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Facts
The assessee, a Co-operative Credit Society, filed its return belatedly for A.Y. 2020-21. The AO initially disallowed Rs. 4,77,420/- deduction under Section 80P(2)(d) and 80P(2)(b), treating the assessee as a bank under Section 80P(4). The CIT(A) further enhanced the income by disallowing the entire Section 80P claim of Rs. 1,78,37,072/- under Section 80AC due to belated filing and issued a notice for enhancement to an incorrect email ID, thus denying proper opportunity of hearing.
Held
The ITAT set aside the CIT(A)'s order for de-novo adjudication on the applicability of Section 80AC due to non-service of notice, emphasizing the need for proper opportunity. On the merits of the Rs. 4,77,420/- addition, the ITAT, relying on Supreme Court and Karnataka High Court precedents, held that the assessee, being a co-operative society and not a bank, is eligible for deduction under Section 80P(2)(d). These issues, including Grounds 1, 3, and 4, were remanded to the CIT(A) for re-adjudication.
Key Issues
The key issues were the eligibility of a co-operative credit society for Section 80P deduction, especially considering Section 80AC for belated returns and whether it should be treated as a bank under Section 80P(4), and the adequacy of opportunity of hearing provided by CIT(A).
Sections Cited
250, 143(3), 144B, 80P, 80P(2)(a)(i), 80P(2)(d), 80P(2)(b), 80P(4), 80AC, 139(1), 2(24)(viia), 270A(1)(2)(a), Banking Regulations Act, 1949: 56(i)(ccv)
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Income Tax Appellate Tribunal, PUNE BENCHES “SMC” :: PUNE
Before: DR.DIPAK P. RIPOTE & SHRI VINAY BHAMORE
PER DR. DIPAK P. RIPOTE, AM: This appeal filed by the Assessee against the order of ld.Commissioner of Income Tax(Appeal)[NFAC], passed under section 250 of the Income Tax Act, 1961 for A.Y.2020-21 dated 29.02.2024 emanating from the Assessment Order passed under section 143(3) read with section 144B of the I.T .Act, 1961 dated 28.09.2022. The Assessee has raised the following grounds of appeal :
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“1. The learned CIT(A)-NFAC erred in law and facts in enhancing the income of the appellant to Rs.1,78,37,072/-in place of the income determined by the Ld. AO of Rs.4,77,420/-, due to delay in filing of return and hence disallowing the deduction claimed u/s 80P of ITA, 1961, as against the Nil returned income.
Appellant contends that, appellant ought to be given another reasonable opportunity of being heard, considering that, appellant could not make effective submissions before the lower authorities, due to utter confusion and communication gaps, which prevailed between the internal auditor of Appellant, associate of Appellant and officials of Appellant.
Appellant contends that, appellant being a credit co-operative society engaged in providing credit facilities to its members, is eligible for deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961 on income earned on activities incidental to the main activities with members. The learned CIT(A)-NFAC ought to have appreciated judicial precedents upholding the eligibility of such societies for deduction under Section 80P(2)(a)(i).
Appellant contends that, the learned CIT(A)-NFAC ought to have appreciated, the appellant, being a Co-operative society, is also eligible for deduction u/s 80P(2)(d) on interest income earned from co- operative bank amounting to Rs. 4,77,423/-, on deposits maintained with Co operative Banks.
Appellant contends that, the net income earned by the Appellant, from interest on loans given to Members (and after reducing pro-rata expenses, etc.), is exempt under the principle of MUTUALITY, and as 2 such, ought not be held as taxable income.
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Appellant craves leave to add/alter/delete/modify, all/ any of the above grounds of appeal.”
Findings & Analysis :
We have heard both the parties and perused the records. In this case, Assessee had electronically filed Return of Income for A.Y.2020-21 on 04.03.2021. The said Return of Income was processed u/s.143(1) vide order dated 24.12.2021. Vide order u/s.143(1), Assessee was allowed deduction u/s.80P(2)(d) of the Act, of Rs.4,77,423/- and 80P(2)(a)(i) of Rs.1,73,59,649/-. Thus, vide order u/s.143(1), Assessee was allowed deduction u/s.80P as claimed in the Return of Income.
1 Assessee’s case was selected for scrutiny, accordingly, Assessing Officer issued various notices. Assessee filed elaborate reply to the various notices. Admittedly, Assessee is an Employee’s Co-operative Credit Society registered under Maharashtra State Co- operative Societies Act. It’s activities consist of accepting deposits from members and providing loan facilities to members. Assessee has specifically submitted during the assessment proceeding that Assessee’s activities are limited only to its members. The Assessing 3
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Officer disallowed assessee’s claim of Rs.4,77,420/-. The relevant paragraph of assessment order is reproduced here as under :
“9. …………………. Further, on perusal of the activities carried by the assessee it is observed that the activities of the Assessee are basically the activities carried out by any bank hence the claim of the assessee of deduction u/s 80P(2)(d) is misplaced. Considering the activities, the assessee is not found to be eligible for deduction either u/s80P(2)(d) or 80P(2)(b) as the assessee's case is of a banking entity u/s 80P(4) of the I.T.Act and on this account too assessee is not eligible for deduction u/s 80P as an assessee.
The assessee has claimed deduction under section 80P(2)(b) in the return of income. During the course of assessment proceeding assessee claimed that he is claiming deduction u/s 80P(2)(d) of the Income Tax Act. Assessee has to mandatorily file the revise return of income for its claim u/s 80P(2)(d). However he has not revised his return of income. The assesses claimed could not be entertained as it is not a claim made in the return of income. Relying on the decision of Supreme Court of India in the case of Goetze (India) Ltd. Vs CIT. On 24/03/2006 and Equivalent citations (2006) 2004 CTR SC182, 20068 2841TR323SC wherein it is held that the assessee sought to claim a deduction by way of letter before the AO and there was no provision under the Income Tax Act to make amendment in the return of income by modifying an application at the assessment stage without revising the return, the assessee's claim for deduction u/s 80P(2)(d) is hereby rejected
Cumulatively, as discussed above in details and after careful analysis of section 80P(4) read with section 2(24) (viia) of the I.T. Act and considering the facts and circumstance of the case assessee it is held 4 that assessee is not eligible for deduction either u/s 80P(2)(b) or u/s ITA No.1600/PUN/2025 [A]
80P92)(b). In view of the provision of section 80P(4) of the I.T. Act deduction claimed u/s 80P(2)(b) of Rs.4,77,420/- is hereby disallowed.”
2 Aggrieved by the Assessment Order, Assessee filed appeal before ld.CIT(A). Ld.CIT(A) made an enhancement and disallowed the entire claim of deduction u/s.80P of Rs.1,78,37,072/-. The relevant paragraphs of the order of ld.CIT(A) are reproduced here as under : “5.4 It is matter of record that no explanation has been received from the appellant by 05.02.2024, the date by which the explanation should have been filed by the appellant as per the terms of notice issued u/s 250 on 25.01.2024. It is further matter of record that no reply or explanation has been received from the appellant till the time this appeal order is being disposed.
5 Section 80AC was amended by Finance Act, 2018 w.e.f. 01.04.2018. As per the amended provisions, no deduction under Chapter VIA is to be allowed to an assessee unless he furnishes his return of income on or before the due date specified under sub-section (1) of section 139. In view of the undisputed fact that return of income in the assessment year under consideration was filed by the appellant beyond the due date prescribed u/s 139(1) the entire deduction claimed by the assessee u/s 80P, which falls under Chapter VIA is to be disallowed to the appellant. Accordingly, the assessed income of the appellant is enhanced to Rs.1,78,37,072/- in place of income determined by the AO at Rs.4,77,420/-. For the above under-reporting of income, penalty proceedings u/s 270A(1)(2)(a) of the Income tax Act, 1961.”
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3 In this case, thus, ld.CIT(A) held that Assessee had filed Return of Income beyond the time allowed u/s.139(1) of the Act, hence as per Section 80AC, Assessee was not eligible for deduction u/s.80P of the Act.
4 The basic facts are Assessee had filed Return of Income for A.Y.2020-21 on 04.03.2021. The due date for filing Return of Income after the extension granted by CBDT was 15.02.2021. 2.5 The Hon’ble Supreme Court in the decision of Miscellaneous Application No.21 of 2022 vide order dated 10.01.2022, extended the period of limitation as under : Quote.―The order dated 23.03.2020 is restored and in continuation of the subsequent orders dated 08.03.2021, 27.04.2021 and 23.09.2021, it is directed that the period from 15.03.2020 till 28.02.2022 shall stand excluded for the purposes of limitation as may be prescribed under any general or special laws in respect of all judicial or quasijudicial proceedings.” Unquote.
6 The Hon’ble Supreme Court had extended the due dates for the period from 15.03.2020 to 28.02.2022, due to Covid—19 Pandemic. This order of Hon’ble Supreme Court was applicable for all the limitations prescribed under any general or special law in respect of all quasi-judicial, judicial proceedings. 6
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7 In this case, admittedly Return of Income was filed on 04.03.2021 for A.Y.2020-21. It is important to note here that Return of Income was processed u/s.143(1) and entire deduction under section 80P claimed by Assessee was allowed vide order dated 24.12.2021 under section 143(1) of the Act. It means, while processing the Return of Income u/s.143(1), the Revenue has considered impugned Return of Income as Return of Income filed under section 139(1) of the Act and allowed entire deduction under section 80P as claimed in the Return of Income.
8 In this case, the issue of alleged Delay in filing Return of Income was not before ld.CIT(A).
9 In the Assessment Order the Assessing Officer had allowed the deduction u/s.80P(2)(a)(i) of Rs.1,73,59,649/-. It means the Assessing Officer had considered the return filed by the Assessee as filed u/s.139 (1) of the Act.
10 The ld.CIT(A) suo-moto applied Section 80AC of the Act. Ld.CIT(A) held that the return of Income was not filled within the time allowed u/s.139(1) hence as per section 80AC the Assessee was not eligible for deduction u/s 80P of the Act. The ld.CIT(A) had 7
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issued a notice u/s.250 dated 25.01.2024 asking the assessee to file a reply on or before 05.02.2024.Ld.CIT(A) noted that Assessee failed to file any reply and hence, passed the order under section 250 of the Act, on 29.02.2024. It has been pleaded that the notice issued by ld.CIT(A) was issued on incorrect email id, which is not as per the Email Id provided in Form No.
Ld.AR invited our attention to Copy of Form No.35, wherein the Email Id mentioned is as under : sushant.gaonkar@cummins.com
11 It is noted that ld.CIT(A) had issued a notice u/s.250 dated 25.01.2024 on the Email Id : ca.hrarsiddha@gmail.com
12 It is also noted that ld.CIT(A) issued only one notice dated 25.01.2024 for enhancement based on Section 80AC of the Act and without waiting for reply of the Assessee, passed the order. In these facts and circumstances of the case, we agree with the submission of ld.Authorised Representative that Assessee could not file reply due to non-service of notice. In these facts and circumstances of the case, we set-aside the order of ld.CIT(A) to ld.CIT(A) for denovo adjudication. Ld.CIT(A) shall provide opportunity of hearing to the Assessee. Assessee shall file all necessary details before ld.CIT(A). 8
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Accordingly, Ground No.2 raised by the Assessee is allowed for statistical purpose.
In the assessment order, we have already noted that Assessing Officer had disallowed Assessee’s claim of only Rs.4,77,420/- stating that Assessee is a Bank and hence not eligible for deduction u/s.80P(2)(d) of the Act. In the assessment order, Assessing Officer also erroneously stated that Assessee had claimed deduction of Rs.4,77,420/- under section 80P(2)(b) of the Act, and not 80P(2)(d) of the Act. The said finding of Assessing Officer is erroneous. We have verified the order u/s.143(1) of the Act, and noted that Assessee had claimed deduction u/s.80P(2)(d) of the Act, of Rs.4,77,423/-.
1 Assessing Officer has also disallowed deduction of Rs.4,77,423/- on another ground that since Assessee’s activities are Banking Activity and hence, Assessee is not eligible for deduction u/s.80P(2)(d) of the Act. It is mentioned in the Assessment Order that Interest of Rs.4,77,423/- was earned from Fixed deposits kept with Saraswat Co-operative Bank and PDCC Bank. Admittedly, Assessee is registered under Maharashtra Co-operative Societies 9
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Act, as Co-operative Society. Reserve Bank of India has not given any Banking License to Assessee, therefore, Assessee is not a Bank.
The Hon’ble Supreme Court in the case of PCIT Vs. Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd 454 ITR 117 vide order dated 20.04.2023 has held as under : Quote, “ 2. The High Court considered the following question of law - "Whether on the facts and in the circumstances of the case and in law, the Tribunal is justified as claimedby the assessee on the ground that the assessee, a co-operative credit society and is not a bank for thepurpose of Section 80P(4) of the Act?" ……………………………………………
There are concurrent findings recorded by CITA, ITAT and the High Court that the respondent/Assesseecannot be termed as Banks/Cooperative Banks and that being a credit society, they are entitled to exemptionunder section 80(P)(2) of the Income-tax Act. Such finding of fact is not required to be interfered with by thisCourt in exercise of powers under Article 136 of the Constitution of India. Even otherwise, on merits also andtaking into consideration the CBDT Circulars and even the definition of Bank under the Banking RegulationAct, the respondent/Assessee cannot be said to be Co-operative Bank/Bank and, therefore, Section 80(P)(4)shall not be applicable and that the respondent/Assessee shall be entitled to exemption/benefit under section80(P)(2) of the Income-tax Act.”Unquote.
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1 The Hon’ble Karnataka High Court in the decision of PCIT Vs. Totagars Co-operative Sales Society [2017] 392 ITR 74 vide order dated 05.01.2017 has held as under : Quote. ―8. The issue whether a Co-operative Bank is considered to be a Co-operative Society is no longer res integra.For the said issue has been decided by the ITAT itself in different cases. Moreover the word "Co-operativeSociety" are the words of a large extent, and denotes a genus, whereas the word "Co-operative Bank" is aword of limited extent, which merely demarcates and identifies a particular species of the genus Co-operativeSocieties. Co-Operative Society can be of different nature, and can be involved in different activities; the Co- operative Society Bank is merely a variety of the Co-operative Societies. Thus the Co-operative Bank which his a species of the genus would necessarily be covered by the word "Co-operative Society".
Furthermore, even according to Section 56(i)(ccv) of the Banking Regulations Act, 1949, defines a primaryCo-Operative Society bank as the meaning of Co-Operative Society. Therefore, a Co-operative Society Bankwould be included in the words 'Co-operative Society'.
Admittedly, the interest which the assessee respondent had earned was from a Co-operative Society Bank.Therefore, according to Sec. 80P(2)(d) of the I.T. Act, the said amount of interest earned from a Co- operativeSociety Bank would be deductable from the gross income of the Co-operative Society in order to assess itstotal income. Therefore, the Assessing Officer was not justified in denying the said deduction to the assesseerespondent.” Unquote.
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2 Therefore, on the merits of addition of Rs.4,77,420/-, the issue is covered in favour of the Assessee by the decision of Hon’ble Supreme Court(supra) and Hon’ble Karnataka High Court(supra).
However, on the issue of applicability of Section 80AC, we have already set-aside the order of ld.CIT(A) for denovo adjudication. Accordingly, Ground No.1, 3 and 4 raised by the Assessee on merits of addition of Rs.4,77,420/- is also set-aside to ld.CIT(A) for denovo adjudication as ld.CIT(A) has not adjudicated the said ground. Ld.CIT(A) shall decide the issue as per the decision of Hon’ble Supreme Court(supra) and Hon’ble High Court(supra). Ld.CIT(A) shall provide opportunity to the assessee. Assessee shall file necessary details before the ld.CIT(A). Accordingly, Ground No.1, 3 and 4 raised by the Assessee are allowed for statistical purpose.
In the result, appeal filed by the Assessee is allowed for statistical purpose. Order pronounced in the open Court on 19 January, 2026. VINAY BHAMORE Dr.DIPAK P. RIPOTE JUDICIAL MEMBER ACCOUNTANT MEMBER पपणे / Pune; ददिधंक / Dated : 19 Jan, 2025/ SGR 12
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आदेशकीप्रनिनलनपअग्रेनषि / Copy of the Order forwarded to : अपऩलधर्थी / The Appellant. 1. प्रत्यर्थी / The Respondent.
The CIT(A), concerned.
The Pr. CIT, concerned. नवभधगऩयप्रनिनिनर्, आयकर अपऩलऩय अनर्करण, “एस एम सऩ” बेंच, 5. पपणे / DR, ITAT, ―SMC‖ Bench, Pune. गधर्ाफ़धइल / Guard File. 6. आदेशधिपसधर / BY ORDER, / // / Senior Private Secretary आयकर अपऩलऩय अनर्करण, पपणे/ITAT, Pune.
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