2022 (4) TMI 1267 - AT - Income Tax

Revision u/s 263 - Assessee claimed as exempt on principle of mutuality as per section 80P - assessee made investment in fixed deposits in nationalized bank (SBI and Union Bank of India) and co-operative bank and interest received thereon was claimed as exempt - HELD THAT - Neither the Ld. A.O. nor the Ld. Pr. CIT has considered the decision by Supreme Court of India in the case of Bangalore Club 2013 (1) TMI 343 - SUPREME COURT wherein it has been has held that interest earned by assessee-club on fixed deposits from its member banks would not be exempt from tax on basis of doctrine of mutuality. When we brought this fact to the attention of the parties, the Ld. counsel for the assessee submitted that facts of the Supreme Court decision in Bangalore Club supra is distinguishable on facts and assessee's case is covered by the decision of M/s. Sakar Corporation (supra). In our considered view, the Ld. A.O. has while passing the original assessment order has not considered certain important factual aspects. We accordingly restore the matter to the file of A.O. to analyze the applicability of the decisions cited above in the assessee's set of facts and pass a de-novo assessment after providing reasonable opportunity to the assessee.

Summary

Issues:
1. Interpretation of Section 263 of the Income Tax Act regarding the correctness of the original assessment order.
2. Applicability of the principle of mutuality to interest income earned by a cooperative housing society.
3. Consideration of judicial precedents and their relevance to the case.
4. Proper examination and verification of issues by the Assessing Officer.

Analysis:
1. The appeal involved a challenge against the order passed under Section 263 of the Income Tax Act, questioning the correctness of the original assessment order. The Principal CIT remanded the matter back to the Assessing Officer for further inquiry, citing the original assessment as erroneous and prejudicial to the revenue's interest.

2. The core issue revolved around the applicability of the principle of mutuality to interest income earned by a cooperative housing society from bank deposits. The Principal CIT contended that the interest income from nationalized banks did not fall within the ambit of mutuality principle, making it taxable. The appellant argued that the interest income was from deposits made by members for maintenance expenses, invoking the principle of mutuality for exemption under section 80P of the Act.

3. The dispute also encompassed the consideration of judicial precedents, specifically the Gujarat High Court decision in the case of CIT vs. Adarsh Co-operative Housing, and the ITAT Ahmedabad decision in the case of M/s. Sakar Corporation. The appellant relied on these judgments to support their contention that the interest income should be exempt based on the principle of mutuality. However, the Principal CIT differentiated the facts of the present case from those in the cited judgments, emphasizing that the interest income was earned from commercial banks, not from members.

4. The Assessing Officer's failure to conduct a thorough examination and verification of the issues at hand was highlighted as a crucial aspect leading to the decision under Section 263. The Tribunal noted that important factual aspects were not adequately considered in the original assessment order, necessitating a fresh adjudication by the Assessing Officer after analyzing the applicability of relevant judicial decisions to the appellant's case.

In conclusion, the Tribunal upheld the appeal and ordered the matter to be restored to the Assessing Officer for a fresh assessment, emphasizing the need for a detailed examination of the factual aspects and proper consideration of the judicial precedents in determining the taxability of the interest income earned by the cooperative housing society.