2022 (8) TMI 28 - AT - Income Tax

Deduction u/s 80P - interest income derived from deposits made in the co-operative banks - HELD THAT - As decided in RENA SAHAKARI SAKHAR KARKHANA LTD 2022 (1) TMI 419 - ITAT PUNE interest income earned by a co-operative society on its investments held with a co-operative bank would be eligible for claim of deduction under Sec.80P(2)(d). Assessee appeal allowed.

Issues Involved:
1. Correctness of the Pr. CIT's revision directions under Section 263 of the Income Tax Act, 1961.
2. Eligibility of the assessee's deduction claim under Section 80P(2)(a) regarding interest income from deposits in co-operative banks.

Detailed Analysis:

Issue 1: Correctness of the Pr. CIT's Revision Directions under Section 263
The primary issue in this case revolves around the Pr. CIT's revision directions, which deemed the regular assessment dated 18.11.2019 as erroneous and prejudicial to the interest of the Revenue. The Pr. CIT argued that the Assessing Officer (AO) had not properly examined the eligibility of the assessee to claim a deduction under Section 80P of the Act. Specifically, the AO failed to verify whether the loans/deposits taken were given back to the members as loans/advances, thus not substantiating the principle of mutuality.

The Pr. CIT pointed out that the AO did not verify if the interest income of Rs. 8,69,470/- from fixed deposits in various co-operative banks was eligible for deduction under Section 80P(2)(d). The AO also did not check if these co-operative banks were registered with the RBI, which is a crucial factor in determining the eligibility for the deduction.

Issue 2: Eligibility of the Assessee's Deduction Claim under Section 80P(2)(a)
The assessee claimed that the AO had made requisite inquiries and followed binding decisions from the jurisdictional ITAT before allowing the deduction under Section 80P(2). However, the Pr. CIT noted that the AO did not verify whether the deposits made with various banks were from the members' deposits or from surplus funds. The Pr. CIT emphasized that the deposits accepted from members were not used for the society's business of providing credit facilities but were instead invested to earn interest, which does not align with the principles of mutuality.

The Pr. CIT directed the AO to re-examine the assessee's claim of deduction under Section 80P, considering the source of deposits, the registration status of the institutions with the RBI, and the principle of mutuality. The AO was instructed to re-frame the assessment after giving the assessee a reasonable opportunity to provide evidence and information.

Tribunal's Findings:
The tribunal, after considering the arguments and the recent co-ordinate bench's order in Rena Sahakari Sakhar Karkhana Ltd. vs. PCIT, found no merit in the Pr. CIT's revision directions. The tribunal noted that the interest income derived from investments made by a co-operative society with any other co-operative society should be eligible for deduction under Section 80P(2)(d). The tribunal referred to several judicial pronouncements, including decisions from the Karnataka High Court and Gujarat High Court, which supported the view that interest income earned by a co-operative society from its investments held with a co-operative bank is eligible for deduction under Section 80P(2)(d).

The tribunal concluded that the Pr. CIT's view that the AO's assessment was erroneous and prejudicial to the interest of the Revenue was not sustainable. The tribunal reversed the Pr. CIT's revision directions and allowed the assessee's appeal.

Conclusion:
The assessee's appeal was allowed, and the tribunal reversed the Pr. CIT's revision directions, affirming that the interest income derived from deposits made in co-operative banks is eligible for deduction under Section 80P(2)(d). The tribunal emphasized that the AO's original assessment was in line with judicial precedents and did not warrant revision under Section 263.

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