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Income Tax Appellate Tribunal, “SMC” BENCH, PANAJI
Before: SHRI PARTHA SARATHI CHAUDHURY, JM
IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, PANAJI (VIRTUAL HEARING HELD AT I.T.A.T. PUNE BENCHES, PUNE) BEFORE SHRI PARTHA SARATHI CHAUDHURY, JM ITA No. 190/PAN/2019 : A.Y. 2015-16 Herbal Urban Credit Souharda Sahakari Niyamit, At & Post: HERBAL, tal. Hukkeri, Dist. Belagavi PAN: AAAAHO 540H : Appellant Vs. The I.T.O. Ward , Gokak Respondent
Appellant by : Shri Pramod Y. Vaidya (through virtual) Respondent by : Shri N. Shrikanth (through virtual)
Date of Hearing : 14-11-2022 Date of Pronouncement : 16-11-2022 ORDER This appeal preferred by the assessee emanates from the order of the ld. CIT(A) Belgaum dated 27-03-2019 for assessment year 2015-16 as per the following grounds of appeal. 1. The order of the ld. CIT(A) is opposed to the law and facts of the case. 2. On the facts and circumstances of the case, the appellant denies itself to be assessed on a total income of Rs. 16,94,510/- as against returned income of Rs. NIL. 3. The ld. CIT(A) erred in following the decision of Hon’ble ITAT ‘c’ Bangalore, in the case of Uday Souharda Credit Co-operative society Ltd. Vs. ITO Ward 5(2)(4), Bangaluru, as reported in ITA No. 2831/Bang/2017 dated 17- 08-2018, even though the facts of the appellant’s case are totally different and the disallowance made needs to be deleted. 4. On the facts and in the circumstances of the case, the ld. CIT(A) ought to have accepted the explanation offered by the appellant and refrained from confirming the disallowance of the deduction claimed u/s 80P(2)(a)(i) of the Act of Rs. 6,94,510/- on the ground that, the appellant is not co-operative society as per provisions of section 80P(2)(a)(i) of the Act. 5. The ld. CIT(A) failed to appreciate that, as per section 2€ of Karnataka Souharda Sahakari Act, 1997 the ‘CO-OPERATIVES’ registered under this Act shall be deemed to be a co-operative society, hence the appellant is eligible to claim the deduction u/s 80P(2)(a)(i) of the Act. 6. The ld. CIT(A) failed to appreciate that, as per section 2(24)(viia) of the Act, the word ‘Income’ includes only the income earned by a co-operative society, but not income earned by the CO-OPERATIVES registered under Karnataka Souharda Sahakari Act, 1997, hence the income earned by the
ITA 190/PAN/2019 Herbal Urban Credit Souharda Sahakari Niyamit, Belgavi A.Y. 2015-16 Co-operatives i.e. appellant cannot be called as INCOME under the Act, hence no income-tax can be levied. 7. The ld. CIT(A) failed to appreciate that, s per paragraph B of Part I of the FIRST SCHEDULE OF Income-tax Act, 1961, the rates of income-tax in case of Co-operative societies are provided and the rates of income-tax in case of CO-OPERATIVES is not mentioned in entire FIRST SCHEDULE, hence no income tax can be levied on the income earned by the CO- OPERATIVES registered under the Karnataka Souharda Sahakari Act, 1997. 8. Without prejudice the directions given by the CIT(A) are arbitrary and unjustified in the eyes of law and the same are liable to be canceled. 9. For these and other reasons that may be urged at the time of hearing the appeal may kindly be admitted and disposed off in the interest of equity and justice. 10. The appellant craves for leave to add or delete or amend the grounds of appeal before or at the time of hearing.”
At the very outset, the ld. Counsel for the assessee submitted that the assessee is registered under the Karnataka Souharda Sahakari Act, 1997 and that it had claimed deduction u/s 80P(2)(a)(i) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) which was disallowed by the Department. That as per the ld. A.O vide para 4.1 of his order, he has observed that the assessee indeed registered under Karnataka Souharda Sahakari Act, 1997. However, he held that as per the said Act, the number of Nominal/Associate Members shall not exceed 15% of the total Members. However, in the case of the assessee, Nominal/Associate Members were more than 75% of the total Regular Members which was in contravention of the said Act under which the assessee was registered. Therefore, he disallowed the deduction u/s 80P(2)(a)(i) of the Act. Regarding the number of nominal members he has arrived at a figure of 488 members and thus he has drawn difference between the members as per the list furnished by the assessee and as per the members appearing in the audit report.
The ld. CIT(A) on the other hand, vide para 8.2 of his order observed that admittedly the assessee was registered under the Karnataka Souharda Sahakari
ITA 190/PAN/2019 Herbal Urban Credit Souharda Sahakari Niyamit, Belgavi A.Y. 2015-16 Act, 1997 under which only Co-operatives and not Co-operative Societies were registered. The ld. CIT(A) further opined that the Co-operatives and the Co- operative Societies are two different entities and the assessee was registered under the Karnataka Souharda Sahakari Act, 1997 and therefore, was only a Co- operative and not a Co-operative Society.
Having heard the parties and on perusal of the orders of subordinate authorities, it is crystal clear that there is inherent division of opinions while denying deduction u/s 80P(2)(a)(i) of the Act to the assessee. The ld. A.O has denied this deduction on noticing that as per the Karnataka Souharda Sahakari Act, 1997 only 15% nominal members were allowed whereas the assessee had more than 75% Nominal/Associate members. Since the assessee contradicted in contravention with the Karnataka Souharda Sahakari Act, 1997 had lost the character of a Co- operative Society and hence deduction u/s 80P(2)(a)(i) of the Act was disallowed. The ld. CIT(A) on the other hand has denied the deduction under the said provision completely on a different footing by noticing that so far as the entity registered under the Karnataka Souharda Sahakari Act, 1997 is concerned they are to be treated as Co-operatives and not a Co-operative Society. Since the assessee was registered under the Karnataka Souharda Sahakari Act, 1997, the assessee was only Co-operatives and therefore, not entitled to claim deduction u/s 80P(2)(a)(i) of the Act. In arriving at this decision, the ld. CIT(A) though his power being co- terminus with that of the A.O has not examined the contentions raised by the A.O as to whether the assessee has violated the provisions of Karnataka Souharda Sahakari Act, 1997 whereby whether the assessee was having more than 15% Nominal/Associate Members. I am of the considered view that there needs to be detailed factual verification as to the basic character and format structure of the assessee and whether though it is registered under the Karnataka Souharda
ITA 190/PAN/2019 Herbal Urban Credit Souharda Sahakari Niyamit, Belgavi A.Y. 2015-16 Sahakari Act, 1997 had complied with provisions of the said enactment or not. It has to be verified whether being registered under the said Act the entity would be a Co-operative or Co-operative Society. Once it is ascertained that the assessee is a Co-operative Society complying with all the provisions of Karnataka Souharda Sahakari Act, 1997 then only the question of allowing deduction u/s 80P(2)(a)(i) of the Act will arise. In the interest of justice, therefore, I set aside the order of the ld. CIT(A) and remand the matter back to the file of the A.O. to re-adjudicate as per law in the light of the aforestated directions complying with the principles of natural justice and at the same time, the assessee is directed to be present before the ld. A.O with all relevant documents and details to represent its case on merits. The grounds of appeal are allowed for statistical purposes. 5. In the result, appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on 16th November, 2022. Sd/- PARTHA SARATHI CHAUDHURY JUDICIAL MEMBER
Pune; Dated : 16th November, 2022 Ankam Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT (Appeals)- Belagavi 4. The Pr. CIT Belagavi 5. DR, ITAT, “SMC” Bench, Panaji 6. Guard File. //सत्यापित प्रपत// True Copy// BY ORDER, /// TRUE COPY /// Sr. Private Secretary ITAT, Pune
ITA 190/PAN/2019 Herbal Urban Credit Souharda Sahakari Niyamit, Belgavi A.Y. 2015-16 Date 1 Draft dictated on 14-11-2022 Sr.PS 2 Draft placed before author 15-11-2022 Sr.PS 3 Draft proposed and placed before the JM/AM second Member 4 Draft discussed/approved by second AM/JM Member 5 Approved draft comes to the Sr. PS/PS Sr.PS/PS 6 Kept for pronouncement on 16-11-2022 Sr.PS/PS 7 Date of uploading of order 16-11-2022 Sr.PS/PS 8 File sent to Bench Clerk 16-11-2022 Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order