2022 (11) TMI 813 - AT - Income Tax

Reopening of assessment u/s 147 - Eligibility for deduction u/s 80P(2)(d) in respect of the interest income from investment made with the co-operative bank - HELD THAT - We find that the reopening is made on the basis of information available on record by drawing an inference that deduction allowed u/s 80P was irregular because interest is received from cooperative bank and not cooperative society. We note that this information was already on record. Further on the issue as to whether a cooperative bank is a cooperative society or not, there are decisions of various High Courts and ITAT in favour of the assessee at the relevant point of time when notice u/s 148 was issued. Even the Coordinate Bench in case of ITO Vs. Shree Keshorai Patan Sahakari Sugar Mill 2018 (2) TMI 499 - ITAT JAIPUR held that co-operative bank is to be treated as co-operative society for the purpose of interest income on investment in such co-operative bank and thus, eligible for deduction u/s 80P(2)(d) in respect of the interest income from investment made with the co-operative bank. When AO has taken one of the permissible view for allowing deduction u/s 80P(2)(d) in respect of interest earned by the assessee on investment made in FDR with Jaipur Central Cooperative Bank Limited, then on the basis of various decisions relied by Ld. A/R (supra), we have no hesitation to hold that reopening is bad in law and thus, this ground of the assessee is allowed. Interest expenditure allocation against the interest receipt for computing the deduction u/s 80P(2)(d) - When interest receipt excluding the interest receipt from JCCB Ltd. is more than the interest expenditure, expenditure on interest cannot be attributed against the interest receipt from JCCB Ltd. In view of above, we are of the view that the decision of ITAT in assessee s own case for AY 2016-17 setting aside the issue to ld. CIT(A) would serve no useful purpose in as much as from the legal and factual position stated above, no interest expenditure can be allocated against the interest receipt from JCCB Ltd. for computing the deduction u/s 80P(2)(d).The AO is therefore directed to verify the above factual position and allow deduction u/s 80P(2)(d) accordingly after making verification of these factual aspects for A.Y. 2014- 15.

Summary

Issues Involved:
1. Validity of the order passed by AO under section 147 of IT Act, 1961.
2. Deduction under section 80P(2)(d) of the IT Act on interest income from FDRs maintained with Jaipur Central Cooperative Bank Ltd.

Issue-wise Detailed Analysis:

1. Validity of the Order Passed by AO under Section 147:

The first issue pertains to the assessment years (AY) 2011-12 and 2012-13, where the assessee challenged the reopening of assessment by the Assessing Officer (AO) under section 148. The original assessments were completed under section 143(3). For AY 2011-12, the assessment was reopened after four years, while for AY 2012-13, it was reopened within four years from the end of the relevant AY. The assessee argued that the reopening was based on the same set of facts already on record and without any fresh material, which constitutes a change of opinion and is without jurisdiction. Reliance was placed on various case laws, including CIT Vs. Aroni Commercial Ltd. and State Bank of India Vs. ACIT.

The Tribunal agreed with the assessee, noting that the AO had not brought any new material to justify the reopening. The inference drawn by the AO was based on the information already available on record. The Tribunal referenced the decision of the Coordinate Bench in ITO Vs. Shree Keshorai Patan Sahakari Sugar Mill, which held that a cooperative bank is to be treated as a cooperative society for the purpose of interest income on investment, thus eligible for deduction under section 80P(2)(d). Consequently, the Tribunal held that the reopening of the assessment was bad in law, and this ground of the assessee was allowed.

2. Deduction Under Section 80P(2)(d) on Interest Income:

The second issue relates to the quantum of deduction eligible under section 80P(2)(d) for AYs 2011-12, 2012-13, and 2014-15. The assessee contended that the investment in FDRs was made out of its own funds, and the interest expenditure was incurred on working capital loans, which were utilized for business purposes. Therefore, no interest expenditure should be attributed to the interest income from FDRs maintained with Jaipur Central Cooperative Bank Ltd.

The Tribunal considered the financial statements and found that the assessee's own funds were significantly higher than the investments in FDRs with JCCB Ltd. Citing the Supreme Court's decision in CIT Vs. Reliance Industries Ltd., the Tribunal presumed that the investment was made out of the assessee's own funds. Additionally, the interest receipts, excluding those from JCCB Ltd., were more than the interest expenditure. Therefore, the Tribunal concluded that no interest expenditure could be attributed to the interest receipts from JCCB Ltd. for computing the deduction under section 80P(2)(d).

The Tribunal directed the AO to verify the factual position and allow the deduction accordingly. The appeals of the assessee were allowed for AY 2011-12 and 2012-13, while the cross-appeals for AY 2014-15 were partly allowed based on the observations made.

Conclusion:

The Tribunal's judgment addressed two primary issues: the validity of the reopening of assessments under section 147 and the computation of deductions under section 80P(2)(d). For the former, the Tribunal found the reopening to be without jurisdiction due to the lack of fresh material. For the latter, the Tribunal ruled in favor of the assessee, directing the AO to allow deductions based on the presumption that investments were made from the assessee's own funds. The appeals were thus resolved in favor of the assessee for AY 2011-12 and 2012-13, with partial relief granted for AY 2014-15.