DCIT AKOLA CIRCLE, AKOLA, AKOLA vs. THE AKOLA JANATA COMMERCIAL CO-OPERATIVE BANK LTD., AKOLA

IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH, NAGPUR

BEFORE SHRI NARENDER KUMAR CHOUDHRY, JUDICIAL MEMBER AND SHRI K.M. ROY, ACCOUNTANT, MEMBER

ITA no.189/Nag./2025 (Assessment Year : 2020–21) Dy. Commissioner of Income Tax ……………. Appellant Akola Circle, Akola v/s The Akola Janata Commercial Co–operative Bank Ltd. ……………. Respondent Jan Vaibhav, Old Cotton Market Akola H.O. Telhara, Akola 444 001 PAN – AAAAT0875H Assessee by : Shri S.G. Gandhi Revenue by : Shri Pankaj Kumar

Date of Hearing – 24/06/2025 Date of Order – 22/09/2025

O R D E R PER K.M. ROY, A.M.

The instant appeal FILED by the Revenue is directed against the impugned order dated 03/02/2025, passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [“learned CIT(A)”] for the assessment year 2020–21.

“1. The Ld.CIT(A) had erred on the facts and in the circumstances of the case and in law, in quashing the rectification order u/s.154 of the Income

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Tax Act, 1961 duly passed by the AO by not treating the suo-moto rectification, initiated by the AO for correction of incorrect surcharge rate, which is clearly a mistake apparent from record. 2. The Ld.CIT(A) had erred on the facts and in the circumstances of the case and in law, in ignoring the fact that in the return of income the assessee itself mentioned its status as AOP/BOI, thus chargeable to 37% rate of surcharge, instead of 12% rate levied inadvertently by the FAO. 3. The Ld. CIT(A) had erred on the facts and in the circumstances of the case and in law, in treating a duly passed order u/s. 154 of the Income Tax Act, 1961 (DIN:ITBA/REC/M/154/2023-24/1063606857(1) on 22.03.2024) as DIN less communication without duly ascertaining the facts of the case. 4. Any other ground that may be raised during the course of appellate proceedings.”

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Subsequently, the rectification order dated 22/03/2024, was passed under section 154 of the Act by levying surcharge @37% by treating the assessee's status as “AOP” instead of “Co–operative Societies”. The assessee being aggrieved, the matter was assailed before the learned CIT(A) who granted relief by observing as below:–

“4. Adjudication & Decision:– 4(a). I have considered the facts and circumstances of the case. I have also considered the assessee’s submissions. From the facts of the case, it is understood that that the ROI processed by the CPC u/s. 143(1), the CPC levied surcharge at the rate of 12% on the tax. Subsequently, regular assessment order was passed u/s. 143(3) of the IT Act on 21.09.2022. In the assessment order, the AO did not dispute the working made by the assessee and the AO did not change the status of the assessee from cooperative society to AOP for the purpose of computation of tax. However, the AO vide rectification order dated 22.03.2024 suo-moto rectified the tax computation by levying surcharge at the rate of 37% by treating assessee's status as AOP. In the rectification order, the AO did not give any justification for such change. Moreover, this is a debatable issue and this is not a simple mistake apparent from the record, therefore, the AO need to examine the issue of classification of the status of the assessee for the purpose of tax computation in detail and pass a detailed reasoned order. Thus, the order passed by the AO on the disputed issues does not come under the purview of rectification. Thus, the changes made by the AO does not come under the purview of section 154. Therefore, the order passed by the AO is hereby quashed and the assessee's appeal is hereby allowed. However, the AO has liberty to initiate appropriate action u/s. 147 as per law. 4(b). Moreover, rectification order was passed manually, without mentioning any DIN No. which is not legally correct. As per CBDT's circular No. 19/2019 dated 14.08.2019, all the orders to be passed along with DIN No. from 1st October, 2019 onwards. Few exceptions were mentioned in the circular at para no. 3, as per which the AO can pass the manual order but with the prior approval of the CCIT. In this case, the assessee does not fall under such exceptions as mentioned in para 3 of the circular and the AO also did not mention any reason for passing the manual order. Since, the AO passed the order without DIN No., in such cases, the circular categorically mentioned at para no. 4 that all such orders are invalid. Therefore, following the above circular, the rectification

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order passed by the AO becomes invalid and therefore it is hereby quashed, However, the AO has liberty to initiate appropriate action to reopen the case if it is deemed fit.”

“(1) Finance Act of each year prescribes tax rates. Assessee, CPC at 143(1) Intimation stage and at 143(3) stage computed tax at the rates prescribed in the Finance Act for the assessment year under consideration. Income Tax to be charged on co-op. societies is mentioned in The First Schedule to Finance Act. Surcharge is also mentioned in the same schedule of the Finance Act. The relevant part of Finance Act is reproduced below: THE FIRST SCHEDULE (See section 2) PART I INCOME-TAX Paragraph A In the case of every co–operative society – Rates of income–tax (1) Where the total income does 10 per cent of the total not exceed ` 10,000 income. (2) Where the total income ` 1,000 plus 20 per cent of the exceeds ` 10,000 but does not amount by which the total exceed ` 20,000 income exceeds 10,000;

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(3) Where the total income ` 3,000 plus 30 per cent of the amount by which the total exceeds ` 20,000 income exceeds ` 20,000 Surcharge on income-tax The amount of income-tax computed in accordance with the preceding provisions of this Paragraph, or the provisions of section 111A or section 112 or section 112A of the Income-tax Act, shall, in the case of every co- operative society, having a total income exceeding one crore rupees, be increased by a surcharge for the purposes of the Union calculated at the rate of twelve per cent of such income-tax: In assessee's case tax as well as surcharge is calculated at the rates prescribed under the Finance Act 2020 and as such rectification was totally unwarranted. 2) In assessee's case and also in case of other bank's case surcharge is calculated at the rate prescribed in the Finance Act of relevant assessment year. Even after passing the order passed u/s 154 the DCIT accepted surcharge computed at the rate prescribed in the Finance Act. Intimations for ay 2023-24 and 2024-25 are attached for reference.”

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the Tribunal decided identical issue against the Revenue and in favour of the assessee, by observing as under:–

“4. We heard the parties and perused the material on record. The contention of the AO for denying the deduction under section 80P(2)(d) is that the said section provides for deduction only for income from investments held with cooperative society and not cooperative bank. The AO had placed reliance on the decision of the Hon'ble Supreme Court in the case of Totgar’s Co-operative Society Ltd (supra). The CIT(A), held the appeal in favour of the assessee by placing reliance on the decision of the coordinate bench in assessee's own case for AY 2013-14 & 2014-15. The ld AR submitted that the facts are for the years under consideration are identical and therefore the decision of the coordinate bench in earlier years is applicable for the year under consideration also. The ld DR on the other hand placed reliance on the order of the AO. In this regard we notice that the coordinate bench while considering the similar issue in assessee's own case for AY 2013-14 (supra) has held that “2.1. We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the relevant portion from the aforesaid order of the Tribunal dated 06/03/2018 for ready reference and analysis:- “This is an appeal filed by Revenue against the order of CIT(A)-37, Mumbai dated 15/03/2017 for A.Y.2012-13 in the matter of order passed u/s.143(3) of the IT Act. 2. Only grievance of Revenue relates to allowing claim of deduction u/s.80P to the assessee-co-operative society. 3. Rival contentions have been heard and record perused. 4. Facts in brief are that the assessee is an AOP and is engaged in the business of Co-operative Society. The return of income has e- filed on 12/11/2012 declaring total income of Rs.34,649/-. The AO has assessed the total income after disallowance of claim u/s.80P(2)(d) of Rs.42,57,348/-. 5. By the impugned order, CIT(A) allowed assessee’s claim of deduction u/s.80P after observing as under:- 5.7 The appellant is a Co-operative Credit society. It is not carrying out any banking activity so as to say that it is a Co-operative Bank. It is not registered with the Reserve Bank of India and it does not fulfill all the conditions prescribed under section 5(ccv) of the Banking Regulations Act 1949. As per sections 2(19) of the income-tax act 1961, a Cooperative society means a co-operative society registered under the Cooperative societies Act. 1912 or under any other law for the time being in force in any state

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for registration of Co-operative Societies . Further, as per section 2(10) of Maharashtra Co-operative Society Act, 1960, Co-operative Bank means a society which is doing the business of banking as defined in section 5(l)(b) of the Banking Companies Act, 1949. Hence, it is apparent from the above that the appellant being a Co-operative society could not be said to be a cooperative bank so as to deny it the benefit of provision of sections 80P as provided in sections 80P(4), where as a cooperative Bank is to be treated as a co-operative Society for the purpose of allowing deduction as per section 80P(2)(d). 5.8 The Hon'ble Bombay High court as Goa, in the case of M/s. The Quepem Urban Co-operative Credit Society ltd., Vs ACIT Circle-1, Margoa in Tax Appeals No. 22, 23, & 24 of 2015 has examined the issue in detail and after considering al the relevant provisions and facts of the case has come to a conclusion and held that the assesses could not be considered to be a Cooperative Bank for the purpose of sections 80P(4) of the Act. Further, Hon'ble Income tax Appellate Tribunal "A" Bench, Mumbai in the case of Lands End Co-operative Housing Society Ltd. vs ITO, in ITA No. 3566/Mum/2014 has “…the provisos of section 80P(2)(d) of the act provides for deduction in respect of income of a cooperative society by way of invest for dividend from its investments with other co-op society if such income is included in the gross total income of the such co-op society. In view of these facts and circumstances we are of the considered view that the assessee is entitled to the deductions of Rs.14,88,107 in respect of interest received/ derived by it on deposit "with co-op banks and therefore the appeal of the assessee is allowed by reversing the order of the CIT(A). The AO is directed accordingly." 5.9 In the case of the advocates mutually aided Co- operative Society Vs ACIT(2015), in ITA No. 546,547 & 1331/Hyd/2103, it was held by the Hon'ble ITAT, Hyderabad Bench that provisions of sections 80P(4) does not apply as the assessee society is not in the business of Banking and that sections 80P(2)(d) is applicable to the assessee society in respect of interest received from other Co-operative Society including Co-operative Banks. In Sabarkantha District Co-operative Milk producers Union Limited Vs CIT in ITA No. 2613/Ahd/@012 it was held by Hon'ble Ahmedabad Tribunal that the only requirement for claiming deduction under sections 80P(2)(d) was that the income should be received from the investments made in Cooperative Society and Co-operative Banks. 5.10 Hon'ble ITAT B Bench Mumbai's in the case of The NutanLaxmi Chs Ltd, Mumbai vs Assessee decided on 24 August, 2016 is held that. "Thus it is amply clear that a cooperative society can only avail deduction u/s 80P(2)(d)(i) in respect of its

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income assessable as business income and not as income from other sources if it carries on business of the banking or providing credit facilities to its members and has income assessable under the head business whereas for claiming u/s 80P(2)(d) it must have income of interest and dividend on investments with other Co- operative society may or may not be engaged in the banking for providing credit facilities to its members and the head under which the income is assessable is not material for the claim of deduction under this section. The provisions of section 80(P)(2)(d) of the Act provides for deduction in respect of income of a co-op society by way of interest or dividend from its investments [Q\ "with other co-op society if such income is included in the gross total income of the such Co-op society. In view these facts and circumstances we are of the considered view that the assessee is entitled to the deduction of Rs. 14,88,107/- in respect of interest received/derived by it on deposits with co-op, banks and therefore the appeal of the assessee is allowed by reversing the order of the CIT (A). The AO is directed accordingly," 5.11 Further Hon'ble ITAT Mumbai has decided the issue in the case of Lands' End Co-operative Housing Society Ltd vs. I.T.O. I.T.A. No. 3566/Mum/2014 (ITAT) dated 15-01- 20l6. The operative part of the above decision reads as under:- "the provisions of section 80(P)(2)(d) of the Act provides for deduction in respect of income of a coop society by way of interest or dividend from its investments with other coop society if such income is included in the gross total income of the such coop society. In view these facts and circumstances we are of the considered view that the assessee is entitled to the deduction of Rs. 14,88,107/- in respect of interest received/derived by it on deposits with coop, banks and therefore the appeal of the assessee is allowed by reversing the order of the CTT(A). The AO is directed accordingly ". 5.12 In the ACIT vs. M/s. Jawala Cooperative Urban Thrift & Credit Society Ltd., - it was held that "We have heard rival parties and have gone through the material placed on record. We find that total income earned by the assessee included income on fixed deposits placed with Bombay Mercantile Bank, interest income from a scheduled bank and dividend income from Delhi Cooperative Bank. From the certificate as placed at paper book page 30, we find that Bombay Mercantile Cooperative Bank is a cooperative society registered under Maharashtra Cooperative Societies Act and we further find that the said

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society has been assessed u/s 143(3) as a cooperative society and its income was allowed to be exempt u/s SOP(2) (i) as held by Mumbai Tribunal in I. T.A. No. 4128 and 4129 vide its order dated 30.11.2005, for Assessment Year 1990- 91 and 1991-92 and further by Mumbai Tribunal vide order dated 07.09.2011 in I.T.A. No. 5292 for Assessment Year 1997-98. Therefore it is held that fixed deposits placed with Bombay Mercantile Bank falls within the exemption granted by Section 80P(2)(d) of the Act. The assessee was also eligible under the provisions of Section 80P(2)a(i) as the funds placed by assessee in the form of fixed deposits can be said to be kept for the purpose of business of the assessee as the assessee had availed credit facilities also against such fixed deposits which were again used for the purpose of business of assessee. Moreover, under similar circumstances, Chandigarh Bench in I.T.A. No. 996/2009 as noted by Ld. CIT(A) has decided in favour of assessee. The dividend income is exempt for all persons including assessee. The interest income from bank amounting to Rs.18,190/- is though not exempt u/s 80(p)(2)(d) but is exempt u/s 80P(2)(i) of the Act. The case law of Totgar's Cooperative Society was rightly distinguished by Ld. CIT(A). Therefore, keeping in view all facts and circumstances, we do not find any infirmity in the order of Ld. CIT(A). 10. In view of above, appeal filed by revenue is dismissed." 5.13 I have considered the assessment order and written submission of the appellant and found that the AO has disallowed claim of deduction of interest income of Rs.42,57,3487- from Co-operative Bank u/s 80P(2)(d) of the Act as Co-operative bank is not a Co-operative Society. I find force in the arguments of the appellant and draw strength from various judicial pronouncements of the jurisdiction at ITAT like The Nutan Laxmi Chs Ltd, Mumbai vs Assessee decided on 24 August, 2016, Lands End Cooperative Housing Society Ltd vs. I.T.O. I.T.A. No. 3566/Mum/2014 (ITAT) dated 15- 01-2016 and ACIT vs. M/s. Jawala Cooperative Urban Thrift & Credit Society Ltd. A Cooperative Bank is always registered under the relevant Cooperative Societies Act of the relevant State. However, during the appellate proceedings, appellant has submitted that the claim of deduction u/s.80P has been accepted in the subsequent year and no addition on the above ground has been made in the AY 2013-14 and AY 2014-15 In view of above, the appellant is entitled to claim of deduction u/s 80P of the Act, therefore, AO is directed to allow Rs.42,57,348/- as deduction u/s.80P of the Act. This ground of appeal is allowed. 6. I have gone through the orders of the authorities below. It is clear from the order of CIT(A) that after applying judicial pronouncements, as laid down by Hon’ble Bombay High Court and the various benches of Tribunal held that assessee-Co- operative society is eligible for deduction u/s. 80P. The finding recorded by CIT(A) has not been controverted by learned DR by bringing any positive material on record. Accordingly, I do not

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find any reason to interfere in the order of CIT(A). 7. In the result, appeal of the Revenue is dismissed. 2.2. The facts in brief, in the present appeal, are that the assessee is a employees co-operative credit society catering to its members. The main activity carried out by the society was mainly borrowing from banks and lending of funds/providing credit facilities to its own members under various schemes formulated by it. During assessment proceedings, the Ld. Assessing Officer observed that the assessee showed total receipt of Rs.22,21,52,042/- by way of interest including interest from deposits in MDC Co-operative bank amounting to Rs.57,22,046/-. The Ld. Assessing Officer further observed that the assessee claimed deduction of Rs.4,45,67,962/- u/s 80P(2)(a)(i) and Rs.61,75,706/- u/s 80P(2)(d) of the Act. As such the assessee claimed total deduction of Rs.5,07,43,668/- u/s 80P of the Act, which was denied by the Ld. Assessing Officer. On appeal, before the Ld. Commissioner of Income Tax (Appeal), the view taken in the assessment order was affirmed by Ld. Commissioner of Income Tax (Appeal) so far as deduction u/s 80P(2)(d) to the tune of Rs.61,75,706/-, which is under challenge before this Tribunal. However, we find that on identical issue in the case of Income Tax Officer vs M/s Presidency Co- operative Housing Society Ltd. (ITA No.4058/Mum/2017) order dated 06/03/2018 ((supra)), another decision in Income Tax Officer vs M/s The Central Telegraph Office Co-operative Credit Society Ltd. (ITA No.4553/Mum/2016), Lands End Co-operative Housing Society Ltd. (2016) 46 CCH 52 (Mum. Trib.) following the decision in CIT vs Darbhanga Mansion CHS Ltd. (ITA No.1474/Mum/2012) decided identical issue in favour of the assessee by holding that the deduction in respect of income cooperative society by way of interest from its investment with other co-operative society, the assessee is entitle to deduction in respect of interest received/derived by it on deposit with cooperative bank. It is further noted that in the aforesaid decision, the Bench duly considered the decision in Totagar Cooperative Sale Society Ltd. 322 ITR 283 (Supreme Court), Mittal Court Premises Cooperative Society Ltd. vs Income Tax Officer 320 ITR 414 and CIT vs Kangra Cooperative Bank Ltd. 309 ITR 106. Identical ratio was laid down by the Mumbai Bench in Sea Grean Co-operative Hsg. Society vs Income Tax Officer (ITA No.1343/Mum/2017) order dated 31/03/2017. Following the aforesaid decisions and keeping in view, the principle of consistency, the appeal of the assessee is allowed.” 5. From the perusal of records, we notice that facts for the years under consideration are similar, and therefore in our considered view, the above decision of the coordinate bench is applicable for the years under consideration also. Accordingly we see no reason to interfere with the decision of the CIT(A) in allowing the deduction claimed by the assessee under section 80P(2)(d) towards interest and dividend. 6. In result the appeals of the revenue for AY 2017-18, AY 2018-19 and AY 2020-21 are dismissed.”

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“28. Under the head ‘Surcharge on income-tax’ appearing in Paragraph A, Part (1), First Schedule it has been provided that the amount of income- tax computed as per the rate of income-tax under Item (1), (2) and (3) or under the provisions of section 111A or section 112 or section 112A or the provision of section 115BAC of the Income Tax Act, shall be increased by a surcharge, for the purposes of the Union, calculated in the case of particular class of assessees in the manner provided therein. As could be seen from items (a) to (e), provided under the head ‘Surcharge on income-tax’, there are different rates of surcharge on income tax,

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depending upon the categories of income. The rate of surcharge starts from minimum of 10% to the maximum of 37% on income-tax. The maximum rate of surcharge at 37% on income-tax is applicable in case of assessees having total income, exceeding Rs.5 crores. It further emanates that the minimum rate of surcharge @ 10% on the incometax is applicable only when the income of the assessee is above Rs.50 lacs, but less than Rs.1 crore. Thus, as per Paragraph A, Part (I) of First Schedule to the Finance Act-2023, the threshold limit for applicability of surcharge is when total income is Rs.50 lacs and above. In other words, if the total income is below the threshold limit of Rs.50 lacs, there would be no surcharge. Even the first proviso under the heading ‘Surcharge on incometax’ carves out an exception regarding the rate of surcharge by stating that in case where assessee’s total income includes dividend income or income under the provisions of section 111A, 112A and section 112A of the Act, the rate of surcharge on the amount of incometax computed on that part of income shall not exceed 15%. In other words, if the total income of an assessee includes any income by way of dividend or income under certain provisions of the Act, the rate of surcharge on tax computed on such part of income under no circumstances would exceed 15%. 29. If we accept the contention of the Revenue that, irrespective of the nature or quantum of income, as per the definition of maximum marginal rate u/s.2(29C) of the Act, surcharge has to be computed at the highest rate of 37% applicable to the highest income bracket of Rs.5 crores and above, then the exception provided under the first proviso under the heading ‘Surcharge on income-tax’ would become otiose. Even, the different rates of surcharge on income-tax provided under clause (a) to (e) applicable to the different slabs of income would become meaningless so far as discretionary trusts are concerned. In our view, such an interpretation would lead to absurdity, hence, is unworkable. In our view, once the definition of ‘maximum marginal rate’ refers to the rate of income-tax and surcharge provided under the Finance Act of the relevant year, then the rates of incometax and applicable rate of surcharge as provided under Paragraph A, Part (I) of First Schedule to the Finance Act- 2023, would apply. Any other interpretation, in our view, would lead to undesirable consequences and would be discriminatory. In our view, the expression ‘including Surcharge on income-tax, if any’, within the bracketed portion of section 2(29C) of the Act, would mean the surcharge as provided in the computation mechanism under the heading ‘surcharge on income tax’ finding place in Paragraph A, Part (I) of First Schedule to the Finance Act-2023. 30. The Revenue has taken a line of argument that the words ‘if any’ succeeding the words ‘including surcharge on income tax’ appearing in the definition of maximum marginal rate u/s. 2(29C) of the Act are only for the purpose that when levy of surcharge is specifically provided under the Finance Act of the relevant year, it would be included in income-tax computed at the highest rate, otherwise, not. Though, at first blush this

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argument of the department sounds attractive, however, on deeper analysis it is found to be superfluous, for the following reasons. As discussed earlier, Article 271 of the Constitution of India, empowers the Union to impose surcharge for the purposes of Union. Whereas, Article 265 of the Constitution of India mandates that no tax can be collected without authority of law. Therefore, levy of surcharge has to be preceded by a law enacted by the parliament authorizing such levy. Thus, in absence of any law authorising levy of surcharge, it cannot be collected. This legal position is as clear as daylight, hence, does not require further clarification with the use of words ‘if any’ to mean whether the Finance Act of a particular year, if at all, provides for levy of surcharge or not. Though, in our view, there is no conflict between provisions contained u/s. 164/167B, 2(29C) of the Income Tax Act and section 2 of the Finance Act, however, even assuming that there are some conflicts, a harmonious construction has to be made to avoid absurdity and make the provisions workable. Thus, in our view, the expression ‘if any’ used in section 2(29C) has to be read not de hors but in conjunction with the computation mechanism provided under the heading ‘surcharge on income tax’ provided in section 2 of Finance Act. This view of ours is further fortified by the object for which levy of surcharge was introduced to the Finance Act - to augment the Revenue of the Union for developmental work by asking persons in the highest income bracket to contribute little more than the other citizens, for nation building.”

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Sd/- Sd/- N.K. CHOUDHRY K.M. ROY JUDICIAL MEMBER ACCOUNTANT MEMBER NAGPUR, DATED: 22/09/2025 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Nagpur; and (5) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Sr. Private Secretary ITAT, Nagpur