2021 (11) TMI 1120 - AT - Income Tax

Revision u/s 263 by CIT - deduction u/s 80P(2) - PCIT however referred to the Banking Regulation Act of 1949 and held that as per Part V of the Banking Regulation Act, a co-operative bank is different from the cooperative society and the deduction has been wrongly allowed by the Assessing officer - whether interest on FDRs placed with Jaipur Central Co-operative Bank Ltd is eligible for deduction u/s 80P(2)(d) - HELD THAT - In case of M/s Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd, 2019 (10) TMI 759 - ITAT JAIPUR we find that the Coordinate Bench has considered the meaning of cooperative society and cooperative bank and has referred to the decision of Totagars Co- operative sale society 2017 (1) TMI 1100 - KARNATAKA HIGH COURT The Coordinate Bench thereafter held that for the purposes of section 80P(2)(d) of the Act, Jaipur Central Cooperative Bank Ltd shall be treated as co-operative society and interest on FDRs placed by the assessee society with such cooperative society shall be eligible for deduction u/s 80P(2)(d) of the Act. The ld PCIT has however not considered the aforesaid decision and gone ahead and has concluded that the deduction has been wrongly allowed by the Assessing officer without verifying the said claim of the assessee cooperative society. We find that during the course of assessment proceedings, the Assessing officer did enquire about the claim of deduction from the assessee and in response, the assessee has submitted its response which was considered and the claim of deduction was accordingly allowed. Therefore, it is not a case of lack of enquiry on part of the Assessing officer. Also we note that even among the different benches of the same High Court, there are divergent views on the matter and in absence of decision of the jurisdictional High Court, where there are two views in the matter of a non-jurisdictional High Court in terms of construing a taxing statue and the AO has taken one of the views in the matter which favours the assessee, the view so taken by the AO, being a plausible view taken by a quasi-judicial authority cannot be held as erroneous in nature as the same is in consonance with the legal proposition laid down by the Hon ble Supreme Court in case of Vegetable Products Ltd. 1973 (1) TMI 1 - SUPREME COURT In the entirety of facts and circumstances of the case and in light of aforesaid discussions, we set-aside the order passed by the ld PCIT and the order of the AO is sustained. Appeal of the assessee is allowed.

Summary

Issues Involved:

1. Legality of the order passed by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act.
2. Whether the order passed by the Assessing Officer (AO) under Section 143(3) was erroneous and prejudicial to the interest of the Revenue.
3. Eligibility of the interest income on Fixed Deposit Receipts (FDRs) with cooperative banks for deduction under Section 80P(2)(d) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Legality of the Order Passed by the PCIT under Section 263:

The assessee contended that the order passed by the PCIT under Section 263 was illegal and bad in law. The PCIT did not consider the complete reply filed by the assessee. The PCIT issued a notice stating that the interest earned on FDRs with cooperative banks and interest from Milk Unions did not fall within the scope of Section 80P(2)(d). The PCIT held that the AO’s order was erroneous and prejudicial to the interest of the Revenue as it was passed in a routine and perfunctory manner without examining the issue of deduction under Section 80P(2)(d).

2. Whether the Order Passed by the AO under Section 143(3) was Erroneous and Prejudicial to the Interest of the Revenue:

The assessee argued that the AO had examined the details and explanations furnished by the assessee regarding the deduction under Section 80P(2)(d) during the assessment proceedings. The AO had accepted the declared income after necessary verification. The assessee relied on various judicial precedents to support the claim that the AO’s order was not erroneous or prejudicial to the interest of the Revenue. The PCIT, however, held that the AO failed to apply his mind to the information available on record, resulting in an erroneous order.

3. Eligibility of the Interest Income on FDRs with Cooperative Banks for Deduction under Section 80P(2)(d):

The assessee claimed that the interest income received from Jaipur Central Cooperative Bank Ltd. and Milk Unions, both constituted as cooperative societies, was eligible for deduction under Section 80P(2)(d). The assessee provided supporting documents, including the registration certificate of Jaipur Central Cooperative Bank Ltd. The assessee also cited the Hon’ble ITAT, Jaipur Bench’s decision in the case of Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., which held that interest income on FDRs with Jaipur Central Cooperative Bank Ltd. is eligible for deduction under Section 80P(2)(d).

The PCIT, however, held that cooperative banks are not cooperative societies as per the Banking Regulation Act, 1949, and thus, the interest income was not eligible for deduction under Section 80P(2)(d). The PCIT relied on the decision of the Karnataka High Court in the case of Totagars Cooperative Sales Society, which held that interest earned on deposits with cooperative banks is not eligible for deduction under Section 80P(2)(d).

Tribunal’s Findings:

The Tribunal considered the submissions of both parties and the material available on record. It was noted that the AO had made necessary inquiries and verified the claim of deduction under Section 80P(2)(d) during the assessment proceedings. The Tribunal referred to the decision of the Coordinate Bench in the case of Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd., which held that for the purposes of Section 80P(2)(d), Jaipur Central Cooperative Bank Ltd. shall be treated as a cooperative society, and interest on FDRs placed with such cooperative society is eligible for deduction.

The Tribunal observed that the PCIT did not consider the aforesaid decision and concluded that the deduction was wrongly allowed by the AO. The Tribunal held that the AO’s view was a plausible view supported by judicial precedents and could not be held as erroneous. The Tribunal also noted the divergent views of the Karnataka High Court and emphasized that where two views are possible, the view favoring the assessee should be adopted.

Conclusion:

The Tribunal set aside the order passed by the PCIT under Section 263 and sustained the order of the AO. The appeal of the assessee was allowed. The Tribunal concluded that the interest income on FDRs with Jaipur Central Cooperative Bank Ltd. was eligible for deduction under Section 80P(2)(d), and the AO’s order was not erroneous or prejudicial to the interest of the Revenue.