2022 (7) TMI 689 - AT - Income Tax

Revision u/s 263 by CIT - Wrongful allowance of deduction u/s 80P - As per CIT assessment order erroneous one causing prejudice to the interest of the Revenue so far as the latter had accepted section 80P(2) deduction claim representing interest income derived from deposits kept with M/s. Yes Bank, Bank of Baroda and UCO Bank - HELD THAT - . We find the instant issue to be any more res integra as learned co-ordinate bench's order in 2021 (12) TMI 1259 - ITAT PUNE to hold that the interest income earned on the investment of surplus money with banks is also eligible for exemption u/s.80P(2)(a)(i). PCIT has erred in law and on facts in exercising his section 263 revision jurisdiction in the given facts and circumstances of this case. His order under challenge is reversed accordingly as not sustainable in law. - Decided in favour of assessee.

Summary

Issues:
1. Revision of assessment order under Section 263 of the Income Tax Act, 1961 regarding deduction claim under section 80P(2).
2. Eligibility of interest income derived from deposits with nationalized banks for section 80P(2) deduction.

Detailed Analysis:
1. The judgment deals with the appeal of the assessee against the Principal Commissioner of Income Tax's order dated 11-06-2018 under Section 263 of the Income Tax Act, 1961. The revision directions by the Principal Commissioner considered the Assessing Officer's assessment order dated 14.06.2016 as erroneous due to accepting the section 80P(2) deduction claim of Rs.17,89,671/- for interest income from deposits with various banks. The Principal Commissioner found a lack of inquiry by the Assessing Officer regarding this deduction claim, leading to a prejudicial impact on revenue. The Commissioner emphasized the need for proper verification and application of mind by the Assessing Officer before allowing such deductions, citing legal precedents to support the decision-making process under Section 263.

2. The dispute also revolves around the eligibility of interest income earned by the assessee from deposits with nationalized banks for section 80P(2) deduction. The Revenue contended that such interest income is not eligible for deduction under section 80P(2). However, a previous order by a co-ordinate bench in a similar case held that interest income earned on surplus funds deposited with banks qualifies for exemption under section 80P(2)(a)(i) of the Act. The co-ordinate bench referred to various High Court judgments reflecting divergent views on this issue but ultimately supported the eligibility of such interest income for exemption under section 80P(2). Based on this precedent, the Tribunal concluded that the Principal Commissioner's revision order was erroneous in law and facts, and therefore, reversed the decision as unsustainable.

In conclusion, the Tribunal allowed the assessee's appeal, holding that the Principal Commissioner's revision order was not legally sustainable. The judgment provides clarity on the necessity of proper inquiry and application of mind by the Assessing Officer while allowing deduction claims under the Income Tax Act. Additionally, it establishes the eligibility of interest income derived from deposits with nationalized banks for exemption under section 80P(2) based on relevant legal precedents and judicial interpretations.