2022 (9) TMI 720 - AT - Income Tax

Revision u/s 263 by CIT - Deduction u/s 80P(2)(d) - whether AO made sufficient enquiries at the time of original assessment and whether the view taken by the AO on appreciation of facts of the case is a legally sustainable view? - HELD THAT - Aassessee filed reply before the AO, in which the assessee gave a detailed explanation regarding the claim of deduction under section 80-P of the Act. Therefore, from the perusal of records, it is evident that the AO had made sufficient enquiry into the aspect of claim of deduction under section 80-P of the Act. Regarding the disallowance of dividend income earned on shares held by the assessee in RDC District Cooperative Bank, we observe that the Hon ble Gujarat High Court in the case of State Bank of India 2016 (7) TMI 516 - GUJARAT HIGH COURT held that the 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) . In the case of Pr. Commissioner of Income Tax and Anr. Vs. Totagars Cooperative Sale Society 2017 (1) TMI 1100 - KARNATAKA HIGH COURT the Karnataka High Court has held that the 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) of the Act. We are of the considered view that AO had made sufficient enquiries at time of passing of original assessment order. The assessee had given to the replies in response to the queries raised by the AO. Before us, the assessee has also duly explained that in that no interest was earned by the assessee from any bank, but such interest received from its members only. Further, the assessee had earned dividend income on account of shares held in Rajkot District Cooperative Bank, on which deduction has been claimed under section 80P of the Act, which is eligible in view of the plain language of section 80P(d). Therefore, we are of the view that in the instant set of facts, there is no infirmity in the order assessment passed by the AO. Accordingly, order passed under section 263 of the Act is liable to be set aside - Appeal of assessee allowed.

Summary

Issues:
1. Validity of the order passed by the Principal Commissioner of Income Tax (PCIT).
2. Eligibility of deduction under section 80P(2)(d) of the Income-tax Act, 1961.
3. Sufficient enquiries made by the Assessing Officer (AO) during the original assessment.

Issue 1: Validity of the PCIT Order
The appeal was filed against the order of the PCIT dated 08-03-2022. The assessee contended that the PCIT's order was bad in law and invalid, seeking its quashing. The PCIT set aside the assessment order passed under section 143(3) of the Act, directing the AO to pass a fresh assessment order. The Tribunal found the PCIT's order to be unjustified on facts and in law, leading to the quashing of the order.

Issue 2: Deduction under Section 80P(2)(d)
The dispute revolved around the deduction claimed under section 80P(2)(d) of the Act on interest income. The PCIT questioned the allowability of the deduction on interest earned on fixed deposits from a cooperative bank. The Tribunal analyzed various High Court decisions, concluding that the interest income derived from investments with a cooperative bank is eligible for deduction under section 80P(2)(d) of the Act. The assessee's claim for deduction on dividend income from a cooperative bank was also upheld.

Issue 3: Enquiries by the Assessing Officer
The Tribunal assessed whether the AO conducted sufficient enquiries during the original assessment. It was noted that the AO had issued specific notices inquiring about the deduction under Chapter VI-A and section 80P of the Act. The assessee responded with detailed explanations, demonstrating that the AO had adequately investigated the deduction claims. The Tribunal found no infirmity in the original assessment order, concluding that the AO's actions were legally sustainable.

In conclusion, the Tribunal allowed the appeal, setting aside the PCIT's order. The judgment highlighted the importance of conducting thorough enquiries by the AO and clarified the eligibility of deductions under section 80P(2)(d) of the Income-tax Act, 1961.