IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH : BANGALORE BEFORE SHRI PRASHANT MAHARISHI, VICE PRESIDENT Assessment year : 2016-17 Shri Mahaveer Co-operative Vs. The Income Tax Officer, Credit Society Ltd., Ward 1, Main Road, Alagur, Bagalkot.

Jamakhandi – 587 301. PAN: AABAM 6275F APPELLANT RESPONDENT Appellant by : Shri Sanjay D. Shriguppe, CA Respondent by : Shri Ganesh R. Ghale, Standing Counsel for Revenue.

Date of hearing : 02.06.2025 Date of Pronouncement : 25.07.2025

O R D E R

1. This appeal is filed by Shri Mahaveer Co-operative Credit Society Ltd. (the assessee/appellant) for the assessment year 2016-17 against the appellate order passed by the Addl./JCIT(Appeal), Bhubaneswar [ld. CIT(A)] dated 08.11.2024 wherein the appeal filed by the assessee against the assessment order passed u/s. 143(3) of the Income-tax Act, 1961 [the Act] dated 29.11.2018 was partly allowed for statistical purposes.

2. The assessee is aggrieved with the same and preferred this appeal mainly contesting that the (i) deduction u/s. 80P(2)(a)(i) and/or 80P(2)(d) of the Act should be allowed to the assessee, (ii) Further the disallowance of Rs.75,000 was confirmed for non-deduction of tax at source for the audit fees.

3. Briefly stated the facts of the case show that assessee is registered under the Karnataka Co-operative Societies Act [KCS Act] , filed its return of income on 16.5.2017 declaring gross total income of Rs.19,10,651 and claimed deduction u/s. 80P(2)(a)(i) of the same amount resulting into taxable income at Nil. The return of income was picked up for scrutiny by issue of notice u/s. 143(2) on 17.8.2018. During the course of assessment proceedings, the ld. AO disallowed the entire deduction u/s. 80P(2)(a)(i) relying on the decision of Hon’ble Supreme Court in the case of Citizen Co-operative Society Ltd. In the assessment order, the ld. AO held that in view of the decision of Hon’ble Supreme Court in the case of Citizen Co-operative Society, the assessee is not entitled to deduction u/s. 80P(2)(a)(i). With respect to interest income from investment in other co- operative banks also, interest income earned from Belgaum District central Cooperative bank Limited of Rs 20,88,556/- was not allowed as deduction u/s 80P (2) (d) of the Act. Further it was also found that assessee has debited a sum of Rs.75,000 towards audit fees, but did not furnish any details for TDS, therefore 30% of 75,000 i.e., Rs.22,500 was further disallowed. Accordingly assessment order was passed u/s. 143(3) of the Act on 29.11.2018. Accordingly, total income of was computed at Rs.19,33,151/-.

4. The assessee aggrieved with the same, preferred appeal before the ld. CIT(A). It was submitted that the amount of investment made by the assessee is in terms of provisions of KCS Act and therefore assessee is entitled to deduction u/s. 80P(2)(a)(i) of the Act on the whole of the income. It was further stated that BDCC Bank is prima facie a co-operative society and as per Banking Regulation Act, it is a co-operative bank being a co-operative society carrying on the business of banking. Therefore, interest income earned by the assessee from that bank is eligible for deduction u/s. 80P(2)(d) of the Act. With respect to the disallowance u/s. 40(a)(ia) on account of non-deduction of tax at source, the audit fees paid of Rs.75,000, the assessee contested that recipient of the income has already offered the same as income of the recipient and therefore no disallowance can be made.

5. The ld. CIT(A) confirmed the disallowance u/s. 80P(2)(a)(i) and held that deduction u/s. 80P is allowable to the society that provides credit facilities to its regular or nominal members only and not to anybody else. With respect to deduction u/s. 80P(2)(d) on interest income of Rs.22,02,796 from BDCC Bank, he held that interest income is received from a co-operative bank and the meaning of the word “co-operative society” cannot be extended to include the co-operative banks also. Accordingly deduction u/