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2022 (2) TMI 1275 - AT - Income TaxRevision u/s 263 - deduction u/s 80P - Pr. CIT has held that the benefit of Section 80P is only admissible to the extent of business activity with members,thus, the assessee was not entitled to deduction under section 80P(2)(d) in respect of investment made in HDFC Bank - assessee, a co-op credit society, was engaged in providing credit facilities to its members. The assessee had surplus funds which it invested in deposits with Commercial Banks - whether the said interest earned on the said deposits was business profits and eligible for deduction u/s 80P(2)(a)(i)? - HELD THAT - On identical facts, in the case of the NBI Employees Co-operative Non- Agricultural Thrift Credit Society Ltd. 2022 (2) TMI 1274 - ITAT AMRITSAR we have discussed the issue at length and decided the same in favour of department, following the Hon ble Jurisdictional Punjab and Haryana High Court, in the case M/s Punjab State Co-operative Federation of Housing Building Societies Ltd. 2011 (5) TMI 219 - PUNJAB AND HARYANA HIGH COURT wherein the Hon ble High Court, while following the judgment of Hon ble Supreme Court, in the case of The Totgars Cooperative Sale Society Ltd. 2010 (2) TMI 3 - SUPREME COURT , have held that interest received by the assessee from Commercial banks was not covered by Section 80P(2)(a)(i) of the Act and was taxable under section 56, being income from other sources. We held such interest income is to be charged to Tax as income from other sources in the context of the assessee due to the non-availability of deduction u/s.80P(2)(d) on such amount. We find no infirmity in the order of the Pr. CIT passed U/s 263 of the Act by holding the assessment order as prejudicial to the interest of revenue because the interest income was charged to Tax as income from other sources in the context of the assessee due to the non-availability of deduction u/s.80P(2)(d) on such amount. - Decided against assessee.
Issues Involved:
1. Jurisdiction and legality of the order passed under Section 263 of the Income Tax Act, 1961. 2. Erroneous and prejudicial nature of the assessment order passed by the Assessing Officer (AO). 3. Applicability of Section 80P(2) deductions to the assessee. 4. Validity of proceedings initiated under Section 263 on one issue and concluded on another. 5. Consideration of written submissions and case laws by the assessee. 6. Directions provided by the Principal Commissioner of Income Tax (Pr. CIT) in the order under Section 263. 7. Assessment of whether the assessee's activities violated the cooperative society principles and mutuality principle. 8. Retrospective applicability of Explanation 2 in Section 263. Issue-wise Detailed Analysis: 1. Jurisdiction and Legality of the Order Passed Under Section 263: The assessee contested that the order passed by the Pr. CIT under Section 263 was illegal and without jurisdiction. The Pr. CIT initiated proceedings under Section 263 by holding that the assessee was indulging in banking business and not entitled to deductions under Section 80P(2). The Tribunal reviewed the jurisdictional aspects and found that the Pr. CIT had the authority to revise the order if it was erroneous and prejudicial to the interest of the revenue. 2. Erroneous and Prejudicial Nature of the Assessment Order: The Pr. CIT observed discrepancies in the assessment order for the year 2014-15, similar to those in the preceding year, where the deduction under Section 80P(2) was disallowed. The Pr. CIT held that the AO’s order allowing the deduction was erroneous and prejudicial to the revenue. The Tribunal upheld this view, stating that the assessment order was indeed erroneous and prejudicial to the interest of the revenue. 3. Applicability of Section 80P(2) Deductions: The assessee claimed deductions under Section 80P(2), which were allowed by the AO but contested by the Pr. CIT. The Tribunal noted that the Pr. CIT referred to the Supreme Court judgment in the case of Totgar's Cooperative Sale Society Ltd., which held that interest income on surplus funds is taxable under the head "income from other sources" and not eligible for Section 80P deductions. The Tribunal agreed with the Pr. CIT's conclusion that the assessee was not entitled to deductions under Section 80P(2)(d) for investments made in HDFC Bank. 4. Validity of Proceedings Initiated Under Section 263 on One Issue and Concluded on Another: The assessee argued that the Pr. CIT initiated proceedings under Section 263 on the basis of banking business but concluded on the issue of interest income from HDFC Bank deposits. The Tribunal found this approach valid, as the Pr. CIT’s final decision was based on the broader context of erroneous and prejudicial assessment due to improper deductions under Section 80P. 5. Consideration of Written Submissions and Case Laws by the Assessee: The assessee contended that the Pr. CIT ignored various written submissions and case laws. The Tribunal examined this claim and noted that the Pr. CIT had considered the relevant facts and legal precedents, including the Karnataka High Court’s decision in CIT Belgaum vs. Sh. Basaveshwar Cooperative Credit Society Ltd. The Tribunal found no merit in the assessee's claim that the submissions were arbitrarily brushed aside. 6. Directions Provided by the Pr. CIT in the Order Under Section 263: The assessee argued that the Pr. CIT’s order under Section 263 lacked specific directions, making it arbitrary and unjust. The Tribunal reviewed the order and found that the Pr. CIT had provided adequate directions to the AO to pass a fresh order after making necessary enquiries and investigations. The Tribunal upheld the Pr. CIT’s directions as valid and justified. 7. Assessment of Whether the Assessee's Activities Violated Cooperative Society Principles and Mutuality Principle: The Pr. CIT concluded that the assessee’s activities violated cooperative society principles and the mutuality principle, as it engaged in business with members, nominal members, and non-members without approval from the Registrar of Societies. The Tribunal agreed with this assessment, noting that the principle of mutuality was missing in the case, making the assessee ineligible for deductions under Section 80P. 8. Retrospective Applicability of Explanation 2 in Section 263: The assessee contended that Explanation 2 in Section 263, introduced by the Finance Act 2015, was not applicable retrospectively. The Tribunal reviewed this claim but found that the Pr. CIT’s order was based on the broader context of erroneous and prejudicial assessment, regardless of the retrospective applicability of Explanation 2. The Tribunal upheld the Pr. CIT’s order as justified. Conclusion: The Tribunal upheld the Pr. CIT’s order under Section 263, finding it justified in revising the assessment order as erroneous and prejudicial to the interest of the revenue. The Tribunal concluded that the interest income from HDFC Bank deposits was taxable under the head "income from other sources" and not eligible for deductions under Section 80P(2)(d). The Pr. CIT’s directions for fresh assessment were found to be valid and in accordance with the law.
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