2023 (4) TMI 184 - AT - Income Tax

Deduction u/s 80P - interest earned by the appellant from investment in District Co-operative Bank - Income from other sources or income from business income - HELD THAT - As decided in own case 2022 (10) TMI 1161 - ITAT COCHIN as held lower authorities have no benefit of judgement of Hon ble Apex Court in the case of The Mavilayi Service Cooperative Bank Ltd. Ors. vs. CIT 2021 (1) TMI 488 - SUPREME COURT we are of the view that in the interest of justice and equity the issue of deduction u/s 80P(2)(a)(i) of the Act needs to be examined de novo in the light of the judgement of the Hon ble Apex Court, referred supra. Therefore, the issue raised on merits is restored to the files of the AO - we remit the issue back to the AO with similar directions. Decided against revenue.

Summary

Issues:
The issues involved in the judgment are the eligibility of a Co-operative Bank for deduction under section 80P of the Income Tax Act, denial of exemption on interest income earned from investments, validity of assessment order passed by the Assessing Officer, and procedural irregularities in the assessment process.

Eligibility for Deduction under Section 80P:
The assessee, a Co-operative Bank, filed for deduction under section 80P of the Income Tax Act. The Assessing Officer (AO) denied the deduction based on the amended provisions of section 80P(4) from 01.04.2008, stating that the bank cannot be treated as a primary agricultural cooperative society. The AO also disallowed the deduction for interest income from a District Cooperative Bank, treating it as "income from other sources." The CIT(A) upheld the denial of deduction. However, the Tribunal referred to previous decisions and the judgment of the Hon'ble Supreme Court in a similar case, emphasizing the liberal interpretation of section 80P and remitted the issue back to the AO for fresh consideration.

Denial of Exemption on Interest Income:
The AO treated the interest income earned by the assessee from a District Cooperative Bank as "income from other sources" and not "income from business or profession," thus denying the exemption under section 80P. The Tribunal, considering relevant case laws and the judgment of the Hon'ble Supreme Court, directed the AO to reexamine the issue in light of the broader interpretation of section 80P and the specific exclusion of cooperative banks from its ambit.

Validity of Assessment Order:
The appellant raised concerns regarding the validity of the assessment order passed by the AO, arguing that it should have been conducted under section 144B instead of section 143(3A)/(3B). The appellant also contended that proper procedures were not followed, and the assessment was completed without providing a fair opportunity for the appellant to present their case. The Tribunal acknowledged these procedural irregularities and ordered a fresh examination of the issue by the AO, ensuring a reasonable opportunity for the appellant to be heard.

Procedural Irregularities in Assessment Process:
The appellant highlighted procedural deficiencies in the assessment process, including the failure to follow the prescribed procedure under section 144B and dismissing the appellant's request for an adjournment without due consideration. The Tribunal, recognizing these irregularities, emphasized the importance of adhering to statutory requirements and providing a fair opportunity to the appellant. Consequently, the Tribunal allowed the appeal and remitted the issue back to the AO for proper consideration in accordance with the law.