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Facts
The assessee, a Co-operative society, claimed deduction under section 80P on income of Rs. 85,20,594. The AO disallowed the deduction because the society had nominal members, concluding there was no mutuality and treating the society as an AOP. The assessee appealed this disallowance and the levy of interest.
Held
The Tribunal found that the disallowance based solely on the presence of nominal members was not in accordance with the Supreme Court's judgment in Mavilayi Service Co-operative Bank Ltd. The court held that loans to nominal members can qualify for deduction under Section 80P(2)(a)(i).
Key Issues
Whether the disallowance of deduction under section 80P is justified solely on the ground that the society has nominal members? Whether the assessee's failure to appear before NFAC was willful?
Sections Cited
80P, 250, 234A, 234B, 234C, 80P(2)(a)(i)
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Income Tax Appellate Tribunal, “C’’ BENCH: BANGALORE
Before: SHRI CHANDRA POOJARI & SHRI SOUNDARARAJAN K.
PER SOUNDARARAJAN K., JUDICIAL MEMBER:
This appeal by assessee is directed against order of NFAC passed u/s 250 of the Income Tax Act, 1961 (in short “The Act”) for the assessment year 2017-18 dated 22.12.2023.
Facts of the case are that the assessee is a Co-operative society and filed its return of income claiming deduction of income Rs.85,20,594/- u/s 80P of the Act. The ld. AO disallowed the claim of deduction for the reason that there are also nominal members in the society and therefore there is no concept of mutuality exists and considered the society as AOP and denied the deduction u/s 80P of the Act. The assessee challenging the said order filed an appeal before the NFAC and contended that the disallowance of the deduction is not correct and also disputed the levy of interest u/s 234A, 234B & 234C of the Act.
Kushalnagar Co-operative Bank Limited, Kodagu Page 2 of 4 3. The NFAC issued notices to the assessee on various dates for hearing as follows: S.No. Date of notice Date of Remarks hearing 1. 01.01.2021 05.01.2021 No response 2. 17.01.2022 24.01.2022 No response 3. 10.10.2023 17.10.2023 No response 4. 21.11.2023 06.12.2023 No response 3.1 Inspite of giving aforesaid notices of hearing, assessee has not responded to the same and hence the NFAC passed an ex-parte order dismissing the appeal of the assessee. Against the said ex-parte order, the assessee is in appeal before us.
The ld. A.R. submitted that the issue is covered by the judgement of Hon’ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. & Ors. Vs. CIT & Ors. reported in 431 ITR 1 and therefore, contended that the class of members whether it is regular or nominal members will not disentitle the assessee from claiming deduction u/s 80P of the Act. The ld. A.R further contended that the assessee is not well versed in operating the system and therefore they have not seen the notices issued by the NFAC and prayed one opportunity to appear and explain the facts before the ld A.O 5. The ld. D.R. relied on the orders of the lower authorities.
We heard the rival submissions and perused the materials available on record. The issue in dispute is whether the Lr A.O is correct in disallowing deduction u/s 80P of the Act for the reason that the assessee is having nominal members? 6.1 Before going into the merits of the case we will first look into the circumstances under which the assessee was not able to appear before the NFAC. The ld. A.R. had explained that the assessee had not looked into the portal and therefore not able to appear before the NFAC. We find that the reason stated by the ld. A.R for not appearing before the NFAC is reasonable and not willful. Then coming to the