IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH : COCHIN BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI SOUNDARARAJAN K., JUDICIAL MEMBER Assessment Year : 2017-18 M/s. Villiappally Panchayat Service The Income Tax Cooperative Bank Ltd., Officer, Head Office, Villiapalli, Ward – 2(2), Badagara, Kerala – 673 542. Vs.

PAN: AABAV4831C APPELLANT RESPONDENT Assessee by : None Revenue by : Smt. Leena Lal, Snr. AR Date of Hearing : 04-08-2025 Date of Pronouncement : 26-08-2025 ORDER PER SOUNDARARAJAN K., JUDICIAL MEMBER This is an appeal filed by the assessee challenging the order of the NFAC, Delhi dated 23/05/2025 in respect of the A.Y. 2017-18 and raised the following grounds:

2. The assessee is a co-operative society registered under the Kerala Co-

operative Societies Act. The assessee filed their return of income and claimed the income as eligible for deduction u/s. 80P of the Act. Thereafter the case was selected for scrutiny and the AO denied the deduction claimed u/s. 80P of the Act because the assessee had also nominal members and the society also granted other loans apart from the agricultural loans. As against the said order, the assessee filed an appeal before the Ld.CIT(A). The Ld.CIT(A) also dismissed the same on the ground that the assessee is functioning as a co-operative Bank and the society also deals with the nominal members and therefore they are not entitled for deduction u/s. 80P(2)(a)(i) of the Act. The said order of the Ld.CIT(A) is challenged before this Tribunal.

3. At the time of hearing, the Ld.AR submitted that the assessee is a primary agricultural co-operative society registered under the provisions of the Kerala Co-operative Societies Act and therefore they are entitled for deduction u/s. 80P(2)(a)(i) of the Act. Further, the Ld.AR submitted that the presence of nominal members would not disentitle the assessee to claim the deduction u/s. 80P(2)(a)(i) of the Act. The Ld.AR also relied on the judgment of the Hon’ble Supreme Court reported in 431 ITR 1 in the case of Mavilayi Service Co-operative Bank Ltd. v. CIT and prayed to allow the appeal.

4. The Ld.DR relied on the orders of the lower authorities and submitted that the assessee is acting like a co-operative bank and therefore they are not entitled for deduction u/s. 80P of the Act.

5. We have heard the arguments of both sides and perused the materials available on record.

6. Admittedly, the assessee is a co-operative society registered under the provisions of the Kerala Co-operative Societies Act and on that basis, the assessee had claimed the deduction u/s. 80P(2)(a)(i) of the Act. The Ld.AO relied on the data found in the balance sheet which forms part of the audit report of the Co-operative Department and on that basis, the AO had come to the conclusion that the assessee is acting like a bank and not eligible for deduction u/s. 80P(2)(a)(i) of the Act. The AO also observed that the presence of nominal members would disentitle the assessee from claiming the deduction u/s. 80P(2)(a)(i) of the Act.

7. We have also perused the data furnished by the AO in his order that the assessee had advanced agricultural short-term loan at 8.27% and agricultural middle term loan 49.09% and the total loan disbursed towards the agricultural activities are 57.36%. Similarly, the assessee also offered gold and other loans to its members who are all mostly agriculturists. Therefore giving loan to members could not be treated as an activity of doing the banking activities and on that score, the benefit could not be denied by the revenue. Similarly, the presence of nominal members, which is permitted under the provisions of the Kerala Co-operative Societies Act would not disentitle the assessee from claiming the said deduction u/s. 80P(2)(a)(i) of the Act. When the Kerala Co-operative Societies Act had permitted the nominal members as members of the assessee society, the revenue cannot deny the benefit granted under the provisions of the Act. In fact this issue cam