A co-operative society engaged primarily in providing credit to its members is eligible for tax deductions under section 80P(2)(a)(i) despite the classification of its members.

ORDER

Per Laxmi Prasad Sahu, Accountant Member :

These two appeals are filed by the Revenue against separate Orders passed by the CIT(A) for Assessment Years 2017-18, 2018-19vide DIN and Order No.ITBA/NFAC/S/250/2024-25/1067460218(1) and No.ITBA/NFAC/S/250/2024-25/1067460540(1) dated 08.08.2024 respectively.

2. The grounds raised by the Revenue are as follows:

1. The decision of CIT(A)/ NFAC is opposed to facts of the case in allowing the entire deduction u/s 80P(2)(a)(i) of the Act.

2. As per section 2(24)(viia)- Profits and Gains of any business of banking(including providing credit facilities) carried on by a Co-operative society with its members is "income. The provisions of section 80P apply only to Primary Agricultural Credit Society or a Primary Co-operative Agricultural and Rural Development Bank as per section 80P(4).The appellant is not a primary agricultural credit society(PACS) as defined in Part V of the Banking Regulations Act,1949. In view of the above, the decision of C1T(A)/ NFAC to allow entire deduction u/s 80P(2)(a)(i) of the Act is opposed to the facts of the case.

3. The CIT(A)/ NFAC has erred in not distinguishing the fact that the assessee in the case of Mavilayi Service Co-op Bank Ltd was registered under the Kerala State Co-operative Act and the present assessee is registered under the Karnataka State Souharda Sahakari Act, 1997. Under the Kerala State Co- operative Act there is no restriction on admission of any type of member, whereas the Karnataka State Souharda Sahakari Act places restriction on the admission of associate & nominal members. It states that associate / nominal members cannot be admitted in excess of 15% of the total membership. The CIT(A)/ NFAC has not appreciated the findings of the AO wherein it has been brought on record that the assessee Souharda Society has admitted and transacted with associate / nominal members in excess of 15% of the total membership thereby violating the law under which the Souharda Society has been registered.

4. The Hon'ble Supreme Court in the case of Mavilayi Service Co-op Bunk Ltd vs CIT has held that proportionate deduction u/s 80P(2)(a)(i) of the Act needs to be allowed if the society had transacted with non members. The CIT(A) ought to have considered the transactions made with associate / nominal members in excess of 15% of membership us transactions with non members.

5. The appellant requests to add, alter, and amend any other grounds of appeal during the course of appellate proceedings.

3. On going through the above grounds of appeal, we noted that issue raised in both the appeals are identical and were heard together. Therefore, we are passing a common Order for both the years.

4. At the outset of hearing, we noted that the appeal filed by the Revenue are delayed by 5 days. In this AO has filed condonation petition stating the reason for delay in filling the appeal is in paras 4 and 5 that he was busy in time barring scrutiny assessment cases.

5. Considering the reasons given by the AO and relying on the judgment in the case of Collector of Land Acquisition Vs. MST Katiji and Others, (1987) 2 SCC 107 : 1987 (2) SC, the delay in filing the appeal is condoned.

6. Briefly stated, the facts of the case are that the assessee filed its return of income and claimed deduction under section 80P(2)(a)(i) of the Act. The case was selected for scrutiny and statutory notices were issued to the assessee. From the documents filed, it was noticed that the assessee is registered under the Karnataka State Souharda Sahakari Act, 1997. From the det