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2022 (10) TMI 223 - AT - Income TaxRevision u/s 263 by CIT - Deduction u/s 80P - Allowability of deduction towards interest income received from Co-operative banks claimed u/s 80P(2)(a)(i) of the Act - HELD THAT - It is pertinent to note that ld. AO adjudicated the issue of claim made by the assessee u/s 80P by passing a detailed order and more importantly making an addition in this respect of Rs. 1,95,605/- towards net income received by the assessee from HDCCB. Therefore, present case cannot be termed as a case of lack of enquiry by the ld. AO as alleged by the ld. PCIT. As dealt with Explanation 2 as inserted by the Finance Act, 2015 in the case of Narayan Tatu RaneI 2016 (5) TMI 1162 - ITAT MUMBAI to hold that the said Explanation cannot be said to have overridden the law as interpreted by the Hon'ble Delhi High Court, according to which the ld. PCIT has to conduct an enquiry and verification to establish and show that the assessment order is unsustainable in law - intention of the legislature could not have been to enable the ld. PCIT to find fault with each and every assessment order, without conducting any enquiry or verification in order to establish that the assessment order is not sustainable in law, since such an interpretation will lead to unending litigation and there would not be any point of finality in the legal proceedings. The opinion of the ld. PCIT referred to in section 263 of the Act has to be understood as legal and judicious opinion and not arbitrary opinion. AO after undertaking requisite enquiries, had taken one of the plausible views on the claim of the assessee u/s 80P of the Act and has made the disallowance in this respect while completing the assessment for which assessee did not go into appeal. Accordingly, the impugned revision order passed by ld. PCIT u/s 263 holding the assessment order as erroneous in so far as it is prejudicial to the interest of revenue is not sustainable and is therefore, quashed. Thus, the grounds of appeal by the assessee are allowed.
Issues Involved:
1. Jurisdiction under Section 263 of the Income-tax Act, 1961. 2. Allowability of deduction under Section 80P(2)(a)(i) of the Income-tax Act, 1961 for interest income earned from Co-operative banks. 3. Application of the Supreme Court decision in Totgars Co-operative Sale Society Ltd. vs ITO. Issue-wise Detailed Analysis: 1. Jurisdiction under Section 263 of the Income-tax Act, 1961: The primary issue raised by the appellant was that the Principal Commissioner of Income Tax (Pr. CIT) wrongly assumed jurisdiction under Section 263 of the Income-tax Act, 1961. The appellant contended that the alleged mistakes in the assessment order under Section 143(3) did not render the order erroneous or prejudicial to the interest of the revenue, thus failing the twin conditions required for invoking Section 263. The Tribunal noted that for the Pr. CIT to invoke Section 263, both conditions'error in the assessment order and prejudice to the interest of the revenue'must be satisfied. The Tribunal referenced the Supreme Court ruling in Malabar Industries Ltd. vs. CIT, which clarified that an order could be considered erroneous if it was based on incorrect facts, incorrect application of law, violation of natural justice, lack of application of mind, or lack of necessary investigation. The Tribunal concluded that the Assessing Officer (AO) had made detailed inquiries and taken a plausible view, thus the order could not be termed erroneous or prejudicial to the revenue. 2. Allowability of Deduction under Section 80P(2)(a)(i): The appellant argued that the interest income earned from deposits with the Hooghly District Central Cooperative Bank Ltd. (HDCCB) and the West Bengal State Cooperative Agriculture & Rural Development Bank Ltd. (WBSCARDB) qualified for deduction under Section 80P(2)(a)(i) as it was part of the business income of the Co-operative society. The Tribunal examined the nature of the appellant's business, which involved providing long-term finance to agricultural farmers, receiving deposits from members, and complying with statutory requirements to keep a percentage of deposits in fixed deposits. The Tribunal found that the interest income from these deposits was directly linked to the business activities of the Co-operative society and thus qualified for deduction under Section 80P(2)(a)(i). 3. Application of the Supreme Court Decision in Totgars Co-operative Sale Society Ltd. vs ITO: The Pr. CIT relied on the Supreme Court decision in Totgars Co-operative Sale Society Ltd. vs ITO to argue that the interest income should be taxed as "income from other sources" under Section 56 and not be eligible for deduction under Section 80P(2)(a)(i). The Tribunal distinguished the facts of the Totgars case from the present case. In Totgars, the interest income was from surplus funds not immediately required for business purposes, whereas in the present case, the interest income was from statutory and margin deposits directly related to the appellant's business activities. The Tribunal concluded that the interest income in the present case was attributable to the business activities and thus eligible for deduction under Section 80P(2)(a)(i). Conclusion: The Tribunal concluded that the AO had conducted necessary inquiries and taken a plausible view on the deduction under Section 80P(2)(a)(i). The Pr. CIT's order under Section 263 was thus unsustainable. The Tribunal quashed the revision order, allowing the appeal of the assessee. Final Judgment: The appeal of the assessee was allowed, and the revision order passed by the Pr. CIT under Section 263 was quashed.
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