2023 (1) TMI 565 - AT - Income Tax

Revision u/s 263 - Deduction u/s 80P - assessee had earned interest from fixed deposits with banks which is not eligible for deduction u/s 80P - HELD THAT - AO was correct in giving deduction u/s 80P to the assessee qua the impugned interest income. That also brings us to conclude that the assessment-order passed by Ld. AO is neither erroneous non prejudicial to the interest of revenue and therefore the PCIT was not justified in invoking the revisionary-action u/s 263. Being so, we quash the revision-order passed by Ld. PCIT and restore the original assessment-order passed by Ld. AO. Appeal of assessee allowed.

Summary

Issues:
1. Revisionary action u/s 263 of the Income-Tax Act regarding deduction u/s 80P for interest income from fixed deposits.
2. Validity of the revision-order passed by Ld. Principal Commissioner of Income Tax.
3. Interpretation of the legal obligation to deposit 25% of profits as reserves under the M.P./Chattisgarh Societies Act, 1960 for deduction eligibility u/s 80P.

Detailed Analysis:
Issue 1: The appeal was filed by the assessee against the revision-order passed by the Ld. Principal Commissioner of Income Tax under section 263 of the Income-Tax Act, 1961, challenging the deduction u/s 80P for interest income earned from fixed deposits with banks. The Ld. AO initially allowed the deduction as claimed by the assessee, but the Ld. PCIT found the interest income of Rs. 13,70,890/- not eligible for deduction u/s 80P, deeming the assessment-order as erroneous-cum-prejudicial to the interest of revenue. The Ld. PCIT set aside the assessment-order, directing a re-examination of the issue of deduction. The assessee appealed against this revision-order.

Issue 2: The Ld. AR for the assessee argued that a previous order by the Hon'ble Co-ordinate Bench of ITAT, Indore, in a different case, supported the allowability of deduction u/s 80P for interest income earned from reserves mandated by the M.P./Chattisgarh Societies Act, 1960. The relevant paragraph of the order highlighted the legal obligation to keep 25% of profits as reserves, making the interest accrued thereon eligible for deduction. The ITAT, relying on this precedent, held that the Ld. AO was correct in allowing the deduction u/s 80P for the impugned interest income, concluding that the assessment-order was neither erroneous nor prejudicial to the revenue's interest. Consequently, the revision-order was quashed, and the original assessment-order was restored.

Issue 3: The decision was based on the interpretation of the legal obligation imposed by the M.P./Chattisgarh Societies Act, 1960, requiring the assessee society to deposit 25% of its profits as reserves. The ITAT's reliance on the previous order highlighted that interest earned from such reserves would qualify as business income eligible for deduction u/s 80P. The absence of any change in facts or law led to the conclusion that the Ld. AO's decision to allow the deduction was correct, rendering the revisionary action by the Ld. PCIT unjustified.

In conclusion, the ITAT allowed the assessee's appeal, emphasizing the legal obligation to maintain reserves under the M.P./Chattisgarh Societies Act, 1960, and the eligibility of interest income from such reserves for deduction u/s 80P, ultimately rejecting the revision-order and reinstating the original assessment-order.