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2015 (10) TMI 395 - AT - Income TaxRevision u/s 263 - As per the CIT, AO had failed to examine the claim for deduction u/s.80P(2)(a)(i) - Held that - In so far as construing the meaning of the words carrying on the business of banking by providing credit facilities to its members, is concerned, judgment of jurisdictional High Court in the case of Grain Merchants Cooperative Society 2003 (10) TMI 21 - KARNATAKA High Court will apply on all four squares. If that be so, assessee has a good case that its property income could only be construed as profits and gains attributable to the business of banking. If that be so such amounts would also be eligible for claim of deduction u/s.80P(2)(a)(i) of the Act. The CIT had directed the AO to make the disallowances without giving him any room for taking the submissions and pleading of the assessee into consideration which in our opinion was not proper. At the same time it is also true that AO had made no enquiries on these vital issues at the time of assessment. Hence we are of the opinion that Ld. CIT (A) was justified in considering the assessment order as erroneous and prejudicial to the interests of Revenue. However in the circumstances of the case, direction of the CIT to assess the incomes mentioned at para four above is not correct. Therefore, while upholding the order of CIT u/s.263 of the Act, we modify it and direct the AO to do the assessment afresh in accordance with law, untrammelled by the observation of the CIT on merits regard. - Decided partly in favour of assessee for statistical purpose.
Issues Involved:
1. Legitimacy of the deduction claimed under Section 80P(2)(a)(i) of the Income-tax Act, 1961. 2. Examination of the interest earned on deposits with cooperative banks. 3. Treatment of rental income from buildings and land. Detailed Analysis: 1. Legitimacy of the Deduction Claimed Under Section 80P(2)(a)(i) of the Income-tax Act, 1961: The assessee, a cooperative society, filed a return declaring nil income and claimed a deduction under Section 80P(2)(a)(i) of the Act. The assessment was completed without examining the legitimacy of the deduction claimed. The CIT issued a notice proposing to revise the assessment, citing a failure by the AO to examine the deduction claim properly. The CIT referenced the judgment of the Hon'ble Apex Court in Totgars Cooperative Sale Society Ltd, which stated that interest earned on surplus funds invested in short-term deposits and securities, and other non-business income, must be brought to tax and is not eligible for deduction under Section 80P(2)(a)(i). 2. Examination of the Interest Earned on Deposits with Cooperative Banks: The assessee argued that interest earned from deposits with the District Central Cooperative Bank and from statutory reserve funds should be eligible for deduction under Section 80P(2)(d). The CIT disagreed, noting that the deduction under Section 80P(2)(d) applies only if the deposits are with cooperative societies and not cooperative banks. The CIT set aside the assessment, directing the AO to assess the interest income of Rs. 4,328. The assessee relied on the jurisdictional High Court's decision in Tumkur Merchants Souharda Credit Cooperative Ltd, which held that interest earned on short-term deposits from funds not due to its members is attributable to the business of banking and thus deductible under Section 80P(1). The Tribunal found merit in this argument, noting that the interest income was not from liabilities due to members and therefore should be considered as business income eligible for deduction. 3. Treatment of Rental Income from Buildings and Land: The assessee treated rental income from buildings and land as part of its business income, arguing that it should be deductible under Section 80P(2)(a)(i). The CIT contended that the maximum deduction allowable against rental income was Rs. 50,000 under Section 80P(2)(c). The CIT directed the AO to assess the rental income of Rs. 8,32,500. The assessee cited the jurisdictional High Court's decision in CIT v. The Grain Merchants Cooperative Bank Ltd, which held that income from letting out premises is part of the business income from banking. The Tribunal agreed, stating that the rental income should be considered as profits and gains attributable to the business of banking, making it eligible for deduction under Section 80P(2)(a)(i). Conclusion: The Tribunal acknowledged that the AO's assessment was cryptic and lacked proper examination of the issues. It upheld the CIT's decision to consider the assessment order as erroneous and prejudicial to the interests of the Revenue. However, it modified the CIT's directive, instructing the AO to reassess the income afresh, considering the assessee's submissions and legal precedents. The appeal was partly allowed for statistical purposes.
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