2022 (12) TMI 24 - AT - Income Tax

Revision u/s 263 - Entitlement to deduction u/s.80P(2)(d) - Interest earned by Co-Operative society from Co-Operative Bank - whether the Assessment Order is erroneous or not? - HELD THAT - AO has taken a possible view on the issue of allowability of deduction u/s 80P(2)(d) of the Act after studying the respective ledger accounts. AO had called for the respective ledger accounts which are categorically mentioned in the assessment order. To arrive at the figure of the Interest earned one just needs to study the ledger accounts. Before the AO, the fact that the assessee has earned Interest Income from Co-operative bank was on record and easy to understand from the ledger accounts. CIT has also relied on the same ledger accounts to arrive at a different conclusion. It is a fact that the issue of deductibility of Interest earned by Co-Operative society from Co-Operative Bank has been held in favour of assessee by Hon ble Karnataka High Court 2017 (1) TMI 1100 - KARNATAKA HIGH COURT , ITAT Chennai 2022 (5) TMI 1481 - ITAT CHENNAI and ITAT Surat 2021 (5) TMI 446 - ITAT SURAT Therefore, the AO has adopted a view which was one legally possible view. Therefore, in these facts and circumstances of the case as held by Hon ble SC in the case of Amitabh Bachchan 2016 (5) TMI 493 - SUPREME COURT and Hon ble High Court 2008 (8) TMI 913 - BOMBAY HIGH COURT when two views are possible and AO adopts one view, the Assessment cannot be said to be erroneous. Therefore, the Pr.CIT has no power to invoke jurisdiction u/s.263 in such circumstances where the Assessment Order is not erroneous. Appeal of the Assessee is Allowed.

Summary

Issues Involved:
1. Validity of the Principal Commissioner's order under Section 263 of the Income Tax Act.
2. Whether the Assessing Officer's (AO) original order was erroneous and prejudicial to the interest of revenue.
3. Deductibility of interest income under Section 80P(2)(d) of the Income Tax Act.

Detailed Analysis:

Issue 1: Validity of the Principal Commissioner's Order under Section 263
The Appellant Assessee challenged the order passed by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, dated 26/03/2022 for the Assessment Year 2017-18. The Assessee argued that the PCIT erred in setting aside the valid order passed by the Assistant Commissioner of Income Tax (ACIT), Circle-2(1), Trichy, dated 05/11/2019. The Assessee contended that the PCIT's action was based on assumptions and presumptions that the original order was erroneous and prejudicial to the interest of revenue.

Issue 2: Whether the AO's Original Order was Erroneous and Prejudicial to the Interest of Revenue
The PCIT invoked Section 263, stating that the AO's order was erroneous and prejudicial to the interest of revenue because it was passed without proper inquiry and verification of the deductions claimed under Section 80P(2)(d). The PCIT noted that the AO had allowed deductions on interest income from investments made in Cooperative Banks, which the PCIT argued are not considered Cooperative Societies under Section 80P(2)(d).

However, the Tribunal found that the AO had indeed conducted inquiries and obtained ledger copies of the accounts showing interest income. The AO had excluded interest income from commercial banks from the deduction and allowed the deduction only for interest earned from Cooperative Banks, indicating that the AO had applied his mind to the documents submitted by the Assessee.

Issue 3: Deductibility of Interest Income under Section 80P(2)(d)
The Tribunal referenced several case laws to determine whether the interest income earned from Cooperative Banks qualifies for deduction under Section 80P(2)(d). The Tribunal cited the Hon'ble Karnataka High Court in Pr.CIT Vs. Totagars Co-operative Sale Society, which held that a Cooperative Bank is considered a Cooperative Society, and thus, interest earned from such banks is deductible under Section 80P(2)(d).

Furthermore, the Tribunal noted that other judicial precedents, including those from the ITAT Chennai and ITAT Surat, supported the view that interest income from Cooperative Banks is eligible for deduction under Section 80P(2)(d). The Tribunal concluded that the AO's view was a legally permissible one and not erroneous.

Conclusion:
The Tribunal held that the AO had taken a possible and legally permissible view by allowing the deduction under Section 80P(2)(d) for interest income earned from Cooperative Banks. Since the AO's order was not erroneous, the PCIT did not have the jurisdiction to invoke Section 263. Therefore, the Tribunal set aside the PCIT's order and allowed the appeal of the Assessee. The appeal was pronounced in the open Court on 21st November 2022.