2012 (9) TMI 720 - AT - Income Tax

Validity of reassessment proceedings u/s 263 - deduction u/s 80P - cooperative society, not having primary object to provide loan or credit facilities to its members for operating agricultural activities - Held that - An amendment was brought in by insertion of sub-section (4) of section 80P by Finance Act, 2006 w.e.f. AY 2007-08 which has specifically excluded certain cooperative societies from the purview of section 80P. This amendment was not considered by the AO while framing the assessment for the AY 2007-08. As per verdict of the Supreme Court in the case of Malabar Industries (2000 (2) TMI 10 - SUPREME COURT), incorrect application of relevant provisions of law will render the order of the AO as erroneous in so far as prejudicial to the interest of the Revenue. However, in present case, CIT has directed in the impugned order that the claimed deduction is not admissible to the assessee and at the same time set aside the matter to the file of the AO meaning thereby that the powers of the AO to examine the issue have been curtailed. Therefore, this direction of non-admissibility is modified and AO is directed to examine the assessee s claim for eligibility in accordance with the amended provisions sub-section (4) of section 80P of the Act - Decided partly in favor of assessee for statistical purposes

Issues:
1. Invocation of provisions of section 263 of the Income Tax Act without proper notice.
2. Jurisdictional aspects of invoking section 263.
3. Eligibility of the assessee society for deduction under section 80P(2)(a)(i) of the Act.
4. Application of sub-section (4) of section 80P introduced by Finance Act, 2006.
5. Direction to Assessing Officer to re-examine the claim for eligibility.

Analysis:

Issue 1: Invocation of provisions of section 263 without proper notice
The assessee challenged the invocation of section 263 by the CIT, arguing that the issues were not incorporated in the show cause notice. The counsel highlighted discrepancies in the notice and emphasized that the CIT failed to point out the exact errors in the order as required by law. The assessee relied on judicial precedents to support the argument that the CIT's actions were not in accordance with the law.

Issue 2: Jurisdictional aspects of invoking section 263
The counsel contested the jurisdiction of the CIT under section 263, citing cases to support the argument that the twin conditions required for invoking the section were not fulfilled. It was asserted that the assessment order was not erroneous as the Assessing Officer had made necessary inquiries before allowing the deduction under section 80P(2)(a)(i). The counsel relied on various judicial pronouncements to establish that the necessary conditions for claiming the deduction were met by the assessee society.

Issue 3: Eligibility of the assessee society for deduction under section 80P(2)(a)(i)
The CIT argued that the assessment order was erroneous and prejudicial to the revenue's interest, leading to the invocation of revisional powers. It was pointed out that the society had previously been denied the deduction for certain assessment years, but the CIT(A) ruled in favor of the assessee. However, on appeal by the department, the Tribunal directed a fresh decision based on a Supreme Court ruling. The CIT contended that the deduction claimed by the assessee was not admissible due to the amendment introduced in section 80P(4) by the Finance Act, 2006.

Issue 4: Application of sub-section (4) of section 80P introduced by Finance Act, 2006
The Tribunal observed that the Assessing Officer had not considered the amendment introduced by the Finance Act, 2006, which excluded certain cooperative societies from the purview of section 80P. Citing the Supreme Court's decision in Malabar Industries, the Tribunal concluded that the incorrect application of relevant provisions rendered the assessment order erroneous and prejudicial to revenue. The Tribunal directed the Assessing Officer to re-examine the claim for eligibility in light of the amended provisions.

Issue 5: Direction to Assessing Officer to re-examine the claim for eligibility
The Tribunal modified the direction of non-admissibility given by the CIT and instructed the Assessing Officer to evaluate the assessee's claim for eligibility under the amended provisions of section 80P(4). The Tribunal refrained from discussing the cases cited by the assessee's counsel, allowing the assessee to present those judicial pronouncements before the Assessing Officer. The appeal of the assessee was allowed in part for statistical purposes.

This detailed analysis of the judgment highlights the key legal issues involved and the Tribunal's decision on each aspect, providing a comprehensive understanding of the case.

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