombay High Court in Writ Pet No. 10184 of 2022 dated 13.03.2023 wherein it was held that issuance of notice under section 148A(b) of the Act without furnishing the material based upon which the information is provide, would render an assessee handicapped in submitting an effective reply to the show-cause notice, thereby rendering the purpose and spirit of section 148(b) of the act totally illusive and ephemeral. Further Ld.AR also submitted that the Ld.AO has not provided the copy of approval by the PCIT for the issuance of notice under section 148 of the Act. He therefore pleaded that in the absence of providing the clear seven days to submit reply to the notice under section 148(b) of the Act which caused prejudice to the assessee and hence the proceedings initiated under section 148 of the Act consequent to such invalid notice is void abinito.

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I.T.A.Nos.437 & 438/VIZ/2024 Pandalapaka Primary Agricultural Co-op Credit Society Ltd., that in response to the notice dated 22.03.2022 assessee has furnished its reply through E-Mail on 24.03.2022. She therefore pleaded that assessee cannot claim prejudice for not providing clear seven days’ notice. Further Ld. DR also submitted that assessee furnished full reply to the show-cause notice and has not sought any time for furnishing documents or further reply to substantiate the deductions claimed under section 80P of the Act. Ld. DR also submitted that assessee has not filed his return of income and has filed it only in response to the notice under section 148 of the Act. Ld. DR also submitted that assessee has not raised its objection before the First Appellate Authority regarding the validity of the notice used under section 148(b) of the Act. Ld. DR stated that it is an afterthought of the assessee to raise this legal issue after complying with the notice and replying through E-Mail dated 24.03.2022. She therefore pleaded that order of the Revenue Authorities be upheld.

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I.T.A.Nos.437 & 438/VIZ/2024 Pandalapaka Primary Agricultural Co-op Credit Society Ltd., was amended w.e.f. 01.04.2018 to allow any deduction under any provision of this chapter under the heading “C. – Deductions in respect of certain incomes” shall be allowed only when the assessee furnished the return of income within the due date specified under section 139(1) of the Act. Section 80AC(2) is extracted below for reference: -

“80AC. …….. (ii) the 1st day of April, 2018, any deduction is admissible under any provision of this Chapter under the heading "C.—Deductions in respect of certain incomes", no such deduction shall be allowed to him unless he furnishes a return of his income for such assessment year on or before the due date specified under sub-section (1) of section 139.”

I.T.A.Nos.437 & 438/VIZ/2024 Pandalapaka Primary Agricultural Co-op Credit Society Ltd., respond to the notice under section 148A(b) of the Act. The defence taken by the Ld.AR does not have any merit as the assessee has responded fully without seeking any time for submission of any additional information or otherwise, through E-Mail dated 24.03.2022. Assessee in its reply dated 24.03.2022 has contended that it is entitled for deduction under section 80P of the Act and has requested to withdrawal of notice under section 148A(a) of the Act. Therefore, in our considered view no prejudice is being caused to the assessee for not providing the clear seven days as required under section 148(b) of the Act, to invalidate the proceedings. The cases relied on the Ld.AR is of no help to the assessee since the facts are distinguishable that in those cases assessee has not responded whereas in the instant case assessee has responded within two days i.e., for the notice dated 22.03.2022 on 24.03.2022. We are therefore inclined to dismiss the legal ground raised by the assessee. Ground Nos. 1, 2 & 3 are dismissed.

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I.T.A.Nos.437 & 438/VIZ/2024 Pandalapaka Primary Agricultural Co-op Credit Society Ltd., 16. Per contra, Ld. DR submitted that even though assessee has filed return of income in response to the notice under section 148 of the Act assessee has not e-verified the return of income, thereby causing the return of income as invalid. In the absence of valid return of income, the deduction claimed by the assessee could not be allowed and the Ld. CIT(A) has rightly upheld the order of the Ld. AO.

“80A ……………… (5) Where the assessee fails to make a claim in his return of income for any deduction under section 10A or section 10AA or section 10B or section 10BA or under any provision of this Chapter under the heading "C.— Deductions in respect of certain incomes", no deduction shall be allowed to him thereunder.”

I.T.A.Nos.437 & 438/VIZ/2024 Pandalapaka Primary Agricultural Co-op Credit Society Ltd., Act. We therefore find no infirmity in the order of the Ld. CIT(A) thereby dismissing the grounds of the assessee on merits. Thus Ground No. 4 raised by the assessee is dismissed.

ITA No. 438/VIZ/2024 (A.Y. 2020-21)

Page No. 11 I.T.A.Nos.437 & 438/VIZ/2024 Pandalapaka Primary Agricultural Co-op Credit Society Ltd., “1. That the society has filed a return of income for the Assessment Year2020-21 on 28.12.2020 returning a taxable income of NIL after claiming deduction under section 80P 2 That the Assessment Unit, National Faceless Assessment Centre has passed an order under section 143(3) r.w.s. 144B dated 13.09.2022 by disallowing adding Rs.16,15,079/- being deduction claimed under section 80P towards income derived from investments under section80P(2)(d) being a co-operative society.

3. That the ld. CIT(A) confirmed the disallowance of deduction claimed under section 80P(2)(d) amounting to Rs.16,15,079. The order was passed on 25.07.2024.

4. That the Chartered Account Shri. Ashok Bhagavathula who is looking after our tax matters since a very long time is a senior citizen suffering from many ailments. His wife is also suffering from many ailments. He is presently residing in Bangalore for undergoing treatment.”

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I.T.A.Nos.437 & 438/VIZ/2024 Pandalapaka Primary Agricultural Co-op Credit Society Ltd., income of Rs. 13,24,110/- after making adjustment to the returned income. Thereafter the case was selected for limited scrutiny for verification of deduction claimed under section 80P of the Act. Accordingly, statutory notices under section 143(2) and 142(1) of the Act were issued and served on the assessee, calling for information. In response filed its submissions. On perusal of the submissions, Ld. AO noticed that assessee has invested surplus fund of Rs.1,01,81,131/- with the D.C.C.BANK, RAYAVARAM. Since the deduction under section 80P of the Act is available only for the profits and gains of the business of assessee (providing credit facilities to the members), the said deduction is not available to the interest income which is in the nature of 'other income' or 'income from other sources'. Accordingly show-cause notice was issued why the amount of Rs. 16,15,079/- received towards income on investments and deduction claimed under section 80P(2)(d) of the Act should not be disallowed and added back to the returned income pertaining to A.Y.2020-21. In response, assessee submitted its reply and the same is not accepted by the Ld.AO. Therefore, Ld. AO observing that out of this interest of Rs. 16,15,079/-, Rs.13,00,923/- was already adjusted while processing the return and therefore, Ld. AO added Rs.3,14,156/- (Rs.16,15,079/- less Rs.13,00,923/-) and completed the assessment on total Income of Rs. 16,38,266/- under section 143(3) r.w.s. 144B of the Act on 13.09.2022.

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I.T.A.Nos.437 & 438/VIZ/2024 Pandalapaka Primary Agricultural Co-op Credit Society Ltd., 25. Aggrieved by the order of the Ld. AO, assessee filed an appeal before Ld.CIT(A), NFAC, Delhi. Assessee submitted similar information before Ld.CIT(A). Ld. CIT(A) after considering the submissions made by the assessee dismissed the appeal of the assessee.

“1. The Assessment Unit, National FacelessAssessment Centre is not justified in disallowing Rs.16,15,079/- under section 80P(2)(d) and the Ld.CIT(Appeals), National Faceless Assessment Centre is not justified in confirming the same. 2. All the above grounds of appeal are mutually exclusive and without prejudice to one another.

3. The appellant craves leave to add to; alter; modify; amend or delete all or any of the above grounds of appeal.”

The only issue contested by the assessee is with respect to disallowance 27. of interest under section 80P(2)(d) of the Act consideringthe interest received from a cooperative bank is not eligible for deduction u/s 80P(2)(d) of the Act. On this issue, Ld. Authorised Representative [hereinafter “Ld.AR”] submitted that the assessee is a cooperative society registered under the Registrar of Cooperative Societies, Government of AP. Ld.AR further submitted that the assessee is not a cooperative bank and has invested its surplus funds which were immediately not required by the members, in a cooperative bank to earn interest. Ld.AR further submitted that the provisions of section 80P is not Page No. 14

I.T.A.Nos.437 & 438/VIZ/2024 Pandalapaka Primary Agricultural Co-op Credit Society Ltd., applicable only to cooperative banks and not to cooperative societies. He therefore, pleaded that the deduction claimed by the assessee under section 80P(2)(d) of the Act be allowed.

Per contra, Ld. Departmental Representative [hereinafter in short 28. “Ld.DR”] fully supported the orders of the revenue authorities. Ld. DR argued that as per provisions of section 80P(2)(d) of the Act, interest earned from investments with any other cooperative society is only exempted not the interest from cooperative banks. On this issue, Ld. DR placed reliance on the decision of the Hon’ble High Court of Karnataka in the case of Pr.CITv. Totagars Co- operative Sale Society [2017] 395 ITR 611 (Karnataka).

We have heard both the sides and perused the material available on 29. record including the cases cited by both the parties. The main grievance of the assessee is with respect to denial of deduction under section 80P(2)(d) of the Act in respect of interest income received from cooperative banks. The provisions of section 80P(1) of the Act allows deduction under section 80P(2) of the Act to an assessee being a cooperative society. Section 80P(2)(d) of the Act is reproduced below for ready reference: -

"80P. Deduction in respect of income of co-operative societies. (1) ......

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I.T.A.Nos.437 & 438/VIZ/2024 Pandalapaka Primary Agricultural Co-op Credit Society Ltd., (2) The sums referred to in sub-section (1) shall be the following, namely:- (a) ..... (b) ..... (c) .... (d) 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, the whole of such income;”

"(19) "co-operative society" means a co-operative society registered under the Co-operative Societies Act, 1912(2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies;”

I.T.A.Nos.437 & 438/VIZ/2024 Pandalapaka Primary Agricultural Co-op Credit Society Ltd., cooperative society. The Hon’ble High Court of Madras in the case of Thorapadi Urban Co-op Credit Society Limited v. ITO (supra) held as follows: -

“10. A reading of the above definition would make it clear that 'Co- operative Society' means a Co-operative Society registered under Co- operative Societies Act, 1912. Thus, a Co-operative Society referred therein is only a co-operative society as defined under the Act, be it a Co- operative Society carrying on banking business or Co-operative Society carrying on the other businesses or a Co-operative bank.”

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I.T.A.Nos.437 & 438/VIZ/2024 Pandalapaka Primary Agricultural Co-op Credit Society Ltd., societies. The case relied on by the Ld.DR is distinguishable on the facts that, in that case, the surplus funds which are liable to be paid to its members and shown on the liability side of the balance sheet was deposited with cooperative banks in order to circumvent the decision of the Hon’ble Supreme Court in the case of Totgar’s cooperative Sale Society Ltd. v. ITO [ (2010) 322 ITR 283]. Since the facts in the instant case are different, this case is not of any help to the revenue. We are therefore inclined to set-aside the order passed by the Ld.CIT(A) and direct the Ld. AO to allow the deduction claimed by the assessee under section 80P(2)(d) of the Act. Thus, Ground raised by the assessee is allowed.

Order pronounced in the open court on 28th January, 2025.