2024 (6) TMI 1341 - AT - Income Tax

Revision u/s 263 - Deduction u/s 80P - Interest Income earned from deposits made with co-operative and other banks - assessee has considered interest income earned from SCDCC Bank Ltd./Syndicate Bank and Co-operative Societies, Dividend from SCDCC Bank Ltd. and Dividend from Co-operative Bank as income from other sources - HELD THAT - PCIT without understanding that the assessee is not claiming deduction u/s 80P(2)(a)(i) or 80P(2)(d) of the Act on the income shown in Schedule 7, he directed the AO not to grant deduction u/s 80P(2)(a)(i) 80P(2)(d) of the Act on the above income of Rs. 1,54,05,706/-, which is shown as income from other sources by assessee in Schedule 7 to computation of income. Being so, in our opinion, the order passed by ld. AO vide order dated 19.4.2021 is not prejudicial so far as erroneous to the interest of revenue, when there was no claim by assessee u/s 80P(2)(a)(i) or 80P(2)(d) of the Act in respect of income shown by assessee in schedule 7 as discussed above. Accordingly, we annul the revision order passed by ld. PCIT u/s 263 of the Act. Appeal of the assessee is allowed.

Summary

Issues:
1. Revision u/s 263 of the Income Tax Act, 1961
2. Eligibility of deduction u/s 80P(2)(d) on interest income from banks, including cooperative banks

Issue 1: Revision u/s 263 of the Income Tax Act, 1961
The appeal was against the order of the Principal Commissioner of Income Tax (PCIT) passed under section 263 of the Income Tax Act, 1961 for the assessment year 2018-19. The grounds of appeal challenged the revision order as being opposed to law, equity, and the facts of the case. The appellant contended that there was no error prejudicial to the revenue's interest in the original assessment order passed by the Assessing Officer. The appellant argued that the assessment order was in accordance with the decisions of the Supreme Court and the Jurisdictional High Court of Karnataka. The PCIT had directed the disallowance of a deduction under section 80P(2)(d) of the Act, which the appellant claimed was contrary to law and the facts of the case.

Issue 2: Eligibility of deduction u/s 80P(2)(d) on interest income from banks, including cooperative banks
The PCIT observed that the appellant had received interest income from various banks, including cooperative banks, and contended that deduction under section 80P was not allowable on such income. The PCIT relied on the decision of the Karnataka High Court regarding the ineligibility of interest earned on deposits with cooperative banks for deduction under section 80P(2)(d) of the Act. The PCIT held that the interest income from cooperative banks did not qualify for deduction under section 80P(2)(d) based on the binding decision of the Karnataka High Court. The appellant argued that the interest income was part of operational income and eligible for deduction under section 80P(2)(a)(i). However, the Tribunal held that as per the Supreme Court's decision, such income was not operational income and therefore not eligible for deduction under section 80P(2)(a)(i). The Tribunal further emphasized that the later decision of the Karnataka High Court had more binding force than the earlier decision cited by the appellant.

Conclusion:
The Tribunal allowed the appeal of the assessee, annulling the revision order passed by the PCIT under section 263 of the Act. The decision was based on the finding that the original assessment order was not erroneous or prejudicial to the revenue's interest since the appellant had not claimed deduction under section 80P(2)(a)(i) or 80P(2)(d) of the Act on the income in question.