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Facts
The Revenue filed appeals against the CIT(A)'s order that allowed the assessee's appeal substantially. The Assessing Officer (AO) had treated the assessee as an AOP and made several disallowances based on alleged violations of the MSCS Act, assessee's bye-laws, and the Banking Regulation Act. The CIT(A) relied on earlier years' orders, treating the assessee as a co-operative society and granting relief.
Held
The Tribunal held that the CIT(A) erred in not adjudicating the specific objections raised by the AO. The CIT(A)'s order was deemed cryptic and non-speaking, requiring a fresh adjudication. The Tribunal set aside the impugned order and restored the matter to the file of the CIT(A) for a fresh, issue-wise adjudication.
Key Issues
Whether the CIT(A) erred by not adjudicating specific objections of the AO, and whether the matter should be remanded for fresh adjudication based on the assessee's status as a co-operative society versus an AOP.
Sections Cited
40(a)(ia), 194A, 40(ba), 37(1)
AI-generated summary — verify with the full judgment below
Assessment Year: 2013-14 The Asst. CIT Vs. M/s Adarsh Co-operative Bank Ltd. Central Circle-1, Jodhpur Teen Batti Choraha, Sirohi-307001 (Rajasthan) PAN NO: AAAAM1782A Appellant Respondent 2018 Assessment Year: 2014-15 Vs. The Asst. CIT M/s Adarsh Co-operative Bank Ltd. Central Circle-1, Jodhpur Teen Batti Choraha, Sirohi-307001 (Rajasthan) PAN NO: AAAAM1782A Appellant Respondent Cross Objection No. 6/Jodh/2018 (In Assessment Year 014-15 M/s Adarsh Co-operative Bank Ltd. Vs. The Asst. CIT Teen Batti Choraha, Sirohi-307001 Central Circle-1, Jodhpur (Rajasthan) PAN NO: AAAAM1782A Appellant Respondent Assessee by : Shri Prakul Khurana, Advocate and Shri Mukesh Soni, CA Revenue by : Smt. Runi Pal, CIT-DR Date of Hearing : 09/10/2025 Date of Pronouncement : 30/10/2025 आदेश/Order PER LALIET KUMAR, J.M: Both the above appeals filed by the Revenue and Cross objection filed by the Assessee are directed against the order passed by the Ld. CIT(A)-2, Udaipur dt.27/02/2018.
Since all the above appeals and cross objection were heard together therefore they are being disposed of by this consolidated order.
We shall take appeal of the Revenue in for the Assessment Year 2014-15 as a lead case for discussion.
This appeal by the Revenue is directed against the order of the Ld. CIT(A)- 2 Udaipur dated 27.02.2018 for A.Y. 2014-15. The short controversy is whether the CIT(A) erred in not adjudicating the specific objections recorded by the Assessing Officer in the assessment order while granting relief, and whether, in the facts, the matter ought to be restored to the file of the CIT(A) for a fresh, speaking adjudication on all such objections.
Briefly the facts of the case are that the assessee filed return declaring income of Rs.17,25,33,360/-. The AO completed assessment u/s 143(3) on 29.12.2016 in the status of AOP, inter alia, disallowing (i) interest u/s 40(a)(ia) read with s.194A of Rs.43,91,02,618/-, (ii) professional & law charges of Rs.9,88,546/- (iii) advertisement expenses of Rs.5,10,547/- (iv) commission of Rs.22,80,002 u/s 40(ba), and (v) penalty expenditure of Rs.1,10,00,000/-, thereby assessing total income at Rs.62,64,15,070/-.
While doing so, the AO recorded detailed objections alleging violations of the Multi-State Co-operative Societies Act, 2002 (“MSCS Act”), the assessee’s own bye-laws, and the Banking Regulation Act, 1949, and on that foundation concluded that the assessee is not a “co-operative society” within s.2(19) but is to be assessed as an AOP. For ready reference, we extract/summarise the salient portions of the AO’s findings (head-notes supplied):
A. Alleged violations of the MSCS Act (i) Section 67(1) (10× cap) read with proviso: deposits/loans vis-à-vis subscribed capital & reserves; (ii) Section 33 (20% shareholding cap): more than 20% held by Adarsh Credit Co- operative Society Ltd.; (iii) Section 35 (redemption): redemption limited to specified authorities; (iv) Sections 7(1)(d), 10(1), 11(7)(a): bye-laws to be consistent with the Act— found otherwise by AO; (v) Section 73: auditor’s duty/qualified remarks noted by AO.
B. Alleged violations of assessee’s bye-laws (i) Definition of “member”/“co-operative society” excludes multi-state society; admission of Adarsh Credit Co-op Society as member contrary to bye-law 5; (ii) Bye-law 10(i): cap on withdrawal/resignation (10% of paid-up capital) not adhered; (iii) Bye-law 17(iv): 20% cap breached; (iv) Bye-law 25: deposits/loans limit (10×) said to be unlawfully invoked, presence of alleged benami members; (v) Bye-law 52: shareholding linkage (5%/2.5%) vis-à-vis borrowings allegedly not complied; diversion of loan funds to share capital alleged.
C. Alleged violations of the Banking Regulation Act, 1949 (i) Section 56 r.w.s. 5(ccv)/(ccvi): primary co-operative bank’s bye-laws should not permit admission of another co-operative society—contrary position alleged; (ii) Section 5A: Act to override bye-laws/resolutions.
On the above plinth, AO held status as AOP, applied s.194A & s.40(a)(ia) to interest, invoked s.40(ba) for commission to members, disallowed advertisement & professional/law charges for stated reasons, and disallowed penalty in terms of Expl.1 to s.37(1). Quantification and computation are set out verbatim in the assessment order.
Against the order of the Ld. CIT(A) the Revenue went in appeal before the Ld. CIT(A). The Ld. CIT(A) allowed the assessee’s appeal substantially. In doing so, the CIT(A) followed earlier years and proceeded on the basis that the assessee is a co-operative society, inter alia, holding that (a) exemption under s.194A(3)(v) applies to interest paid to members; (b) s.40(ba) does not apply to co-operative societies; and (c) the professional & law charges/advertisement disallowances were not sustainable on facts. The relief on interest (Rs.43.91 crore) was granted by following A.Y. 2012-13 order of the same office; similar approach was adopted for commission and other items.
The material portions of the CIT(A)’s approach are that, having held the assessee to be a co-operative society (not an AOP) by relying upon earlier orders including an ITAT decision cited therein, the CIT(A) then applied s.194A(3)(v) and declined to sustain disallowance u/s 40(a)(ia); similarly, s.40(ba) was held inapplicable to a co-operative society; and the factual disallowances on professional/law charges and advertisement were deleted by placing reliance on the evidences/past pattern.
The learned Departmental Representative (DR) supported the assessment order and strongly contended that the Ld. CIT(A) has failed to adjudicate the Assessing Officer’s specific, issue-wise objections arising under the Multi-State Cooperative Societies Act, the assessee’s own bye-laws, and the Banking Regulation Act. According to the Revenue, the first appellate authority merely rested its conclusion on the earlier characterization of the assessee’s status as a “co-operative society”. It did not return findings on each of the Assessing Officer’s distinct grounds which formed the very basis for concluding that the assessee was to be assessed in the status of an Association of Persons (AOP) and for making consequential disallowances. The order, therefore, is cryptic and non-speaking on the core objections, warranting a remit to the CIT(A) for a fresh adjudication in accordance with law. The Ld. DR further submitted that the principle of mutuality is a sine qua non for granting the status of a co-operative society and relied upon the judgments of the Hon’ble Supreme Court in Bangalore Club v. CIT and Sikandrabad Club v. CIT to buttress this proposition. It was further argued that the principle of res judicata has no application in income-tax proceedings, and therefore, therefore findings given by the Tribunal in earlier assessment years cannot be mechanically applied without examining the factual matrix of the present assessment year, in view of these submissions, the Ld. DR prayed that the impugned order of the CIT(A) be set aside and the matter remanded back for a fresh, speaking decision after adjudicating each of the Assessing Officer’s objections in detail.
Ld. AR relied on the impugned order and the earlier orders treated as precedent by the CIT(A); it was submitted that the assessee holds valid registration under the MSCS Act and a banking licence, and that identical issues stood covered in earlier years/coordinate bench rulings; nevertheless, on our query, it was fairly submitted that without prejudice, if the Tribunal deems it appropriate, the assessee has no objection to a remit for adjudication of all objections on merits, provided adequate opportunity is granted.
We have perused the record and rival submissions. The assessment order marshals granular, statute-specific objections (MSCS Act ss.33, 35, 67; bye-laws 5, 10, 17, 25, 52; Banking Regulation Act s.56 r.w.s. 5(ccv)/(ccvi) & s.5A) to hold the AOP status and deny that the assessee is a cooperative society within the meaning of Income Tax Act, 1961 and thereafter denied the disallowances, which are peculiar to the cooperative society.
12.1 The CIT(A)’s order, on the other hand, primarily proceeds by following earlier years and by accepting that the assessee is a co-operative society, thereafter granting relief on interest (u/s 194A(3)(v)) and commission (holding s.40(ba) inapplicable), besides deleting other disallowances. However, the CIT(A) has not returned independent, issue-wise findings on each of the AO’s objections extracted above; the order does not engage with those objections on their own merits.
12.2 In our considered view, where the Assessing Officer has founded the assessment on multiple, distinct planks—drawn not only from the Income-tax Act but also from special statutes, bye-laws, and provisions of banking law—the first appellate authority is duty-bound to adjudicate each material ground and objection raised by the Assessing Officer. The Commissioner (Appeals) must record specific findings with cogent reasons on each such issue and render a speaking order. Mere reliance on an earlier characterization of the assessee’s “status”, or on the conclusions reached in preceding assessment years, cannot absolve the Commissioner (Appeals) from addressing the Assessing Officer’s pointed objections for the year under consideration. Such non-adjudication amounts to a procedural infirmity warranting a remit for fresh consideration. It is a settled proposition of law that before applying any precedent or judicial pronouncement, the authority must first record the similarity of material facts between the cited decision and the case under consideration. Judicial decisions are not to be read as statutory provisions; they are to be applied only on the bedrock of the facts and circumstances peculiar to that assessment year.
12.3 We therefore set aside the impugned order and restore the matter to the file of the CIT(A) with the following directions:
(i) The CIT(A) shall adjudicate, issue-wise, the AO’s objections recorded in the assessment order under the heads MSCS Act, assessee’s bye-laws, and the Banking Regulation Act, and the consequential tax disallowances/provisions invoked (including, where applicable, ss.194A, 40(a)(ia), 40(ba), 37(1), etc.), after considering the assessee’s rebuttals and evidence and the AO’s remand report, if any.
(ii) For abundant clarity, while undertaking the above exercise, the CIT(A) shall not be influenced by any earlier characterisation/observation (including any prior order of the Tribunal cited before the CIT(A)) that the assessee is a co- operative society. The status issue and all other objections of the AO shall be examined afresh on their own merits, in accordance with law.
(iii) The CIT(A) shall afford the assessee adequate opportunity of being heard, permit filing of any additional evidence, if warranted, in terms of Rule 46A, and shall pass a well-reasoned, speaking order dealing point-by-point with the AO’s objections and the assessee’s replies.
12.4 We make it clear that we have not expressed any opinion on the merits of the additions or on the assessee’s status; all issues are left open to be decided by the CIT(A) in accordance with law.
In the result, the appeal of the Revenue is allowed for statistical purposes, as indicated above.
Since we have remand the present case therefore Cross Objection filed by the Assessee become infructuous and hereby dismissed.
Both the parties fairly submitted that the facts and circumstances of other appeals i.e and similar contentions raised therein may be considered, therefore, our findings and directions given in shall apply mutatis mutandis to other appeal also, which are accordingly allowed for statistical purposes.
In the result, appeal of the Revenue is allowed for statistical purposes and Cross Objection filed by the Assessee is dismissed.
(Order pronounced in the open Court on 30/10/2025 )