Relief to Co-Op Society: Karnataka HC Quashes "Blind" Tax Assessment, Unfreezes Account [Read Order]

The Karnataka High Court grants major relief to Primary Agricultural Co-operative Society by quashing the unfair assessment order and concomitant demand notice, and bank attachment order.

The court quashed the best judgment assessment order under Section 144 of the Income Tax Act against Primary Agricultural Co-operative Society saying that the assessment and subsequent coercive measures including freezing of the bank account of the society, were concluded completely without the assessee's participation.

Justice B.M. Shyam Prasad made the ruling while hearing a writ case filed by the Society, dissatisfied with the procedures commenced for Assessment Year 2018-19. The Society has not filed its income tax returns for the said year, stating that it has a notional income of Rs. 4,18,496/-.

The issue was raised when the National Faceless Assessment Centre (NFAC) issued a notice under Section 148A(b) of the Income Tax Act in August 2024, stating that the Society had escaped income based on unexplained cash deposits and withdrawals in the Society’s bank account maintained with the Hassan District Co-operative Central Bank.

But the Society made no response to this notice. The Assessing Officer proceeded ex parte and passed an order under Section 148A(d). Thereafter, a notice under Section 148 was issued, and ultimately, a best judgment assessment order under Section 144 was passed in January 2026. Almost at once, there followed a demand notice and in April 2026, a coercive order attaching the Society’s bank account.

It was contended by the learned counsel for the petitioner that the petitioner, being a Primary Agricultural Co-operative Society, which was purely an intermediary institution, receiving funds from the district co-operative bank and lending the same to its member-farmers only, the petitioner’s income was entitled to the deduction under Section 80P of the Act.

The Society had filed an appeal before the CIT(A). However, it asked the High Court for urgent unfreezing of its bank account to continue its agricultural lending activities. The petitioner relied heavily on a recent decision of a co-ordinate bench in W.P. No. 12474/2026, where in a similar situation had prompted the Court to reject the assessment and remand the matter to the stage of Section 148A(b).

The High Court held that the Revenue did not argue that the facts were different from the earlier precedent and that the earlier ruling had not been challenged. The Court further stated that it was not in question that the Society was entitled to claim a deduction under Section 80P if it could prove its character as an intermediary organisation before the authorities.

Most crucially, the Court determined that the assessment and attachment orders were passed without any participation of the petitioner. The Court found that the petitioner's bona fide explanation for the initial delay was enough to accept the petition in part. The impugned assessment, demand and attachment orders were set aside, and proceedings were restored to notice under section 148A(b).

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