2022 (8) TMI 89 - AT - Income Tax

Revision u/s 263 by CIT - eligibility of deduction u/s 80P - assessment order as an erroneous one causing prejudice to the interest of Revenue - Assessing Officer had wrongly accepted its section 80P(2)(a) deduction claim regarding interest income derived from deposits made in the co-operative banks - HELD THAT - As decided recently in RENA SAHAKARI SAKHAR KARKHANA LTD 2022 (1) TMI 419 - ITAT PUNE though the co-operative banks pursuant to the insertion of sub-section (4) to Sec. 80P would no more be entitled for claim of deduction under Sec. 80P of the Act, but as a co-operative bank continues to be a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies, therefore, the interest income derived by a co-operative society from its investments held with a co-operative bank would be entitled for claim of deduction under Sec.80P(2)(d). As the A.O while framing the assessment had taken a possible view, and allowed the assessee‟s claim for deduction under Sec. 80P(2)(d) on the interest income earned on its investments/deposits with co-operative banks, therefore, the Pr. CIT was in error in exercising his revisional jurisdiction u/s 263 of the Act for dislodging the same. Accordingly, finding no justification on the part of the Pr. CIT, who in exercise of his powers under Sec. 263 of the Act, had dislodged the view that was taken by the A.O as regards the eligibility of the assessee towards claim of deduction under Sec. 80P(2)(d), we set-aside his order and restore the order passed by the A.O under Sec. 143(3) - Decided in favour of assessee.

Summary

Issues:
Challenge to correctness of PCIT's revision directions on section 80P(2)(a) deduction claim regarding interest income from deposits made in co-operative banks.

Analysis:

1. The appeal pertains to the correctness of the PCIT's revision directions regarding the acceptance of the section 80P(2)(a) deduction claim on interest income from deposits in co-operative banks. The PCIT held the regular assessment as erroneous, causing prejudice to revenue, as the Assessing Officer wrongly allowed the deduction claim. The PCIT relied on judicial decisions to support the disallowance of the deduction claim under section 80P(2)(a). The issue revolved around the character and nature of income determining its taxability or exemption under section 80P. The PCIT set aside the assessment and directed a fresh assessment to verify and allow the correct deduction amount.

2. The Revenue, through the CIT-DR, vehemently supported the PCIT's revision directions, citing the case law of PCIT vs. The Totagars Co-operative Sale Society. However, the tribunal analyzed the issue in light of a recent co-ordinate bench's order in Rena Sahakari Sakhar Karkhana Ltd. vs. PCIT. The tribunal disagreed with the Revenue's arguments and found no merit in the PCIT's revision directions. The tribunal emphasized the interpretation of section 80P(2)(d) and the importance of the term "co-operative society" in determining deduction eligibility.

3. The tribunal delved into the statutory provision of section 80P(2)(d) and the impact of the insertion of sub-section (4) post the Finance Act 2006. It clarified that interest income derived by a co-operative society from investments with any other co-operative society is eligible for deduction. The tribunal disagreed with the PCIT's view that the amendment would affect the deduction claim of a co-operative society on interest income from investments in co-operative banks. The tribunal highlighted the definition of "co-operative society" under the Act and referenced various judicial pronouncements and CBDT circulars to support its interpretation.

4. The tribunal examined conflicting judicial pronouncements and emphasized the preference for a view favoring the assessee in case of jurisdictional conflicts. It referenced cases like M/s Solitaire CHS Ltd. vs. Pr. CIT and Majalgaon Sahakari SAkhar Karkhana Ltd. Vs. ACIT to support the eligibility of deduction under section 80P(2)(d) for interest income from investments in co-operative banks. The tribunal concluded that the interest income derived by a co-operative society from investments in a co-operative bank is eligible for deduction under section 80P(2)(d).

5. The tribunal found no factual or legal distinction presented by the CIT-DR to challenge the 80P deduction claim on interest income from co-operative banks. Consequently, the tribunal reversed the PCIT's revision directions and allowed the assessee's appeal in favor of the deduction claim. The order was pronounced in the Open Court on 29th July 2022.