ITAT Rules in Favor of Rural Co-op Society: Deduction Under Section 80P Valid for Nominal Members, Overturns CIT(A) Order [Read Order]

Rajura Nagari Sahakari Pat Sanstha Maryadit, appellant–assessee, a rural credit cooperative society based in Chandrapur, Maharashtra, had filed its return for the relevant year claiming a deduction of ₹17,32,958 under Section 80P. The Assessing Officer (AO) disallowed the claim, citing unsatisfactory explanations regarding the admissibility of nominal members, and the CIT(A) subsequently confirmed this disallowance. The society, represented by Abhay Agrawal, challenged the order before the ITAT, arguing that similar matters had been decided in favor of the assessee by the Tribunal in previous cases.

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The Tribunal first addressed a procedural delay of 432 days in filing the appeal, which was attributed to communication lapses between the society and its consultants, as well as the rural background of the trustees, who were not adept at handling online tax compliance. Satisfied with the reasons provided, the Tribunal condoned the delay and proceeded to hear the matter on merit.

The core issue before the ITAT was whether the deduction under Section 80P could be denied solely on the ground that the society had admitted nominal members. The counsel for the assessee cited several Tribunal decisions, including Doctor Punjabrao Deshmukh Krushi Vidyapeeth Karmachari Pat Sanstha Mryat Akola v/s ITO (2024) and ITAT Bangalore Bench orders, which had upheld the deduction for societies registered under state cooperative laws where the definition of "member" expressly includes nominal members.

In its detailed order, the ITAT observed that the Maharashtra Co-operative Societies Act, 1960, under Clause 2(19)(a), defines a "member" to include nominal members. The Tribunal noted that the Supreme Court’s decision in Citizen Co-operative Society Ltd. was not applicable in this case, as it pertained to the Andhra Pradesh Act, which did not recognize nominal members as full members. Instead, the Tribunal relied on the Bombay High Court’s ruling in Jalgaon District Central Co-operative Bank Ltd. v. Union of India (2004) and the Supreme Court’s judgment in Mavilayi Service Co-operative Bank Ltd. v. CIT (2021), both of which clarified that where the state law includes nominal members within the definition of "member," the benefit of Section 80P cannot be denied on this ground alone.

The Tribunal further referenced its own earlier orders, including those in Bhagyashri Nagri Sahakari Pat Sanstha Maryadit and Vainganga Nagari Sahakari Pat Sanstha Ltd., supporting the view that transactions with nominal members are eligible for deduction under Section 80P when the state cooperative law includes them as members.

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After considering the legal framework and precedents, the Tribunal, presided over by V. Durga Rao, Judicial Member, concluded that the deduction under Section 80P as claimed by Rajura Nagari Sahakari Pat Sanstha Maryadit was valid. The Tribunal accordingly set aside the orders of the lower authorities and directed that the deduction be allowed in full.

This ruling provides clarity on the eligibility of cooperative societies for deductions under Section 80P in cases where nominal members are recognized as members under the relevant state cooperative laws, reaffirming the legislative intent and judicial consensus on the issue.

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