2021 (9) TMI 232 - AT - Income Tax

Revision u/s 263 by CIT - disallowance of certain expenses u/s 40(a)(ia) - HELD THAT - On a specific query by the bench it was stated by the ld. A.R that the case of the assessee at no stage was converted into full scrutiny with the approval of the CIT/Pr.CIT. Backed by the aforesaid facts, we are of a strong conviction that now when the jurisdiction of the A.O while framing assessment was in itself circumscribed and limited qua examination of the assessee s claim for deduction under Chapter VI-A of the Act, therefore, by no means the Pr. CIT could have held the order passed by the A.O u/s 143(3), dated 31.08.2017 as erroneous, for the reason, that he had not carried out an addition/disallowance which fell beyond the realm of the reasons on the basis of which the assessee s case was selected for limited scrutiny. We are unable to persuade ourselves to accept the view taken by the Pr. CIT that the order passed by the A.O u/s 143(3), dated 31.08.2017 was erroneous, for the reason, that he had failed to carry out disallowance of certain expenses u/s 40(a)(ia). A.O had failed to disallow the assessee s claim for deduction u/s 80P(2)(d) qua the interest income as received by it from co-operative Banks - Co-operative banks pursuant to the insertion of sub-section (4) to Sec. 80P of the Act would no more be entitled for claim of deduction u/s 80P of the Act, but as a co-operative bank continues to be a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912) or under any other law for the time being in force in any State for the registration of co-operative societies, therefore, the interest income derived by a co-operative society from its investments held with a co-operative bank would be entitled for claim of deduction u/s 80P(2)(d) - As the facts and the issue involved in the present case before us remains the same as were there before the Tribunal in the case of M/s Solitaire CHS Ltd. 2019 (12) TMI 80 - ITAT MUMBAI , wherein the order passed by the Pr. CIT u/s 263 of the Act was quashed, we, thus, respectfully follow the same - we are unable to uphold the view taken by the Pr. CIT that the failure on the part of the A.O to be disallow the assessee s claim for deduction u/s 80P(2)(d) had rendered the assessment order passed by him u/s 143(3) of the Act, dated 31.08.2017 as erroneous in so far it was prejudicial to the interest of the revenue. - Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction of Principal Commissioner of Income Tax (PCIT)
2. Deduction under Section 80P of the Income Tax Act
3. Disallowance under Section 40(a)(ia) of the Income Tax Act

Detailed Analysis:

Jurisdiction of PCIT:
The assessee contested the jurisdiction of the PCIT, arguing that the PCIT erred in holding the order passed by the Assessing Officer (AO) as erroneous and prejudicial to the interests of the revenue. The Tribunal observed that the case was selected for 'Limited scrutiny' under Section 143(2) for examining the assessee's claim for deduction under Chapter VI-A of the Act. The Tribunal found substantial force in the claim that the AO's jurisdiction was limited to scrutinizing the assessee's claim for deduction under Chapter VI-A, and therefore, the assessment order could not be held erroneous for failing to make a disallowance under Section 40(a)(ia). The Tribunal cited a coordinate bench's decision in a similar case, reinforcing that the PCIT could not broaden the scope of the AO's limited jurisdiction in the garb of revisional jurisdiction under Section 263.

Deduction under Section 80P of the Act:
The PCIT revised the AO's order on the grounds that the AO failed to disallow the assessee's claim for deduction under Section 80P(2)(d) for interest income received from cooperative banks. The assessee argued that the interest income from deposits with cooperative banks was eligible for deduction under Section 80P(2)(d). The Tribunal agreed with the assessee, citing multiple decisions from coordinate benches and high courts that supported the view that interest income from deposits with cooperative banks qualifies for deduction under Section 80P(2)(d). The Tribunal concluded that the AO had taken a possible view supported by judicial precedents, and therefore, the PCIT was in error in exercising revisional jurisdiction under Section 263 to dislodge the AO's view.

Disallowance under Section 40(a)(ia) of the Act:
The PCIT contended that the AO failed to disallow 30% of the amount paid by the assessee society without deduction of tax at source under Section 40(a)(ia). The Tribunal noted that the issue of disallowance under Section 40(a)(ia) was not within the limited scrutiny jurisdiction and hence could not have been the basis for revision under Section 263. The Tribunal reiterated that the AO's jurisdiction was limited to examining the assessee's claim for deduction under Chapter VI-A, and any disallowance beyond this scope could not render the AO's order erroneous.

Conclusion:
The Tribunal set aside the PCIT's order and restored the AO's order, concluding that the PCIT had wrongly exercised revisional jurisdiction under Section 263. The appeal filed by the assessee was allowed, and the order pronounced in the open court on 01.09.2021.