Case Law Details
Prathamika Krishi Pathina Sahakara Sangha Niyamitha Vs CIT (Appeals) (Karnataka High Court)
Karnataka HC Quashes Income Tax Assessment Because Section 80P(2) Exemption Was Not Properly Considered; Bank Attachment Set Aside Because Cooperative Society Claimed Farmer Deposits Were Exempt; Ex-Parte Income Tax Order Quashed Because Cooperative Society Sought Opportunity to Prove Section 80P(2) Claim; Karnataka HC Sets Aside Tax Demand Because Deposits Were Claimed to Be Farmers’ Funds
The Karnataka High Court examined a challenge to an assessment order and demand notice issued under the Income Tax Act, 1961. The petitioner submitted that it had not participated in the reassessment proceedings initiated under Section 148 because its auditor failed to inform it about the notices and subsequent proceedings. The petitioner contended that the authority wrongly disallowed exemption under Section 80P(2) and treated deposits reflected in bank accounts as unexplained, although those deposits were stated to be deposits made by farmer-members and claimed to be exempt.
The petitioner argued that it possessed material to substantiate its claim for exemption under Section 80P(2) and to respond to the allegations in the show cause notice if an opportunity was granted. The revenue submitted that the petitioner had failed to diligently participate in the proceedings, leading the authority to pass the order based on available records.
The Court observed that the assessment order included additions under the head of unexplained sales and disallowance of exemption under Section 80P(2). Taking note of the petitioner’s assertion that it was a credit co-operative society possessing material to support its exemption claim and explain the deposits, the Court held that the matter required reconsideration. The Court also noted the financial prejudice that could arise if the order continued to operate.
Accordingly, the Court set aside the assessment order, demand notice, and all proceedings pursuant to the Section 148 notice, remanding the matter to the stage of reply to the notice under Section 148A(b). Directions issued to banks for attachment in recovery proceedings were ordered to be rescinded forthwith. The petitioner was directed to appear before the authority on 25.05.2026 and pay costs of Rs.10,000.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
The petitioner has filed an application seeking for amendment of the petition. The amendment relates to the prayer column whereby the petitioner seeks to assail validity of the impugned assessment order as well as the demand notice. Certain additional amendments are sought including as regards the name of the petitioner.
In light of the averments and submissions made, I.A.No.2/2026 filed under VI Rule 17 of CPC is allowed. Amended petition filed is taken on record.
2. The petitioner has challenged the validity of the assessment order at Annexure-C and submitted that the petitioner did not participate in the proceedings by replying to the notice issued under Section 148 of the Income Tax Act, 1961 (for short, ‘the Act’) and subsequent proceedings, in light of the auditor not having informed the petitioner regarding such proceedings.
3. It is submitted that the authority has disallowed the exemption under Section 80P(2) of the Act and submits that petitioner has material to demonstrate that the exemption could be claimed and necessary material would be produced if matter is remitted for fresh consideration by condoning the delay in not participating in the proceedings.
4. Learned counsel for the petitioner submits that authority has taken note of the deposits as unexplained while such deposits are in-fact deposits of the members who are the farmers and such deposits are exempted.
5. Thirumalesh, learned counsel for the revenue submits that the petitioner has not been diligent in participating in the proceedings and accordingly, the authority was constrained to pass orders on the basis of material available.
6. Perused the assessment order. It is noticed that the petitioner has not participated in the proceedings. The authority has made additions on the head of unexplained sales. It is also noticed that the authority has disallowed exemption under Section 80P(2). In light of the assertion of the petitioner that it is a Credit Co-operative Society and that they have material to demonstrate under Section 80P(2) as well as material to demonstrate and meet the grounds raised in the show-cause notice, it is prayed that the matter be remitted to the stage of Section 148A(b) notice.
7. Having perused the assessment order and having noticed the disallowance of exemption under Section 80P(2) and also noticing the assertion of the petitioner that the deposits in the bank are the deposits of the farmers which the petitioner would demonstrate and noticing the financial prejudice that may be caused to the petitioner if order is allowed to remain, the petition requires to be allowed, while affording an opportunity to the petitioner to participate in the assessment proceedings.
8. Accordingly, the orders at Annexures-C, D and E are set aside, as also all proceedings pursuant to the Section 148 notice. Matter is remitted to the stage of reply to notice issued under Section 148A(b). Petitioner to appear before respondent No.3 without further notice on 25.05.2026.
9. In light of setting aside of the impugned orders as noticed above, the instructions made pursuant to recovery proceedings by the revenue to the Bank for attachment to be rescinded, forthwith.
10. Petitioner to make out reply to the notice issued under Section 148A(b) and matter to be proceeded thereafter. Petitioner to pay cost of Rs.10,000/- to the Karnataka Advocates Clerks Benevolent Trust, High Court Building, Bengaluru.
11. Accordingly, petition is disposed of. All contentions on merits are kept open.
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