Chellanam Service Co-operative Bank Vs ITO (ITAT Cochin)
Summary: ITAT Cochin allowed three appeals of Chellanam Service Co-operative Bank for statistical purposes and restored the quantum assessment and consequential penalty matters to the Assessing Officer. For AY 2018-19, the assessee had claimed deduction of Rs.16,38,494 under Section 80P(2)(a)(i). The AO, in an assessment under Section 144 read with Section 144B, denied the deduction and also treated cash deposits of Rs.44,70,000 in Ernakulam District Co-operative Bank as unexplained money under Section 69A read with Section 115BBE.
The CIT(A) refused to admit the quantum appeal because of a delay of 1762 days and similarly declined to condone delays in the appeals against penalties under Sections 270A and 271AAC(1). The Tribunal noted that the assessment had been completed without examining the assessee’s annual accounts and without the assessee being effectively represented. It held that both the Section 80P claim and the cash-deposit addition required verification. On limitation, the Tribunal accepted the assessee’s explanation referring to COVID-19 impact, limited staff strength, flood damage, relocation and change of professional, and held that sufficient cause had been shown.
It therefore held that the CIT(A)’s refusal to condone the delay was not sustainable. The assessee was directed to substantiate before the AO that its income was attributable to eligible business and, for the Rs.44,70,000 cash deposits, to establish that the amounts were received from members having proper KYC details. The AO was directed to provide an opportunity of hearing and decide afresh. The assessee was directed to furnish the details within 90 days of receipt of the order. Since the penalties under Sections 270A and 271AAC(1) were consequential to the quantum assessment, those appeals were also restored to the AO. The connected stay petitions became infructuous and were dismissed.
Cases Discussed
- Collector, Land Acquisition, Anantnag v. Mst. Katiji & Ors. (Supreme Court); (1987) 167 ITR 471 (SC); Civil Appeal No. 460 of 1987; 19/02/1987 — Cited by the assessee on liberal consideration of “sufficient cause” and preference for substantial justice while seeking condonation of delay.
- Mavilayi Service Co-operative Bank Ltd. v. CIT (Supreme Court); (2021) 431 ITR 1 (SC) — Cited in the grounds concerning the scope of Section 80P for co-operative societies registered under the Kerala Co-operative Societies Act. No exact verified TaxGuru Supreme Court judgment page was established, so the verified TaxGuru page concerning the Mavilayi decision and Section 80P is linked.
FULL TEXT OF THE ORDER OF ITAT COCHIN
1. These three appeals, together with the connected stay petitions, have been filed by Chellanam Service Co-operative Bank, Ernakulam (the assessee/petitioner/appellant), for Assessment Year 2018-19, against the appellate orders of the Commissioner of Income Tax (Appeals) at the National Faceless Appeal Centre, New Delhi [the Ld. CIT(A)]. The CIT(A) dismissed the assessee’s appeals without admitting them, holding that the delay in filing was not attributable to sufficient cause. The assessee’s appeals arise from the assessment order passed under section 144 of the Act and from two penalty orders passed under sections 271AAC(1) and 270A of the Act for the same assessment year by the Assessing Officer through the National Faceless Assessment Centre [the Ld. AO].
2. After filing the stay petitions, the assessee, facing pressing demands, approached the Hon’ble Kerala High Court by way of a writ petition. The Hon’ble High Court directed the ITAT to dispose of the stay petitions within two months.
3. We first take up the appeal in ITA No.849/COCH/2026 for AY 2018-19 wherein the grounds raised by the assessee are as follows:-
“A. The assessment order No ITBA/AST/S/144/2021-22/ 1032574055(1) dated 21/04/2021 passed by the Assessing Officer under Section 144 r/w 144B of the Income Tax Act 1961 and its confirmation by the CIT(A), by Order in appeal No NFAC/2017-18/10573169 dated 05/05/2026 by dismissing the appeal solely on the ground of delay in filing the appeal for A.Y. 2018-19, are arbitrary, illegal, and contrary to the facts of the case.
B. The CIT(A) failed consider the fact that the appellant is a Primary Agricultural Co-operative Society Registered under the Kerala Co-operative Societies Act 1969 and is eligible for the deduction of entire income u/s 80P (2) (a)(i) of the Income Tax Act. Instead of deciding the issue on merit the dismissal of the appeal on ground of delay is unsustainable.
C. The CIT(A) ought to have appreciated that the Appellant had demonstrated bona fide reasons for the delay and that there was no deliberate negligence, malafide intention or conscious inaction warranting rejection of the appeal.
D. The CIT(A) failed to consider that the Appellant possesses an exceptionally strong case on merits and that refusal to condone the delay has resulted in perpetuation of an illegal penalty.
E. The CIT(A) ought to have considered that the Hon’ble Supreme Court in Collector, Land Acquisition v. Mst. Katiji [(1987) 167 ITR 471 (SC)] held that substantial justice deserves to be preferred over technical considerations and that a litigant does not stand to benefit by lodging an appeal belatedly.
F. The appellate authority ought to have considered that procedural laws are handmaids of justice and should not be applied in a manner that defeats adjudication of genuine disputes on merits.
G. The Assessing Officer failed to consider that the claim made by the Appellant was based on a bona fide interpretation of law and supported by judicial precedents. The invoking of sec 69A in the case of deposits of funds of members in the bank and invoking sec 115BBE is unsustainable.
H. The appellate authority ought to have considered the authoritative judgment of the Hon’ble Supreme Court in Mavilayi Service Co-operative Bank Ltd. v. CIT [(2021) 431 ITR 1 (SC)] wherein the scope and applicability of Section 80P were elaborately considered and laid down the law that Co-operative societies registered under the Kerala Co-operative Societies Act is eligible to claim benefit of Sec 80P. The appellant is not a bank as defined in sec 56(c )5 (ccv) of the Banking Regulation Act as wrongly interpreted by AO.
I. The CIT(A) failed to appreciate that where the very quantum addition under sec 69A in respect of the transactions with members of the society is baseless and unsustainable after submission of detailed analysis by the appellant in the course of appeal proceedings.
J. The addition under Section 69A was made merely on account of non-compliance during the assessment proceedings and not on the basis of any finding that the deposits represented the appellant’s unexplained money. Once the appellant furnished the depositors’ details and explanation before the appellate authority, the learned CIT(A) was duty-bound to consider the same, call for a remand report if necessary, and adjudicate the issue in accordance with law. The summary dismissal of the appeal without examining the explanation and supporting documents amounts to a violation of the principles of natural justice.
K. The CIT(A) erred in not considering that the appellant had disclosed all primary facts in its return of income and that there was neither concealment nor furnishing of inaccurate particulars for invoking CASS assessment provisions.
L. The CIT(A) erred in law and on facts in dismissing the appeal solely on the ground of delay without affording the Appellant an effective opportunity to have the merits of the case adjudicated, thereby violating the principles of natural justice. The impugned order has resulted in denial of a fair healing and has caused serious prejudice to the Appellant, rendering the order arbitrary and unsustainable in law.
M. The Appellant craves leave to add, alter, amend or withdraw any of the above grounds at the time of hearing.
N. The grounds raised before the CIT(A) in Form 35 may kindly be considered as part of this appeal.
For these and other grounds that may be urged at the time of hearing the appellant humbly prays that the Hon’ble Income Tax Appellate Tribunal, Cochin Bench may kindly be pleased to set-aside the impugned Assessment order passed under section 144 r.w.s 1448 of the Act and order passed under section 250 of the Act for the AY 2018-19 and render justice”
4. The assessee e-filed an income tax return on 29/01/2019, declaring a total income of Rs.16,38,494/-, which was processed u/s 143(1) of the Act. The assessee is registered as a ‘Primary Agricultural Credit Society’ and has shown income under the head ‘Profits and gains from business’ of Rs.16,38,494/-, and has claimed the same as exempt u/s 80P(2)(a)(i) of the Income-tax Act, 1961 [the Act].
5. The case was selected for ‘Complete Scrutiny’ under CASS for examination of ‘Claim of deduction u/s 80P by entities having Bank in their name or approved under the Banking Regulation Act”. Accordingly, a notice u/s 143(2) dated 22/09/2019 was issued and duly served on the assessee. Thereafter, a notice u/s 142(1) dated 14.12.2020 was issued, along with a detailed questionnaire calling for details and submissions from the assessee, and the same was duly served on the assessee through the ITBA portal. However, in response to the said notices, the assessee did not file any submissions. Taking into consideration the non-compliant attitude adopted by the assessee, a specific notice was issued enumerating the issues on which addition and disallowance were proposed to be made on :-
- Deduction claimed u/s 80P under Chapter VI-A for an amount of Rs. 16,38,494, and
- Cash deposits in bank account other than Current Account of Rs.44,70,000.
6. The AO noted that the assessee had claimed a deduction u/s 80P(2)(a)(i) of the Act for Rs.16,38,494/-. However, no documentary evidence was filed by the assessee to substantiate eligibility for the claim. The AO also observed that in the immediately preceding AY 2017-18, the assessee had adopted a similar non-compliant attitude, and the assessee’s claim u/s 80P(2)(a)(i) of the Act was disallowed. The AO observed from the balance sheet that the assessee had declared advances recoverable at Rs. 4,02,02,869; however, the requisite details called for vide notice u/s. 142(1) were not complied with by the assessee. The AO was of the view that the findings of the AO for AY 2017-18 hold water for the instant assessment year also and hence rejected the assessee’s claim of deduction u/s. 80P(2)(a)(i) of the Act. Penalty proceedings u/s. 270A of the Act were initiated for misreporting of income.
7. With regard to the cash deposits in an account other than the Current Account in A/c No. xxxxxx 0009 of Rs.44,70,000 in The Ernakulam District Co-op. Bank Ltd., in the absence of any details regarding the source of such cash deposits or documentary evidence to substantiate them, the entire cash deposit was treated as unexplained money u/s. 69A of the Act and added to the total income as per the provisions of section 69A r.w.s. 115BBE of the Act. Penalty proceedings u/s. 271AAC of the Act were initiated.
8. Aggrieved by the assessment order determining total income at Rs. 61,08,490, the assessee filed an appeal before the ld. CIT(A) with an application for condonation of a delay of 1762 days in filing the appeal. In the affidavit, the assessee stated that the delay was due to its status as a small Primary Agricultural Credit Society in the Cochin coastal region with very limited staff. The assessment proceedings for the previous year, i.e., AY 2017-18, were conducted physically; however, for the current AY 2018-19, the assessment system was shifted to faceless mode, which was entirely new and unfamiliar to the assessee. Consequently, notices and proceedings in faceless mode went unnoticed during that period. The assessment order dated 21.04.2021 was entrusted to a CA with the bona fide belief that an appeal would be filed in time, but unfortunately the said professional failed to file the appeal. During that period, the entire country was gripped by the COVID-19 pandemic, which crippled the normal functioning of offices and the movement of people. The assessee society was also damaged by floods in the area in 2018 and had to shift to a new location. With only 2 employees, the society, already affected by natural calamities and office relocation, was unable to monitor statutory deadlines. The judgment of the Hon’ble Supreme Court in the Suo Motu proceedings in Re: Cognizance for Extension of Limitation was also cited, extending the excluded period of limitation from 15.3.2020 to 28.2.2022 and from 1.3.2022 for a further period of 90 days. It was only later, in September 2025, when a new Tax Consultant handled the matter and informed the assessee that no appeal had been filed, that the assessee took steps to file the present appeal. The delay was neither deliberate nor intentional but due to the above factors, which were for reasonable cause, and therefore the assessee prayed for condonation of delay, relying on Hon’ble Supreme Court judgments.
9. The ld. CIT(A) held that the assessee had not been able to explain the inordinate delay of 1762 days on any reasonable ground and dismissed the assessee’s appeal as unadmitted, without condonation of delay, as follows, vide para 3 of his appellate order:
“3. I have carefully considered the reasons adduced by the appellant to explain the inordinate delay of 1762 days in filing the present appeal. It is observed that the appellant has duly acknowledged the receipts of the impugned assessment order on 21.04.2021. The appellant has filed the appeal on 18.03.2026. The appellant has tried to explain the delay due to Covid pandemic and the technical reasons in uploading the appeal. The appeal has been filed in March, 2026 i.e. much after the Covid pandemic, hence, this reason is not found bonafide to condone the delay. As regards the technical difficulties, the appellant has stated that they were not able to upload the appeal. The appellant has uploaded a grievance dated 01.12.2025. In response the appellant was advised to follow the steps as per the e-filing portal. Another grievance was filed by the appellant on 25.10.2025 which was related to updation of Aadhar and not related to any difficulty in filing the appeal. Moreover, these grievances were also filed only on 25.10.2025 and thereafter i.e. more than 4 and a half years from the receipt of impugned assessment order. This itself, is a highly inordinate delay in filing the appeal. Thus, the appellant has not been able to explain the inordinate delay of 1762 days in filing the appeal with any reasonable cause. Therefore, the delay is not condoned and the appeal is not admitted.”
10. The assessee is in appeal against the appellate order passed by the ld. CIT(A). Meanwhile, the assessee was pressed with the demand and therefore approached the honourable High Court of Kerala in an appeal, which passed an order on 27 July 2026 in writ petition No. 25,504 of 2026, wherein the honourable High Court directed the criminal to pass appropriate orders on the above stay petition within a period of two months and further directed that the recovery of the demand be in abeyance till the disposal of the stay petition.
11. The learned authorized representative pressed for a stay of demand. However, he further stated that all these appeals pertain to assessment year 2018 – 19, wherein ITA No. 849 of 2026 is against the order of the learned CIT – A in assessment proceedings, wherein the delay is not condoned. ITA No. 836 of 2026 is against the confirmation of penalty under section 270A of the Act of ₹ 251,601, levied by the learned assessing officer, in a wide order dated 11 January 2022, confirmed by the learned CIT – A in a wide order dated 5 May 2026, wherein the appeal filed by the assessee with a delay of 1491 days was not condoned. Further, the appeal in ITA No. 835 of 2026 is against the penalty levied by the learned assessing officer under section 271AAC (1) of the Act of ₹ 345,307, levied by order dated 17 January 2022, which is also confirmed by the learned CIT – A in the order dated 5 May 2026, wherein the delay of 1498 days was not condoned. All these stay petitions are also related to the same. He proposed that the stay petition and the appeal may be disposed of by restoring the issue to the file of the learned assessing officer, for the reason that the assessee was not at all heard by any of the lower authorities. He referred to the assessment order passed under section 144 of the Act, and all other penalty orders were also for similar reasons. He submits that, looking to the status of the assessee, a co-operative society of a very small nature, the assessee deserves to be heard.
12. The ld. DR vehemently objected to the stay petition; however, he was also candidly of the view that if the assessee promises to comply with the law and submit to the learned assessing officer all the requisite details as required by him, there is no objection to restoring these issues to the file of the learned assessing officer.
13. We have carefully considered the rival contentions and perused the orders of the learned lower authorities. We find that the learned assessing officer passed the assessment order under section 144 read with section 144B of the Income Tax Act on 21 April 2021, denying the assessee the deduction under section 80 P (2) (a) (I) of the Act of ₹ 1, 638, 494. The learned assessing officer reached the conclusion that the assessee cooperative society, classified as a primary agricultural credit society, is eligible for deduction under section 80 P only in respect of income attributable to its activities, such as providing financial accommodation only to its members and that too for agricultural purposes and purposes connected with agricultural activities. However, what income is attributable to the business of the assessee and whether any income is not attributable to the business of the assessee were decided without examining the details. The learned assessing officer did not consider even the annual accounts filed by the assessee, which are admittedly available in the return filed by the assessee. Thus, the denial of the deduction was without examining and appreciating the annual accounts of the assessee. It cannot be said that the assessing officer was unaware of the activities of the assessee, as at page No. five of the assessment order he has extracted certain figures which necessarily have to be from the annual accounts of the assessee, which are part of the lawn abstract extracted from the assistant registrar. Further, at page No. 4, the balance sheet of the assessee was also discussed. It is also a fact that the assessee could not represent itself before the learned assessing officer. Thus, the issue of denial of deduction, as well as the addition of the cash deposit of ₹ 4, 470, 4,470,000 with the problem district cooperative bank added to the total income of the assessee, was also without hearing the assessee. Naturally, the assessee could not have received the funds from its members without having adequate KYC norms in place. Thus, according to us, the disallowance needs to be verified, and further the addition made for the cash deposit in the bank account also needs to be examined.
14. The order of the learned CIT – A, which does not condone the delay on the ground that the assessee has not shown sufficient cause, is also not sustainable. The assessment order was passed on 21 April 2021, and at that time there was a COVID-19 impact. Further, the assessee’s status is shown to have limited staff strength, and the assessee was also damaged by the flood and shifted to a new location. Further, due to the change of the advocate, the assessee could not file an appeal in time before him. We find that the assessee has shown sufficient cause; the delay should have been condoned by the learned CIT – A.
15. In ITA No. 849 of 2026, both the above additions and the disallowance are restored to the file of the learned assessing officer, with the specific direction to the assessee to substantiate the claim for deduction under section 80 C of the Act before the learned assessing officer, showing that the income earned by the assessee is attributable to the assessee’s business, which is eligible for deduction. With respect to the amount of cash deposited in the Ernakulam District Cooperative Bank of ₹ 4,470,000, the assessee is further directed to show that the amount was received from its members who have proper know-your-customer details with the assessee. The learned assessing officer is directed to examine the same, grant an opportunity of hearing to the assessee, and then decide the issue afresh. The assessee is directed to submit all these details within 90 days from the date of receipt of this order, and thereafter the learned assessing officer may decide the issue in accordance with the law.
16. ITA Nos. 35 and 836 of 2026 relate to the levy of penalties under section 270A and under section 271AAC (1) of the Act, both of which are consequential to the assessment order passed by the learned assessing officer. As the quantum appeal has been restored to the file of the learned assessing officer in the interests of justice, these appeals are also restored to the file of the learned assessing officer, where the learned assessing officer would be free to decide them after deciding the quantum appeal.
17. In view of the above, all three appeals are restored to the file of the learned assessing officer with the above directions and are allowed for statistical purposes.
18. As we have already decided the appeals of the assessee, the connected stay petition has become infructuous and is therefore dismissed.
19. Orders pronounced in open court on 18th September 2026 at Bangalore.
