The Bangalore bench of the Income Tax Appellate Tribunal (ITAT) has ruled that a taxpayer registered as a co-operative society under the Karnataka Souharda Sahakari Act is eligible for deduction under Section 80P of the Income Tax Act, 1961.
The assessee, a Karavali Souharda Credit Cooperative Limited, derived income from banking activities, capital gains, and other sources. They filed a return of income on September 22, 2016, declaring total income as NIL and claimed a deduction of Rs.52, 51,302 under Section 80P on the entire income. The case was selected for scrutiny, and statutory notices were issued. In response, the assessee submitted the required documents.
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The AO, however, observed that the assessee had derived an income of Rs.52, 51,302 and claimed a deduction under Section 80P, resulting in a taxable income of NIL. The AO issued a show cause notice to the assessee, questioning the validity of the deduction. The assessee argued that as a society registered under the Karnataka Souharda Sahakari Act, they were eligible for the deduction under Section 80P(2)(a)(i) of the Income Tax Act. They relied on the judgment of the coordinate Bench of the Tribunal in the case of M/s. Udaya Souharda Credit Coop. Society in ITA.
However, the AO noted that the judgment of the jurisdictional High Court on similar points was under appeal before the Supreme Court. The AO also highlighted that the assessee had different classes of members with unequal rights, violating the principle of mutuality. Consequently, following the judgment of the Supreme Court in the case of Citizen Co-operative Society Ltd. vs ACIT disallowed the deduction claimed under Section 80P. Aggrieved, the assessee filed an appeal before the CIT (Appeals).
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The Commissioner of Income Tax (Appeals) provided the assessee with an opportunity to present their case, but the assessee did not respond. As a result, the CIT (Appeals) decided the case based on the available documents, confirming the AO’s order. Dissatisfied, the assessee appealed to the ITAT.
Mr. Ramanagowda S. Gowdar, representing the assessee, reiterated the submissions made before the lower authorities and argued that the issue was covered in favor of the assessee by the jurisdictional High Court judgment. He noted that the society, under the Karnataka Souharda Sahakari Act, is eligible for the deduction under Section 80P, but the AO had rejected the claim solely because the revenue had appealed the judgment, which is pending before the Supreme Court. He also requested that the case be remanded to the CIT (Appeals) for fresh consideration, as the assessee was willing to comply with the notices and substantiate their case with evidence.
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Ms. Neera Malhotra, representing the revenue, opposed the request, emphasizing that the CIT (Appeals) had given the assessee ample opportunity to present their case, which they failed to do.
The Tribunal, comprising Judicial Member Keshav Dubey and Accountant Member Laxmi Prasad Sahu, noted that the assessee had filed a return declaring nil income and claimed a deduction under Section 80P on the entire income. The AO had disallowed this deduction, despite a favorable jurisdictional High Court judgment in a similar case, Sri Matha Vividoddesha Pathina Souharda Sahakari Niyamitha vs. UOI . The CIT (Appeals) had decided the case ex parte due to the assessee’s non-prosecution.
The Tribunal remitted the issue to the CIT (Appeals) for fresh consideration, directing the assessee to update their contact details and submit the necessary documents. The Tribunal emphasized that the assessee must cooperate with the proceedings, warning that failure to do so would result in no further leniency. Consequently, the appeal was allowed for statistical purposes.
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