Number of Associate Members of Cooperative Society continued to be more than 15% of Total membership of Society is violative of Income Tax Act: ITAT directs to verify matter [Read Order]

The Income Tax Appellate Tribunal (ITAT) Panaji Bench has directed to verify matters on the issue of number of associate members of cooperative society being violative of Income Tax Act, 1961.

The Jamboti Multipurpose Co-operative Society Ltd,the assessee, is a cooperative society registered under the Karnataka Co-operative Societies Act 1959. The assessee has filed the return of income for the A.Y 2018-19 on 04.10.2018 with total income of Rs.NIL.

The said return of income filed is found defective by the revenue authorities. Subsequently, the assessee has filed the return of income on 30.03.2019, disclosing a total income of Rs.Nil/- after claiming deduction of Rs.25,59,276/- under section 80P of the Act.

Further the case was selected for limited scrutiny under E-assessesment scheme-2019 on the issue-deduction from total income Under Chapter VA.And notice under section 143(2) and u/sec 142(1) of the Act are issued calling for details in respect of claims and the information supporting the return of income filed.

The assessee has filed the details on 16.12.2020 & 29.01.2021 and the Assessing Officer (A.O) has dealt on the submissions/details at Para 3.6 of the order and further show cause notice was issued and the assessee has filed the reply dated 14.04.2021 on the disputed issues of the interest income from cooperative banks/scheduled banks and commercial banks.

Your Ultimate Guide to India’s Latest Income Tax Laws, Click Here

Whereas the A.O was not satisfied with the explanations and dealt on the provisions and judicial decisions made addition of Rs.3,99,869/- interest income under section 56 of the Act and assessed the total income of Rs.3,99,870/- and passed the order u/sec143(3)r.w.s144B of the Act dated 19.04.2021.

Subsequently, the Pr. CIT on perusal of the records and information found that the order passed by the AO under section 143(3) r.w.s 144B of the Act is erroneous and prejudicial to the interest of the revenue and issued revision notice under section 263 of the Act.

The Pr.CIT is of the view that the number of associate members of the assessee society continued to be more than 15% of the total membership of the society for the relevant period and the assessee has violated the provisions of section 18(1) of the Karnataka Cooperative Societies (Amendment)Act 2014.

In compliance with the notice under section 263 of the Act dated 09.02.2023, the assessee has the details and explanations through ITBA Portal.. Whereas the Pr.CIT was not satisfied with the explanations and submissions and is of the opinion that the order passed by the AO is erroneous and prejudicial to the interest of the revenue, and accordingly issued directions to the AO and set-aside the order 143(3) r.w.s 143B of the Act and has passed order under section 263 of the Act dated 07.03.2023. Aggrieved by the order of the Pr.CIT, the assessee has filed an appeal before the Tribunal.

At the time of hearing, the AR submitted that the Pr.CIT has erred in set aside the order under section 143(3) r.w.144B of the Act, which does not satisfy the twin conditions of erroneous and prejudicial to the interest of the revenue. The AR submitted that the explanation 2 to sec 263 of the Act ought to be considered only when the AO has not applied his mind, the facts are to be verified and no enquiry is conducted.

The A.O has verified the facts, bylaws, details of regular members, associate and nominal members and made disallowance of deduction under section 80P to the extent of Rs.3,99,869/-.

Your Ultimate Guide to India’s Latest Income Tax Laws, Click Here

The contentions of the AR are that the number of associate members of the assessee society continued to be more than 15% of the total membership of the society for the relevant period cannot be accepted as violation under the income tax Act.

The DR submissions are that the Pr.CIT has dealt with the facts and information which proves that the Assessing Officer has not applied his mind and not made enquiries on the disputed issue.

The Tribunal observed that there is no examination and verification of the facts or findings by the A.O on the issue of associate members exceeding 15% of total membership in the assessment proceedings.

The two member bench of Pavan Kumar Gadale, Judicial Member & G D Padmahshali Accountant Member remitted the matter needs to be verified and reasons for claim should be justified and the assessing officer shall adjudicate a fresh on merits on the disputed issue and shall provide adequate opportunity of hearing to the assessee and the assessee should also cooperate in submitting the information.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates