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2022 (1) TMI 349 - AT - Income TaxRevision u/s 263 by CIT - Admissibility of deduction under section 80P(2)(a)(i) - application of principle of doctrine of merger - HELD THAT - When the original assessment order under section 143(3) was challenged before the first appellate authority, and first appellate authority has decided the issue and passed order in favour of the assessee, consequently, the assessment order gets merged with the appellate order. Further, even the Revenue has not preferred any appeal against the appellate order, and therefore, issue in dispute attained finality. We also find that clause (c) of Explanation 1 to Section 263(1) has clarified that when the subject matter of revision is in appeal before the CIT(A), the CIT has no power to revise the same. CIT is competent to revise an order of assessment passed by the AO in all the matters except those which have been considered and decided in appeal. CIT can exercise revisional powers only on issue which are not before the ld.CIT(A). This is because powers of the CIT(A) are co-terminus to that of the CIT. The case on hand is clearly in violation of the Explanation 1 to section 263(1), therefore, applying principle of doctrine of merger, exercise of power under section 263 in the present case is bad in law and liable to be quashed. Also on merit, the dispute is covered in favour of the assessee by the decision of Jafari Momin Vikas Co-op. Credit Society Ltd. 2014 (2) TMI 28 - GUJARAT HIGH COURT wherein, the Hon ble High Court examined applicability of section 80P(2)(a)(i) read with section 80P(4) of the Act and the CBDT Circular No.133 of 2007 dated 9.5.2007 clarifying scope of section 80P(2) in respect of cooperative credit society. The circular clarified that Delhi Co-op Urban Thrift and Credit Society Ltd. is not a cooperative bank, but a credit cooperative society, and section 80P(4) of the Act would not be applicable to it. Thus we quash order of the ld.Pr.CIT passed under section 263 of the Act, and thus allow the main ground of appeal of the assessee.
Issues Involved:
1. Assumption of jurisdiction under section 263 of the Income Tax Act, 1961. 2. Entitlement of the assessee to deduction under section 80P(2)(a)(i) of the Income Tax Act. 3. Applicability of section 80P(4) to the assessee. 4. Doctrine of merger and its impact on the revisional power under section 263. Detailed Analysis: 1. Assumption of Jurisdiction under Section 263: The main issue agitated by the assessee was the erroneous assumption of jurisdiction by the Pr. Commissioner of Income Tax (Pr.CIT) under section 263. The Pr.CIT issued a notice to the assessee to revise the original assessment order, arguing that it was erroneous and prejudicial to the interests of the Revenue. The assessee contended that the Pr.CIT wrongly assumed jurisdiction under section 263 because the original assessment order had already been appealed and decided by the CIT(A), thus merging with the appellate order. The Tribunal found that the Pr.CIT's exercise of revisionary power under section 263 was bad in law, as the original assessment order had merged with the appellate order, and the Revenue did not appeal against the appellate order. 2. Entitlement to Deduction under Section 80P(2)(a)(i): The assessee, a cooperative credit society, claimed a deduction under section 80P(2)(a)(i) for interest income earned from deposits made with nationalized banks. The Assessing Officer (AO) disallowed this claim, categorizing the interest income as "income from other sources." However, the CIT(A) allowed the claim, and the Tribunal upheld this decision, citing the judgment of the Hon’ble Gujarat High Court in the case of Jafari Momin Vikas Co-op. Credit Society Ltd., which clarified that cooperative credit societies are entitled to deductions under section 80P(2)(a)(i). 3. Applicability of Section 80P(4): The Pr.CIT argued that the assessee was hit by section 80P(4), which excludes cooperative banks from claiming deductions under section 80P. The assessee countered that section 80P(4) was not applicable as it is a cooperative credit society, not a cooperative bank. The Tribunal referred to the CBDT Circular No. 133 of 2007 and the Gujarat High Court's judgment in Jafari Momin Vikas Co-op. Credit Society Ltd., which clarified that section 80P(4) does not apply to cooperative credit societies. Thus, the Tribunal held that the assessee was entitled to the deduction under section 80P(2)(a)(i). 4. Doctrine of Merger: The Tribunal emphasized the doctrine of merger, which states that once an assessment order is appealed and decided by the CIT(A), it merges with the appellate order. Consequently, the Pr.CIT cannot exercise revisional power under section 263 on issues already decided in the appeal. The Tribunal found that the original assessment order had merged with the appellate order, and since the Revenue did not appeal against the CIT(A)'s decision, the issue attained finality. Therefore, the Pr.CIT's revisionary power under section 263 was not applicable. Conclusion: The Tribunal quashed the order passed by the Pr.CIT under section 263, allowing the assessee's appeal. The Tribunal held that the Pr.CIT's assumption of jurisdiction under section 263 was erroneous, the assessee was entitled to the deduction under section 80P(2)(a)(i), and the doctrine of merger prevented the Pr.CIT from revising the original assessment order. The Tribunal's decision was based on the principles laid down by the Hon’ble Gujarat High Court and the CBDT Circular, which clarified the scope and applicability of sections 80P(2)(a)(i) and 80P(4).
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