2023 (4) TMI 1342 - AT - Income Tax

Revision u/s 263 - CIT(A) as held that claim of deduction made u/s 80P (2) (a) (i) or u/s 80P(2)(d) in respect of interest received from Co-operative Bank is not allowable - HELD THAT - Assessee co-operative society is eligible for deduction u/s. 80P(2)(d) in respect of gross interest received from co-operative banks, without adjusting interest paid to said bank. We are of the considered opinion, the assessment order passed by the AO is not an erroneous order, which does not require Revision u/s. 263. Therefore, we hereby quash the impugned Revision order passed by the PCIT u/s. 263 and restore the assessment order passed by the AO u/s. 143(3) of the Act. Thus the grounds raised by the Assessee are hereby allowed.

Summary

Issues Involved:
1. Jurisdiction exercised under Section 263 of the Income Tax Act.
2. Allowability of deduction under Section 80P(2)(a)(i) or Section 80P(2)(d) for interest income from a Cooperative Bank.
3. Adherence to principles of natural justice during the revision process.

Issue-Wise Detailed Analysis:

1. Jurisdiction Exercised under Section 263 of the Income Tax Act:
The Principal Commissioner of Income Tax (PCIT) exercised jurisdiction under Section 263 of the Income Tax Act, 1961, to revise the assessment order for the Assessment Year 2017-18. The PCIT found the original assessment order, which accepted the assessee's claim for deduction under Section 80P, to be erroneous and prejudicial to the interest of revenue. The PCIT issued a show cause notice to the assessee, who failed to respond, leading to the revision of the assessment order without granting further opportunity for a hearing.

2. Allowability of Deduction under Section 80P(2)(a)(i) or Section 80P(2)(d) for Interest Income from a Cooperative Bank:
The core issue was whether the interest income received from a Cooperative Bank qualifies for deduction under Section 80P(2)(a)(i) or Section 80P(2)(d) of the Act. The PCIT argued that such interest income is not eligible for deduction, referencing judgments from the Karnataka High Court and the Jurisdictional High Court. The assessee contended that similar claims had been allowed by the Tribunal in previous cases, where it was held that the Assessing Officer's decision to allow such deductions was a reasonable and possible view and thus could not be considered erroneous or prejudicial to the revenue. The Tribunal upheld this view, citing previous decisions that supported the assessee's claim for deduction under Section 80P.

3. Adherence to Principles of Natural Justice During the Revision Process:
The assessee argued that the PCIT's revision order was passed without providing adequate opportunity for a hearing, violating the principles of natural justice. The Tribunal noted that the PCIT had issued the show cause notice but did not provide further opportunity for the assessee to present its case. This was considered a breach of natural justice, as the assessee was not given a fair chance to rebut the PCIT's findings. The Tribunal emphasized that any adverse view taken without proper notice to the assessee is in violation of natural justice principles.

Conclusion:
The Tribunal quashed the revision order passed by the PCIT under Section 263 of the Act, restoring the original assessment order. It held that the Assessing Officer's decision to allow the deduction under Section 80P was a reasonable and possible view, and thus, the revision was unjustifiable. The Tribunal also highlighted the importance of adhering to the principles of natural justice, noting that the PCIT failed to provide adequate opportunity for the assessee to present its case. Consequently, the appeal filed by the assessee was allowed.