2021 (1) TMI 912 - AT - Income Tax

Eligibility of deduction u/s 80P - assessee is a co-operative society registered under the Karnataka Co-operative Societies Act, 1959 - Denial of deduction as assessee was providing credit facilities to Non-members, namely, associate / nominal members - CIT(A) held that since nominal and associate members of assessee is more than 15% of the total membership, there has been a violation of provisions of Karnataka Co-operative Societies Act, 1959, and hence, the A.O. has correctly denied the claim of deduction u/s 80P(2)(a)(i) - HELD THAT - In the instant case, admittedly, assessee has been accepting deposits and given loans primarily to associate / nominal members. the assessee-society is accepting deposits and also providing credit facilities to nominal / associate members far exceeding 15% of its total business. The A.O. has come to a categorical finding that regular members is less than 15%, whereas, non-members, i.e., nominal / associate members are exceeding 87% of the total members. This categorical finding of the A.O. has not been dispelled by the assessee before the Tribunal. Therefore, there is a clear violation of provisions dealing with non-members as per Karnataka Co-operative Societies Act, 1959. Therefore, the ratio of the judgment of the Hon ble Supreme Court in the case of Citizen Co-operative Society 2017 (8) TMI 536 - SUPREME COURT is clearly applicable to the facts of the instant case As decided in in the case of M/s.Vikasha Vividhoddesha Sahakara Sangha Niyamitha 2019 (11) TMI 1565 - ITAT BANGALORE assessee could not controvert the categorical finding of CIT (A) regarding violation of the provisions of Karnataka Co Operative Societies Act, 1959 as noted above - Decided against assessee.

Summary

Issues:
1. Disallowance of claim of deduction u/s 80P(2)(a)(i) of the I.T.Act amounting to ?10,67,783.

Detailed Analysis:
1. The appeal was against the CIT(A)'s order confirming the disallowance of the deduction claimed u/s 80P(2)(a)(i) of the I.T.Act. The assessee, a cooperative society, filed its return for the assessment year 2016-2017 claiming the deduction. However, the Assessing Officer denied the claim stating that the society provided credit facilities to non-members, violating the Karnataka Co-operative Societies Act, 1959, based on a Supreme Court judgment. The CIT(A) upheld this denial due to the high percentage of nominal and associate members.

2. The assessee contended that it only dealt with nominal/associate members who were part of the society, not outsiders. The counsel cited a recent Supreme Court judgment to support their argument. The Department's standing counsel referred to previous Tribunal orders where similar claims were denied. The Tribunal considered the definitions of nominal/associate members under the Karnataka Co-operative Societies Act, 1959, along with an amendment limiting their percentage. The A.O. found a violation as non-members exceeded 87% of total members, contrary to the Act's provisions.

3. The Tribunal noted that the violation of the Act's provisions was clear, as the society exceeded the permissible limit of nominal/associate members. Referring to the Supreme Court and Tribunal judgments, the Tribunal held that the denial of the deduction was justified. It emphasized that the Act prohibits non-members exceeding 15% of total membership. Citing a similar case's findings, the Tribunal dismissed the appeal, upholding the denial of the deduction under section 80P(2)(a)(i) of the I.T.Act.

This detailed analysis highlights the legal reasoning and application of relevant laws and precedents in the judgment regarding the disallowance of the deduction claimed by the cooperative society.