2021 (11) TMI 1145 - AT - Income Tax

Revision u/s 263 - deduction u/s 80P has been granted without much inquiry - HELD THAT -On perusal of the assessment order passed u/s 143(3) of the I.T.Act dated 30.11.2016, it is clear that there is no discussion by the A.O. and deduction u/s 80P of the I.T.Act has been granted without much inquiry. The assessment order completed without making necessary inquiry rendered the assessment erroneous and prejudicial to the interest of revenue. Therefore, the CIT has correctly invoked the provisions of section 263 of the I.T.Act and we uphold the same. Assessee has also raised grounds that assessment was selected for limited scrutiny in the Computer Aided Scrutiny Selection (CASS). Therefore, the inquiry in the assessment proceedings was restricted only to the issue which forms the basis of selecting the case for scrutiny as per the Instruction of the CBDT. This ground of the assessee is also devoid of any merit. No doubt, in this case, the assessment was selected for limited scrutiny. When the potential escapement of income was exceeding Rs.10 lakh, the A.O. has power to convert the limited scrutiny to a complete scrutiny assessment. There is no examination of the issue by the A.O. in the assessment order whether the escapement had resulted in excess of Rs.10 lakh. In this context also, the assessment order is erroneous and prejudicial to the interest of the revenue. Therefore, this ground of the assessee is also rejected. Whether the assessee is entitled to deduction u/s 80P(2)(a)(i) and 80P(2)(d) ? - As recent order of the Tribunal in the case of M/s.Vasavamba Co-operative Society Ltd. v. The Pr.CIT 2021 (8) TMI 706 - ITAT BANGALORE after considering the judicial pronouncements on the issue held that interest income earned out of investments made from surplus funds would be taxable under the head income from other sources and would not be eligible for deduction u/s 80P(2)(a)(i) of the I.T.Act. It was further held by the Tribunal insofar as deduction u/s 80P(2)(d) only those interest received from investments with co-operative societies alone would be entitled to deduction. Hon ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. Ors. v. CIT Anr. ( 2021 (1) TMI 488 - SUPREME COURT had settled various issues for claiming deduction u/s 80P(2)(a)(i) - the matter needs to be examined afresh by the A.O. de hors the observations of the CIT. The A.O. is directed to follow the dictum laid down by the Hon ble Apex Court in framing the fresh assessment. Appeal filed by the assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Condonation of Delay
2. Validity of the Revision Order under Section 263
3. Deduction under Section 80P(2)(a)(i) and 80P(2)(d)
4. Limited Scrutiny under CASS

Detailed Analysis:

1. Condonation of Delay:
The Tribunal acknowledged a delay of 73 days in filing the appeal. The assessee provided a petition and an affidavit explaining the reasons for the delay. Upon reviewing the reasons, the Tribunal found sufficient cause for the delay and decided to condone it, allowing the appeal to be heard on its merits.

2. Validity of the Revision Order under Section 263:
The CIT issued a show cause notice under Section 263 of the I.T. Act, citing that the AO granted the deduction under Section 80P(2) without proper inquiry, rendering the assessment order erroneous and prejudicial to the revenue's interest. The CIT directed the AO to re-examine several issues, including the nature of the banks where deposits were made, the obligation to invest surplus funds, and the classification of interest income.

The Tribunal upheld the CIT's invocation of Section 263, agreeing that the AO's failure to conduct a detailed inquiry made the assessment order erroneous and prejudicial to the revenue's interest. The Tribunal also dismissed the assessee's argument that the assessment was selected for limited scrutiny, noting that the AO could convert limited scrutiny to complete scrutiny if the potential income escapement exceeded Rs.10 lakh.

3. Deduction under Section 80P(2)(a)(i) and 80P(2)(d):
The Tribunal referred to the recent judgment in Mavilayi Service Co-operative Bank Ltd. & Ors. v. CIT & Anr., which clarified that interest income from investments made from surplus funds is taxable under the head "income from other sources" and not eligible for deduction under Section 80P(2)(a)(i). However, interest received from investments with co-operative societies is eligible for deduction under Section 80P(2)(d).

The Tribunal noted that if the investments were made in compliance with the Karnataka Co-operative Societies Act, the interest income should be considered as business income, eligible for deduction under Section 80P(2)(a)(i). The Tribunal directed the AO to re-examine the matter afresh, considering statutory obligations and the recent Supreme Court judgment.

4. Limited Scrutiny under CASS:
The assessee argued that the assessment was selected for limited scrutiny under CASS, restricting the AO's inquiry to specific issues. The Tribunal rejected this argument, stating that the AO has the authority to convert limited scrutiny to complete scrutiny if the potential income escapement exceeds Rs.10 lakh. The Tribunal found no evidence that the AO examined whether the escapement exceeded this threshold, further justifying the CIT's revision order under Section 263.

Conclusion:
The Tribunal condoned the delay in filing the appeal and upheld the CIT's revision order under Section 263, directing the AO to re-examine the issues concerning the deduction under Sections 80P(2)(a)(i) and 80P(2)(d) in light of statutory obligations and recent judicial pronouncements. The appeal was allowed for statistical purposes.