2023 (8) TMI 1494 - AT - Income Tax

Revision u/s 263 - eligibility of deduction u/s 80P on interest and dividend received from Mumbai District Central Co-operative Bank - HELD THAT - Though the Cooperative Bank pursuant to the insertion of sub-section (4) of Sec. 80P is no more be entitled for claim of deduction u/s 80P of the Act, but a cooperative bank continue to be a cooperative society registered under the Co-operative Society Act. Even the interest income derived by a cooperative society from its investment held with a cooperative bank would be entitled for claim of deduction u/s 80P(2)(d) of the Act as held in the various decisions of the coordinate benches of the ITAT Mumbai. During the course of assessment proceedings the AO vide notice dated 143(2) has specified that case of the assessee has been selected under limited scrutiny for examination of claim of deduction under chapter VI-A of the Act. AO vide notice u/s 142(1) of the Act dated 17.02.2017 asked the assessee to explain with supporting documentary evidences the claim of deduction under chapter VI-A of the Act. In response the AO vide submission dated 06.03.2017 has provided the details as referred in the Annexure 4 to the submission as placed at page 15 to 24of the paper book filed by the assessee. The assessee explained that it provides loans to its members therefore, it fall under section 80P(2)(a)(i) of the Act - It is also explained that assessee society is not in the business of banking therefore it cannot be treated as bank and provision of Section 80P(4) are not attracted to the assessee at all. As decided in Vavveru Cooperative Rural Bank Ltd. 2017 (4) TMI 663 - ANDHRA PRADESH HIGH COURT wherein held that the co-operative society may claim the benefit of clause (d) or (e) either by investing the income in another co-operative society or investing the income in the construction of godown or warehouse and letting out the same. Also decision of ITAT Mumbai in the case of Jaoli Taluka Sahkari Patpedhi Maryadit 2015 (9) TMI 170 - ITAT MUMBAI claim of deduction u/s 80P(2)(a)(i) for interest income earned on depositing of surplus funds with the co-operative Banks was allowed. As evident from the submission of the assessee that the AO has made detailed enquiries and mere fact that the same has not been referred in the assessment order could not make the order passed u/s 143(3) as erroneous and prejudicial to the interest of revenue. We consider that the ld. Pr. CIT is not justified in treating the order passed u/s 143(3) as erroneous and prejudicial to the interest of the Revenue. Appeal of the assessee is allowed.

Summary

Issues Involved:

1. Jurisdiction under Section 263 of the Income Tax Act.
2. Eligibility for deduction under Section 80P(2)(a)(i) of the Income Tax Act.
3. Eligibility for deduction under Section 80P(2)(d) of the Income Tax Act.
4. Applicability of Section 80P(4) of the Income Tax Act.

Detailed Analysis:

1. Jurisdiction under Section 263 of the Act:

The primary issue was whether the Principal Commissioner of Income Tax (PCIT) erred in exercising jurisdiction under Section 263 of the Income Tax Act. The assessee argued that the jurisdictional conditions under Section 263 were not fulfilled, as the original assessment order was neither erroneous nor prejudicial to the interest of the Revenue. The PCIT, however, held that the assessment order was erroneous and prejudicial because the Assessing Officer (AO) failed to make necessary inquiries regarding the taxability of interest income.

2. Eligibility for deduction under Section 80P(2)(a)(i):

The assessee, a Cooperative Credit Society, claimed deductions under Section 80P(2)(a)(i) for income earned from interest and dividends received from the Mumbai District Central Co-operative Bank. The PCIT concluded that such income was not eligible for deduction under this section, arguing that the income was not attributable to the business of providing credit facilities to its members. The assessee, however, contended that the interest and dividend income were integral parts of its business activities and thus eligible for deduction. The Tribunal noted that the AO had made detailed inquiries during the original assessment, and the assessee had provided comprehensive explanations and judicial precedents supporting its claim.

3. Eligibility for deduction under Section 80P(2)(d):

The assessee alternatively claimed deductions under Section 80P(2)(d) for the interest and dividend income received from the cooperative bank. The PCIT argued that post the insertion of Section 80P(4), such deductions were not permissible. However, the Tribunal referred to various judicial decisions, including those from the ITAT Mumbai, which held that cooperative banks continue to be cooperative societies under the Cooperative Society Act. Therefore, interest income derived from investments held with a cooperative bank would still be entitled to deductions under Section 80P(2)(d).

4. Applicability of Section 80P(4):

The PCIT emphasized that Section 80P(4) excluded cooperative banks from the definition of cooperative societies for the purpose of claiming deductions under Section 80P. The assessee countered by stating that while cooperative banks may not claim deductions under Section 80P due to Section 80P(4), cooperative societies investing in cooperative banks are still eligible for deductions. The Tribunal agreed with the assessee, citing that the cooperative bank remains a cooperative society registered under the Cooperative Society Act, and thus, the interest income derived from such investments qualifies for deductions under Section 80P(2)(d).

Conclusion:

The Tribunal concluded that the PCIT was not justified in treating the original assessment order as erroneous and prejudicial to the interest of the Revenue. The Tribunal set aside the order of the PCIT and restored the original assessment order passed by the AO. Both appeals filed by the assessee for the assessment years 2015-16 and 2016-17 were allowed.