THE ADHYAPAKA C-O-PBANK LTD , PATHANAMTHITTA vs. ITO, WARD 4, THIRUVALLA, THIRUVALLA

Per: George Mathan, JM

This is an appeal filed by the assessee against the DIN & Order No. ITBA/NFAC/250/2020-21/103107537(1) of the National Faceless Appeal Centre, Delhi dated 27.02.2021 for AY 2018-19.

ITA No. 48/Coch/2021 2 The Adhyapaka Cooperative Bank Ltd. provisions of Section 80A(5) shows that no deduction under “C- deduction in respect of certain comes is allowable if the assessee fails to make a claim in its return of income for the deduction”. In the present case, admittedly the assessee has made the claim under Section 80P of the Act. Further, a perusal of provisions of Section 80AC shows that no deduction is allowable to the assessee unless he furnishes the return of income for such assessment year on or before the due date specified under sub- section 1 of Section 139. Admittedly in the present case the intimation clearly shows that the return has been filed under Section 139 of the Act. Thus it is deemed that the delay in filing of the return has been condoned and the return has been treated as a return filed under Section 139(1) of the Act. Further the issue in the appeal is highly debatable issue and the Hon'ble Supreme Court in the case of The Mavilayi Service Co-operative Bank Ltd. reported in 414 ITR 67 had held as under: - “45. To sum up, therefore, the ratio decidendi of Citizen Cooperative Society Ltd. (supra), must be given effect to. Section 80P of the IT Act, being a benevolent provision enacted by Parliament to encourage and promote the credit of the co-operative sector in general must be read liberally and reasonably, and if there is ambiguity, in favour of the assessee. A deduction that is given without any reference to any restriction or limitation cannot be restricted or limited by implication, as is sought to be done by the Revenue in the present case by adding the word “agriculture” into Section 80P(2)(a)(i) when it is not there. Further, section 80P(4) is to be read as a proviso, which proviso now specifically excludes co- operative banks which are co-operative societies engaged in banking business i.e. engaged in lending money to members of the public, which have a licence in this behalf from the RBI. Judged by this touchstone, it is clear that the impugned Full Bench judgment is wholly incorrect in its reading of Citizen Cooperative Society Ltd. (supra). Clearly, therefore, once section 80P(4) is out of harm’s way, all the assessees in the present case are entitled to the benefit of the deduction contained in section 80P(2)(a)(i), notwithstanding that they may also be giving loans to their members which are not related to agriculture. Also, in case it is found that there are instances of loans being given to non-members, profits attributable to such loans obviously cannot be deducted. 46. It must also be mentioned here that unlike the Andhra Act that Citizen Cooperative Society Ltd. (supra) considered, ‘nominal members’ are ‘members’ as defined under the Kerala Act. This Court in U.P. Cooperative Cane Unions’ Federation Ltd., Lucknow v. Commissioner of Income Tax, Lucknow-I (1997) 11 SCC 287 referred to section 80P of the IT Act and then held:

ITA No. 48/Coch/2021 3 The Adhyapaka Cooperative Bank Ltd. “8. The expression “members” is not defined in the Act. Since a cooperative society has to be established under the provisions of the law made by the State Legislature in that regard, the expression “members” in Section 80-P(2)(a)(i) must, therefore, be construed in the context of the provisions of the law enacted by the State Legislature under which the cooperative society claiming exemption has been formed. It is, therefore, necessary to construe the expression “members” in Section 80-P(2)(a)(i) of the Act in the light of the definition of that expression as contained in Section 2(n) of the Cooperative Societies Act. The said provision reads as under: “2. (n) ‘Member’ means a person who joined in the application for registration of a society or a person admitted to membership after such registration in accordance with the provisions of this Act, the rules and the bye-laws for the time being in force but a reference to ‘members’ anywhere in this Act in connection with the possession or exercise of any right or power or the existence or discharge of any liability or duty shall not include reference to any class of members who by reason of the provisions of this Act do not possess such right or power or have no such liability or duty;” Considering the definition of ‘member’ under the Kerala Act, loans given to such nominal members would qualify for the purpose of deduction under section 80P(2)(a)(i). 47. Further, unlike the facts in Citizen Cooperative Society Ltd. (supra), the Kerala Act expressly permits loans to non-members under section 59(2) and (3), which reads as follows: “59. Restrictions on loans.- (1) A society shall not make a loan to any person or a society other than a member: Provided that the above restriction shall not be applicable to the Kerala State Co-operative Bank. Provided further that, with the general or special sanction of the Registrar, a society may make loans to another society. (2) Notwithstanding anything contained in sub-section (1), a society may make a loan to a depositor on the security of his deposit. (3) Granting of loans to members or to non-members under sub- section (2) and recovery thereof shall be in the manner as may be specified by the Registrar.” Thus, the giving of loans by a primary agricultural credit society to nonmembers is not illegal, unlike the facts in Citizen Cooperative Society Ltd. (supra). 48. Resultantly, the impugned Full Bench judgment is set aside. The appeals and all pending applications are disposed of accordingly. These appeals are directed to be placed before appropriate benches of the Kerala High Court for disposal on merits in the light of this judgment.” 4. The learned D.R. vehemently supported the order of the National Faceless Appeal Centre, Delhi under Section 250 of the Act.

ITA No. 48/Coch/2021 4 The Adhyapaka Cooperative Bank Ltd. 5. We have heard the leaned DR for the Revenue. Learned DR has vehemently supported the order of the learned CIT(A). It was her submission that the return is a belated return. As the issue is noted to be a debatable issue the disallowance of the same cannot be done by intimation under Section 143(1) of the Act. Hence, the appeal filed by the assessee is allowed. Dictated and pronounced in the open Court on 7th February, 2022.

Sd/- Sd/- (B.R. Baskaran) (George Mathan) Accountant Member Judicial Member

Cochin, Dated: 7th February, 2022

Copy to:

//True Copy// Assistant Registrar ITAT, Cochin n.p.