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TMI Blog2024 (1) TMI 844X X X X Extracts X X X X X X X X Extracts X X X X ..... gistered under the Karnataka Co-operative Societies Act, 1959, is allowed to have nominal / associate members (non-members) up to 15% of its total membership. In the instant case, as mentioned earlier, the assessee society is providing credit facilities to non-members exceeding 15% of its total membership. Therefore, assessee would not be entitled to deduction u/s 80(P)(2)(a)(i) of the Act on income arising from dealing with non- members. Only profits attributable to non-members alone would not be entitled to deduction u/s 80P(2)(a)(i) of the Act. Thereby meaning proportionate deduction is to be allowed in respect of the income arising out of business with the members of the assessee society. In the light of the above said judgment of the Hon ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd., (supra), we restore the issue to the AO to determine the proportionate deduction under section 80P(2)(a)(i) of the Act with regard to the income earned from the assessee s dealings with its regular members. Addition u/s 68 - cash deposit of the Specified Bank Notes (SBN) from period 10.11.2016 to 31.12.2016 - as per AO assessee society was not authorized to accept t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 45/2017. c) On the facts and in the circumstances of the case and in law the CIT(A)/NFAC erred in deleting the addition u/s 68 of Rs. 1,47,17,500/- without appreciating that the assessee society was not authorized to collect specified bank notes from its members. d) On the facts and in the circumstances of the case and in law the CIT(A)/NFAC erred in deleting the addition u/s 68 of Rs. 1,47,17,500/- without appreciating that the assessee society has brought into its books the moneys represented by specified bank notes which was not legal tender after 8.11.2016. 3.1 Ground Nos.(a) (b) relates to the issue of deduction u/s 80P(2) of the Act. Ground Nos.(c) (d) relates to the issue of addition u/s 68 of the Act amounting to Rs. 1,47,17,500/-. We shall adjudicate the above grounds as under: Ground Nos.(a) (b) (issue of deduction u/s 80P(2)(a)(i) of the Act amounting to Rs. 44,52,542/-:- 4. Brief facts in relation to the above grounds are as follows: 4.1 The assessee is a Co-operative Society registered under Karnataka Co-operative Societies Act, 1959. It provides credit facilities to its members and associate members. For the assessment year 2017-18 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecord. The Hon ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. Ors. Vs. CIT cited (supra) had held that the expression members , since it is not defined under the Income-Tax Act, the meaning/expression members must be considered n the context of the provision of the law enacted by the State legislature under which Co-operative Society claiming exemption has been formed. It is, therefore, necessary to consider the expression member in section 80P(2)(a)(i) of the Act in the light of definition as contained in section 18 of the Karnataka Co-operative Societies Act, 1959, which reads as follows: Nominal or associate Members (1) Notwithstanding anything contained in Section 16, a Co-operative society may admit,-- (a) any individual as a nominal or associate member; (b) any banking company as a nominal member. Explanation In this sub-section banking company shall have the same meaning as is assigned to it in the Deposit Insurance Corporation Act, 1961 (Central Act, 47 of 1961). (c) any firm, company, co-operative society, or any body or corporation constituted by or under any law for the time being in force, as a nominal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue in the present case by adding the word agriculture into Section 80P(2)(a)(i) when it is not there. Further, section 80P(4) is to be read as a proviso, which proviso now specifically excludes co-operative banks which are co-operative societies engaged in banking business i.e. engaged in lending money to members of the public, which have a license in this behalf from the RBI. Judged by this touchstone, it is clear that the impugned Full Bench judgment is wholly incorrect in its reading of Citizen Cooperative Society Ltd. (supra). Clearly, therefore, once section 80P(4) is out of harm s way, all the assessees in the present case are entitled to the benefit of the deduction contained in section 80P(2)(a)(i), notwithstanding that they may also be giving loans to their members which are not related to agriculture. Also, in case it is found that there are instances of loans being given to non-members, profits attributable to such loans obviously cannot be deducted. (emphasis supplied) 5.3. From the last sentence of the above extracted portion of the Hon ble Apex Court judgment, it is clear that only profits attributable to non-members alone would not be entitled to deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perative Society cannot accept the demonetization notes. Section 68 of the Act warrants the assessee to satisfy three conditions namely (i) the identity of the creditor (ii) the creditworthiness of the creditor; and (iii) genuineness of the transaction. In the instant case, assessee had provided all the details of the above amounts detailing the party-wise details, the identity of the creditors, etc. at the time of hearing before AO and CIT(A). In other words, the assessee had furnished the details such as from whom the amounts are collected, where it is accounted and the details of the loans and deposits. Hence, the assessee cannot be made liable u/s 68 of the Act as unexplained credit. The evidence produced by the assessee was rejected only on the basis that assessee was not authorized to collect the SBNs subsequent to 8.11.2016. On identical factual situation, the Bangalore Bench of the Tribunal in the case of Bhageeratha Pattina Sahakara Sangha Niyamita Vs. ITO Ward-3 cited (supra) had held as follows: I notice that the AO has not doubted the submissions of the Assessee that the above said amount of Rs. 24,47,500/- represents collection of money in the Nominal course of ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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