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2022 (8) TMI 1218 - AT - Income TaxRevision u/s 263 - PCIT had assumed revision jurisdiction u/s 263 based on audit objection i.e Internal Audit Party of Income tax department - allowability of interest income from co-operative banks and its consequential eligibility of deduction u/s 80P(2)(d) - HELD THAT - PCIT had assumed revision jurisdiction u/s 263 of the Act purely based on audit objection i.e Internal Audit Party of Income tax department. Merely because the ld. CCIT Pune had granted permission to take remedial action by accepting the audit objection raised by Internal Audit Party of Income Tax Department, PCIT having jurisdiction over the assessee herein, is bound to independently examine the records of the assessee and apply his independent mind before invoking revisionary jurisdiction u/s 263 of the Act. This is admittedly not done in the instant case. No hesitation in holding that the revision jurisdiction u/s 263 of the Act had been assumed by the ld. PCIT purely on borrowed satisfaction and not based on independent examination of records which is the mandate provided in section 263(1) of the Act. Hence the revision order passed u/s 263 of the Act deserves to be quashed on this count itself. From the perusal of the entire order of ld. PCIT u/s 263 we find that there is no mention of even issuance of show cause notice u/s 263 of the Act to the assessee by the ld. PCIT. Hence the reply of the assessee to the said show cause notice, if any, is also not reflected / considered by the ld. PCIT before concluding that the order passed by the ld. AO is erroneous and prejudicial to the interest of the revenue warranting revision u/s 263 of the Act. Hence the entire order passed u/s 263 of the Act by the ld. PCIT suffers from this basic legal infirmity and deserves to be quashed on this count also. PCIT himself had defended the assessment order framed u/s 143(3) dated 27.11.2019 before the Internal Audit Party of Income Tax Department specifically stating that the order passed by the ld. AO on 27.11.2019 is neither erroneous nor prejudicial to the interest of the revenue. Having done so, how the same PCIT could say that the order of the ld. AO is erroneous and prejudicial to the interest of the revenue while passing revision order u/s 263 of the Act. Hence the order passed by the ld. PCIT u/s 263 of the Act suffers from this legal infirmity also. On merits we hold that the interest income derived from co-operative banks would be eligible for deduction u/s 80P(2)(d) of the Act. Dividend income, the same is also squarely covered in the provisions of section 80P(2)(d) of the Act itself. The provisions of section 80P(4) of the Act which has been heavily relied upon by the ld. PCIT is applicable only for co-operative banks claiming deduction u/s 80P of the Act. The said sub-section (4) does not deny the benefit of deduction u/s 80P of the Act to co-operative credit societies. Hence the objection of the ld. PCIT in this regard deserves to be dismissed on merits also. With regard to processing and other income, the same is squarely covered in the provisions of section 80P(2)(e) of the Act. The decision rendered hereinabove for dividend income would hold good for this issue also. Examination of applicability of provisions of section 269SS we find that the entire receipts by the assessee society in cash was subject matter of examination and verification by the ld. AO in the course of assessment proceedings. This fact is duly addressed by the ld. AO in page 2 of his order. Hence it could be safely concluded that the ld. AO had made adequate enquiries in this regard in the assessment proceedings itself and had arrived at only possible view on the matter. Hence the same cannot be disturbed by the ld. PCIT by invoking revision jurisdiction u/s 263 of the Act. Infact, we further find that in none of the audit objections (which is the primary basis of ld. PCIT invoking revision jurisdiction u/s 263 of the Act in the instant case) , the aspect of violation of provisions of section 269SS of the Act , was even addressed. Hence we hold that the ld. PCIT grossly erred in directing the ld. AO to examine the applicability of provisions of section 269SS. Hence we hold that the revision order passed by the ld. PCIT u/s 263 of the Act deserves to be quashed for more than one reason - Decided in favour of assessee.
Issues Involved:
1. Justification of invoking section 263 of the Income Tax Act, 1961. 2. Validity of setting aside the assessment order to examine the applicability of sections 80P(2)(d) and 269SS. 3. Allegations of the Principal Commissioner of Income Tax (PCIT) relying on audit party observations. 4. Investment of funds by the assessee society and its compliance with statutory requirements. 5. Reliance on judicial precedents by the PCIT. 6. Violation of principles of natural justice in passing the revision order. Issue-wise Detailed Analysis: 1. Justification of Invoking Section 263 of the Income Tax Act, 1961: The PCIT invoked section 263, arguing the assessment order was erroneous and prejudicial to the revenue's interest. However, the tribunal found that the PCIT assumed jurisdiction based on an audit objection without independent examination of records. The tribunal emphasized that the PCIT must apply an independent mind before invoking section 263, which was not done in this case. Therefore, the revision order was quashed on this ground. 2. Validity of Setting Aside the Assessment Order to Examine Sections 80P(2)(d) and 269SS: The PCIT directed the Assessing Officer (AO) to examine the applicability of sections 80P(2)(d) and 269SS. The tribunal noted that the AO had already examined these issues during the assessment proceedings. The tribunal found that the PCIT's direction for further examination was unwarranted and constituted a misuse of revisionary jurisdiction, as it led to fishing and roving enquiries. Consequently, the tribunal quashed the revision order on this count as well. 3. Allegations of the PCIT Relying on Audit Party Observations: The tribunal observed that the PCIT's revision jurisdiction was invoked based on audit objections without further application of mind. The tribunal held that merely accepting audit objections without independent verification does not justify invoking section 263. The tribunal quashed the revision order, emphasizing that the PCIT's action was based on borrowed satisfaction. 4. Investment of Funds by the Assessee Society and Compliance with Statutory Requirements: The PCIT alleged that the assessee society invested idle funds to earn interest income, which should not qualify for deduction under section 80P. However, the tribunal found that the investments were made as per statutory requirements governing the society. The tribunal ruled in favor of the assessee, stating that the interest income from cooperative banks is eligible for deduction under section 80P(2)(d). 5. Reliance on Judicial Precedents by the PCIT: The PCIT relied on the Supreme Court decision in Totgar Co-op. Sales Society Ltd. and the Karnataka High Court decision in PCIT, Hubli v/s. Totgar Co-op. Sales Society. The tribunal distinguished these cases, noting that the assessee's case involved eligibility under section 80P(2)(d), not section 80P(2)(a)(i). The tribunal cited the Gujarat High Court decision in State Bank of India vs CIT, which supported the assessee's claim for deduction under section 80P(2)(d). The tribunal held that the PCIT's reliance on the cited precedents was misplaced. 6. Violation of Principles of Natural Justice: The tribunal found that the PCIT did not issue a show-cause notice to the assessee before passing the revision order, violating the principles of natural justice. The tribunal emphasized that the assessee was not given an adequate opportunity to be heard. This procedural lapse rendered the revision order legally infirm, leading to its quashing. Conclusion: The tribunal quashed the revision order passed by the PCIT under section 263 of the Income Tax Act, 1961, on multiple grounds, including lack of independent examination, procedural lapses, and misapplication of judicial precedents. The assessee's appeal was allowed in full.
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