2022 (5) TMI 1273 - AT - Income Tax

Rectification of mistake u/s 154 - whether the assessee is eligible for deduction u/s 80P? - interest income received by the assessee society was not from co-operative society but from a co-operative bank, and therefore, not entitled to deduction u/s 80P(2)(d) - HELD THAT - The powers of the Assessing Authority while processing a return u/s 143(1) is very limited. AO could make only prima facie adjustments which are apparent from the return filed. Only mistakes in law, arithmetic mistakes, incorrect claims apparent on the records, excess loss or disallowances apparent which are not disallowed etc, can be adjusted. The issue whether the assessee is eligible for deduction u/s 80P of the I.T.Act is not a matter that can come within the ambit of prima facie adjustment authorised u/s 143(1) of the I.T.Act. The CIT(A) in the impugned orders have mentioned that the issue of deduction u/s 80P of the I.T.Act is highly debatable, however, he has not gone to the extent of holding that the prima facie adjustment in 143(1) disallowing deduction u/s 80P of the I.T.Act was not permissible. The disallowance of the claim u/s 80P in the intimation is not in accordance with law and hence a mistake apparent on the records. When the CPC made a prima facie adjustment in the intimation disallowing partially the claim u/s 80P of the I.T.Act, the assessee was well within its rights to file a rectification petition before the Assessing Authority to rectify this mistake rather than straight away file an appeal before the CIT(A) as the primary facie adjustment was a mistake of law. The CIT(A) should have appreciated that, an order refusing to rectify a mistake is an appealable order u/s 246 of the I.T.Act and the hence the Commissioner (Appeals) has erred in dismissing the appeal on the grounds that the appeal should have been filed against the intimation and not the order u/s 154 of the I.T.Act. Also we are of the view that the interest received by a cooperative society from any other co-operative society is exempt from tax without any condition as per the provisions of section 80P(2)(d). Admittedly, the assessee during the relevant assessment years had only interest from The Kannur District Co-operative Bank Ltd. As decided in Kallara Service Co-operative Bank Ltd, Kottayam and others 2019 (10) TMI 1520 - KERALA HIGH COURT interest received by a co-operative society from a cooperative bank on deposits held with such co-operative bank is interest received by a co-operative society from another co-operative society and hence would be covered by the exemption provided in section 80P(2)(d) of the I.T.Act - thus we hold that the assessee is entitled to deduction u/s 80P(2)(d) of the I.T.Act in respect of interest income received from Kannur District Co-operative Bank Ltd. for assessment years 2013-2014 to 2015-2016. Decided in favour of assessee.

Summary

Issues Involved:
Appeal against orders of CIT(A) for assessment years 2013-2014 to 2015-2016 regarding denial of deduction u/s 80P of the Income Tax Act.

Analysis:

Issue 1: Denial of deduction u/s 80P by Assessing Officer
The assessee, a consumer credit society, claimed deduction u/s 80P for the assessment years 2013-2014 to 2015-2016. The Assessing Officer partially denied the deduction on interest income received from a cooperative bank. The AO rejected the rectification application stating that the interest income was not from a cooperative society. The CIT(A) dismissed the appeals, stating the issue is debatable and beyond the scope of section 154. The Tribunal held that the AO's adjustment disallowing the deduction was not permissible under section 143(1) as it was a mistake of law. The CIT(A) erred in dismissing the appeal on the grounds of filing against the intimation and not the order u/s 154.

Issue 2: Eligibility for deduction u/s 80P
The Tribunal found that interest received by a cooperative society from another cooperative society is exempt under section 80P(2)(d). The High Court judgment established that a district cooperative bank is a cooperative society. The interest received by the assessee from the cooperative bank falls under the exemption provided in section 80P(2)(d). The Tribunal allowed the appeals for the assessment years 2013-2014 to 2015-2016, holding the assessee entitled to deduction u/s 80P(2)(d) for the interest income received.

The Tribunal's decision clarified the limited powers of the Assessing Authority under section 143(1) and emphasized the importance of rectification applications for correcting prima facie adjustments. Additionally, the judgment highlighted the significance of legal precedents in determining eligibility for deductions under the Income Tax Act.