2022 (6) TMI 1349 - AT - Income Tax

Revision u/s 263 - Deduction u/s 80P(2)(a)(i) - assessee had earned an amount as interest income on deposits with Banks - HELD THAT - As per section 80P(2)(a)(i) reproduced above the sums referred in sub-section (1) would be in case of a co-operative society engaged in carrying on the business of banking or providing credit facilities to its members the whole of the amount of profits and gains of business attributable to any one or more of such activities. As per section 80P(4) the provisions of section 80P would not apply in relation to any co-operative bank other than Primary Agricultural Credit Society or Primary Co-operative Agricultural and Rural Development Bank. As per the explanation the terms co-operative bank and primary agricultural credit society shall have the meanings respectively assigned in Part V of the Banking Regulation Act 1949. We note that by virtue of section 80P(4) the co-operative banks other than those mentioned therein were meant to be excluded for the purpose of deduction u/s 80P. In this context in the case of M/s. Jafri Momin Vikash Co-operative Society Ltd. 2014 (2) TMI 28 - GUJARAT HIGH COURT has held that exclusion clause of section 80P(4) will not apply to cases where the assessee is a primary agricultural co-operative credit society. PCIT while arriving at a conclusion to set aside the impugned assessment order for fresh consideration by the AO has relied on the decision of Totagars Co-operative Societies Ltd. 2010 (2) TMI 3 - SUPREME COURT to which ld. counsel placed on record that the said decision is not applicable to the facts of the assessee duly supported by the financial details submitted before us which are reproduced above. The order of the AO may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the AO to decide whether the order was erroneous. This is not permissible. An order is erroneous unless the CIT holds and records reason why it is erroneous. CIT must after recording reasons hold that order is erroneous. The jurisdictional pre-condition stipulated is that CIT must come to the conclusion that the order is erroneous and is unsustainable in law. It was further observed by the Hon ble High Court that the material which the CIT can rely up on includes not only the records as it stands at the time when the order in question was passed by the AO but also records as it stands at the time of the examination by the CIT. Nothing prohibits CIT from collecting and relying new/additional material which evidence to show and state that the order of the AO is erroneous. We find that Ld. PCIT in the present case has not carried out any enquiry of his own and has merely set aside the assessment to the file of the AO to pass a fresh assessment order on the issue of claim of deduction u/s 80P(2)(a)(i) - Therefore it is contrary to the guidelines as mandated in the case of ITO v. DG Housing Projects Ltd. 2012 (3) TMI 227 - DELHI HIGH COURT - Therefore the consideration arrived at by the PCIT invoking provisions of section 263 of the Act on the issue recorded by him is not justified and cannot be sustained under the facts and circumstances of the present case. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Jurisdiction assumed by PCIT under Section 263 of the Income-tax Act.
2. Deduction claimed under Section 80P of the Income-tax Act.
3. Examination of interest income from deposits with banks.
4. Application of the decision in the case of Totagars Co-operative Societies Ltd.

Issue-wise Detailed Analysis:

1. Jurisdiction Assumed by PCIT under Section 263 of the Income-tax Act:
The primary issue is whether the Principal Commissioner of Income Tax (PCIT) was justified in invoking the provisions of Section 263 of the Income-tax Act, 1961, to revise the assessment order passed by the Income Tax Officer (ITO). The PCIT assumed jurisdiction to revise the assessment on the grounds that the assessment order was erroneous and prejudicial to the interests of the revenue. The PCIT observed that the assessee had earned interest income from deposits with banks, which was not appropriately taxed under Section 56 of the Act. The PCIT relied on the Supreme Court decision in Totagars Co-operative Societies Ltd., which held that interest income from surplus funds invested in deposits with banks is income from other sources and not eligible for deduction under Section 80P.

2. Deduction Claimed under Section 80P of the Income-tax Act:
The assessee, a primary agricultural credit society, claimed a deduction of Rs. 32,31,576 under Section 80P of the Act. The assessee argued that it was engaged in the business of banking or providing credit facilities to its members, and thus, the entire income was deductible under Section 80P(2)(a)(i). The ITO, after examining the claim, allowed the deduction to the extent of Rs. 26,96,495, treating the remaining Rs. 5,35,081 as short-term capital gains, which were not eligible for deduction under Section 80P.

3. Examination of Interest Income from Deposits with Banks:
The PCIT observed that the assessee had earned Rs. 39,44,212 as interest income from deposits with IDBI Bank, Axis Bank, and Bandhan Bank. The PCIT contended that this interest income should be taxed under Section 56 as income from other sources and not be eligible for deduction under Section 80P. The assessee argued that the interest income was part of its business income, as it was engaged in providing credit facilities to its members, and the funds were not surplus but part of its operational funds.

4. Application of the Decision in the Case of Totagars Co-operative Societies Ltd.:
The PCIT relied on the Supreme Court decision in Totagars Co-operative Societies Ltd., which held that interest income from surplus funds invested in deposits with banks should be taxed as income from other sources. The assessee distinguished its case from Totagars, arguing that it did not have surplus funds and that the interest income was from operational funds used for providing credit facilities to its members. The assessee cited various judicial precedents, including decisions from the Gujarat High Court and ITAT, which supported its claim for deduction under Section 80P.

Conclusion:
The Tribunal concluded that the PCIT's invocation of Section 263 was not justified. The Tribunal observed that the ITO had conducted a detailed examination of the assessee's claim under Section 80P and had taken a well-reasoned stand. The Tribunal also noted that the PCIT had not conducted any independent enquiry to establish that the assessment order was erroneous. The Tribunal relied on judicial precedents, including the Delhi High Court's decision in DG Housing Projects Ltd., which held that the PCIT must provide clear and unambiguous findings to justify the invocation of Section 263. The Tribunal quashed the PCIT's order and allowed the assessee's appeal, confirming the ITO's assessment order.