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2022 (8) TMI 287 - AT - Income TaxRevision u/s 263 - As per CIT amount was invested to the nominal member and in the Schedule Bank not in the Cooperative Bank and disallowed the deduction of 80P(2) and return back the order to AO for reassessment - HELD THAT - As respectful observation of the case Mavilayi Service Coop Bank Ltd. 2021 (1) TMI 488 - SUPREME COURT limited object of section 80P(4) is to exclude co-operative banks that function at par with other commercial banks i.e. which lend money to members of the public. Thus, if the Banking Regulation Act, 1949 is now to be seen, what is clear from section 3 read with section 56 is that a primary cooperative bank cannot be a primary agricultural credit society, as such co-operative bank must be engaged in the business of banking as defined by section 5(b) of the Banking Regulation Act, 1949, which means the accepting, for the purpose of lending or investment, of deposits of money from the public. A number of judgments have held that a proviso cannot be used to cut down the language of the main enactment where such language is clear, or to exclude by implication what the main enactment clearly states - the ratio decidendi of Citizen Cooperative Society Ltd. 2017 (8) TMI 536 - SUPREME COURT must be given effect to. Section 80P of the IT Act, being a benevolent provision enacted by Parliament to encourage and promote the credit of the co-operative sector in general must be read liberally and reasonably, and if there is ambiguity, in favour of the assessee. The observation of the order of the assessing authority, it is clear that the particular issue related investment in cooperative bank nationalised bank was not discussed in the order shift even the Ld. assessing officer did not apply his mind to differentiate the nature of investment of the assessee. The earning of interest from this investment will be in question for attraction of tax or allowable deduction under section 80(P) of the Act for treating this income as business. Incorrect assumption of fact incorrect application of law will separately the requirement of order being erroneous. In the case of Malabar Industrial Company Ltd. 2000 (2) TMI 10 - SUPREME COURT The assessment order is itself erroneous prejudicial to the interest of revenue. PCIT was justified in revising the order of assessment. Accordingly, the impugned order pass by PCIT is upheld. Appeal of assessee dismissed.
Issues Involved:
1. Legality and jurisdiction of the order under Section 263 of the Income Tax Act. 2. Error and prejudice in the assessment order. 3. Entitlement to deduction under Section 80P(2) of the Income Tax Act. 4. Validity of proceedings initiated under Section 263. 5. Consideration of written submissions and case laws by the assessee. 6. Directions given for reassessment. 7. Nature of investment and its impact on deduction eligibility. Issue-wise Detailed Analysis: 1. Legality and Jurisdiction of the Order under Section 263: The assessee contended that the order passed by the Pr. Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act was illegal and without jurisdiction. The PCIT had initiated proceedings on the ground that the assessee indulged in banking business, thus not entitled to the deduction claimed under Section 80P(2) of the Act. 2. Error and Prejudice in the Assessment Order: The PCIT held that the assessment order was erroneous and prejudicial to the interest of revenue as the assessee had invested funds in a Schedule Bank instead of a Cooperative Bank, which disqualified them from the deduction under Section 80P(2). The PCIT relied on the Supreme Court judgment in Totagarh Cooperative Sales Society v. ITO, which stated that interest from investments in Schedule Banks is not eligible for deduction. 3. Entitlement to Deduction under Section 80P(2): The assessee argued that they were eligible for the deduction under Section 80P(2) for the assessment year 2015-16, as they had been allowed the same in the previous assessment year. They contended that the deduction was valid as the society was a Cooperative Society registered under the Punjab Cooperative Societies Act, 1961, and fulfilled all requirements of Section 80P(2). 4. Validity of Proceedings Initiated under Section 263: The assessee claimed that the proceedings under Section 263 were initiated on one issue but the order was passed on another issue for which no show cause notice was issued, making the order illegal and bad in law. The PCIT had initiated proceedings by holding that the assessee indulged in banking business, but the final order was based on the investment in Schedule Banks. 5. Consideration of Written Submissions and Case Laws by the Assessee: The assessee argued that various written submissions and case laws relied upon were ignored and brushed aside arbitrarily by the PCIT, making the order under Section 263 illegal and bad in law. The PCIT did not consider the judgments of the Coordinate Benches and other relevant case laws cited by the assessee. 6. Directions Given for Reassessment: The PCIT set aside the assessment order with directions to pass a fresh order after considering all aspects of the matter and carrying out proper enquiries. The assessee argued that the non-issuance of specific directions for the reassessment proved that it was a case of change of opinion, and the assessment framed was neither erroneous nor prejudicial to the interest of the revenue. 7. Nature of Investment and Its Impact on Deduction Eligibility: The PCIT and CIT-DR argued that the interest income from investments in Schedule Banks was not attributable to the business activities of the cooperative society with its members and thus not eligible for deduction under Section 80P(2). The interest income was to be taxed under the head "other sources" as per the Supreme Court judgment in Totgar's Cooperative Sale Society Ltd. v. ITO. The CIT-DR emphasized that the assessee was not engaged in the banking business as defined under the Banking Regulation Act, 1949, and thus the interest income from Schedule Banks could not be considered for deduction under Section 80P. Conclusion: The Tribunal upheld the order of the PCIT, concluding that the assessment order was erroneous and prejudicial to the interest of revenue. The Tribunal agreed with the PCIT that the interest income from investments in Schedule Banks was not eligible for deduction under Section 80P(2) and that the PCIT was justified in revising the assessment order. The appeal of the assessee was dismissed.
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