2021 (12) TMI 503 - AT - Income Tax

Deduction u/s 80(P)(2)(d) - appellant is a Cooperative Housing Society registered under Registrar to the Society - HELD THAT - We note that the issue on merits is in favour of the assessee by the decision of Hon'ble Apex Court in THE CITIZEN CO-OPERATIVE SOCIETY LIMITED, THROUGH ITS MANAGING DIRECTOR, HYDERABAD 2017 (8) TMI 536 - SUPREME COURT and THE MAVILAYI SERVICE COOPERATIVE BANK LTD. ORS. VERSUS COMMISSIONER OF INCOME TAX, CALICUT ANR. 2021 (1) TMI 488 - SUPREME COURT . We find that the ITAT in the case of M/s. Ramaraja Kshatriya Cooperative Credit Society Limited 2021 (3) TMI 662 - ITAT MUMBAI . Since in the present case no case has been made out by the Revenue or learned PCIT that the Cooperative bank referred in the impugned issues are licensed by RBI the provision of section 80P(4) cannot be imported. Hence, from the above it is evident that issue on merits is in favour of the assessee. When the issue on merits is in favour of the assessee, there is no point of PCIT exercising jurisdiction under section 263 of the Act on that issue. Hence the order of learned PCIT is not sustainable. Hence, we set aside the same and decide the issue in favour of the assessee.

Summary

Issues:
1. Correct application of provisions of section 263 for setting aside the order passed by the subordinate Assessing Officer and allowing deduction under section 80(P)(2)(d) of The Income Tax Act, 1961.
2. Interpretation of provisions of section 80P(2)(d) regarding deduction for interest received from a Co-operative Bank by a Co-operative Housing Society.

Analysis:
1. The appeal was against the order of the Principal Commissioner of Income Tax (PCIT) under section 263 for the assessment year 2016-17. The appellant contested that the order erred in applying section 263 to set aside the Assessing Officer's decision to allow a deduction under section 80(P)(2)(d) of the Income Tax Act. The appellant argued that as a registered housing society receiving interest from a Co-operative Bank, the deduction was allowable. The PCIT, however, found the assessment erroneous and prejudicial to revenue as the deduction was not applicable to interest from a Co-operative Bank. The PCIT set aside the assessment order for fresh consideration. The appellant challenged this decision.

2. The crux of the issue was the interpretation of section 80P(2)(d) regarding the deduction for interest received by a Co-operative Housing Society from a Co-operative Bank. The PCIT contended that the Co-operative Bank did not fall under the purview of a Co-operative Society as per the Banking Regulation Act, 1949, and thus, the interest income was not eligible for deduction under section 80P(2)(d). The PCIT highlighted that the Assessing Officer failed to conduct necessary inquiries and applied incorrect provisions. The ITAT, citing relevant case laws, emphasized that for a Co-operative Bank to be considered as such, a license from the RBI was essential. Since this condition was not met, disallowing the deduction based on section 80P(4) was unsustainable. The ITAT upheld the decision in favor of the assessee, emphasizing the liberal interpretation of section 80P to promote the growth of the Co-operative sector.

3. The ITAT concluded that since the issue on merits favored the assessee, there was no basis for the PCIT to exercise jurisdiction under section 263. As the Cooperative Bank in question was not licensed by the RBI, the provisions of section 80P(4) could not be applied. Therefore, the ITAT set aside the PCIT's order and decided the issue in favor of the assessee, allowing the appeal.