2019 (12) TMI 1611 - AT - Income Tax

Revision u/s 263 - Deduction u/s 80P - as per CIT AO has erroneously allowed the deduction under section 80P(2)(d) on the interest received of M/s Vadasinor Pragati Samaj Co-operative Credit Society Ltd. resulting into under assessment of tax - HELD THAT - Assessee is entitled for deduction on interest earned from Co-operative Bank which are primarily a Co-operative Society, thus, in our view, the deduction allowed by AO are in accordance with various judicial pronouncement, which cannot be branded as erroneous. The jurisdictional High court in Gabriel India Ltd 1993 (4) TMI 55 - BOMBAY HIGH COURT held that power of suo-moto revision under section 263 of the Act, is in the nature of supervisory jurisdiction and can be exercised, if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise the power of revision under this sub-section viz. (i) The order should be erroneous; and (ii) by virtue of the order being erroneous and prejudicial must have been caused to the interest of revenue. Further, the order cannot be termed as erroneous unless it is not in accordance with law, if the Assessing Officer acting in accordance with law make certain assessment, the same cannot be branded as erroneous by Commissioner simply because, according to him, he order should have been written more elaborately. As we have noted above, the order passed by AO though not speaking, however, is in accordance with law, so far as deduction under section 80P is concerned. Therefore, in our consider view, the twin condition as enunciated under section 263 are not furnished in the present case. Therefore, the ld. PCIT was not justified in treating the assessment order for revising it by exercising power under section 263. As we have noted earlier that ld. PCIT while issuing show-cause notice himself has recorded in the show-cause notice itself that Assessing Officer has erroneously allowed the deduction under section 80P(2)(d) on interest received from a Credit Co-operative Society. Hence, we are not convinced with the submission that issue was not examined by Assessing Officer as the language of show-cause notice itself suggest that Assessing Officer erroneously allowed the deduction. Hence, the grounds of appeal raised by assessee are allowed, resultantly, the revision order passed by ld. PCIT is quashed

Issues Involved:
1. Legitimacy of the revision under Section 263 of the Income Tax Act.
2. Entitlement of the assessee to deduction under Section 80P(2)(d) of the Income Tax Act.
3. Whether the assessment order was erroneous and prejudicial to the interests of the Revenue.

Issue-wise Analysis:

1. Legitimacy of the Revision under Section 263:
The Principal Commissioner of Income Tax (PCIT) revised the assessment order dated 05.03.2019 under Section 263 of the Income Tax Act, asserting that the assessment order was erroneous and prejudicial to the interests of the Revenue. The PCIT directed the Assessing Officer (AO) to reassess the income by disallowing the deduction under Section 80P(2)(d) amounting to Rs. 12,87,629/-. The assessee contested this revision, arguing that the AO's order was neither erroneous nor prejudicial to the Revenue's interests and that the AO had adopted one of the possible views based on certain judicial decisions.

2. Entitlement to Deduction under Section 80P(2)(d):
The assessee, a Co-operative Society, claimed a deduction under Section 80P(2)(d) for interest income received from investments with other Co-operative Societies, specifically Maharashtra State Co-operative Bank and Mumbai District Central Co-operative Bank. The PCIT contended that the deduction was erroneously allowed by the AO, as the interest income was derived from a Co-operative Bank, not a Co-operative Society, thus rendering the AO's order erroneous. The PCIT's interpretation was that the term "Co-operative Society" should not include "Co-operative Bank" to avoid rendering the legislative provision redundant.

3. Erroneous and Prejudicial Assessment Order:
The AO had accepted the return of income without any variance and allowed the deduction under Section 80P(2)(d). The PCIT argued that the AO failed to apply his mind to the factual aspects and allowed the deduction without proper inquiry, thus making the assessment order erroneous and prejudicial to the Revenue's interests. The PCIT cited various judicial precedents to support the view that an AO's failure to make necessary inquiries renders an assessment order erroneous.

Tribunal's Findings:

1. Legitimacy of the Revision under Section 263:
The Tribunal noted that the PCIT issued a show-cause notice dated 05.02.2019, indicating that the AO had erroneously allowed the deduction. The Tribunal found that the AO had indeed considered the issue of deduction under Section 80P(2)(d) during the assessment process, as evidenced by the language of the show-cause notice itself. The Tribunal concluded that the AO's order was not erroneous as it was based on a plausible view supported by judicial precedents.

2. Entitlement to Deduction under Section 80P(2)(d):
The Tribunal referred to various judicial decisions, including those of the Hon'ble Karnataka High Court and the Hon'ble Gujarat High Court, which held that interest income earned from investments with Co-operative Banks qualifies for deduction under Section 80P(2)(d). The Tribunal found that the assessee was entitled to the deduction as the investments were with entities governed by the Maharashtra Co-operative Societies Act, thus qualifying as Co-operative Societies.

3. Erroneous and Prejudicial Assessment Order:
The Tribunal observed that the AO had acted in accordance with law and made the assessment based on the facts and judicial precedents available. The Tribunal emphasized that the mere absence of detailed discussion in the assessment order does not render it erroneous if the AO had applied his mind and made inquiries. The Tribunal cited the jurisdictional High Court's decision in Gabriel India Ltd., which held that an assessment order cannot be branded as erroneous simply because the PCIT would have written it more elaborately.

Conclusion:
The Tribunal concluded that the twin conditions of an erroneous and prejudicial assessment order, as required under Section 263, were not met in this case. Therefore, the PCIT was not justified in revising the assessment order. The Tribunal allowed the appeal of the assessee and quashed the revision order passed by the PCIT.

Result:
The appeal of the assessee was allowed, and the revision order passed by the PCIT was quashed. The order was pronounced in the open court on 13/12/2019.

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