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2023 (6) TMI 1278 - AT - Income TaxRevision u/s 263 - as per CIT(A) interest income earned by the assessee out of surplus funds is not eligible for deduction in terms of provisions of section 80P(2)(d) - HELD THAT - We are of the considered view that section 80P(4) is of relevance only in a case where the taxpayer, who is a co-operative bank, claims a deduction u/s 80P which is not the facts of the present case. Therefore, we find no merits in the aforesaid reasoning adopted by the PCIT vide impugned order passed u/s 263. Claim of deduction u/s 80P(2)(d) it is also pertinent to note that all co-operative banks are co-operative societies but vice versa is not true. We find that the coordinate benches of the Tribunal have consistently taken a view in favour of the assessee and held that even the interest earned from the co-operative banks is allowable as a deduction under section 80P(2)(d) of the Act. AO has rightly allowed the claim of deduction under section 80P(2)(d) of the Act in respect of the interest earned from the co-operative banks and thus the assessment order cannot be held to be erroneous. As in Malabar Industrial Co. Ltd. 2000 (2) TMI 10 - SUPREME COURT held that in order to invoke section 263, the assessment order must be erroneous and also prejudicial to revenue, and if one of them is absent, i.e., if the order of the Income-tax Officer is erroneous but is not prejudicial to Revenue or if it is not erroneous but is prejudicial to Revenue, recourse cannot be had to section 263 of the Act. Since both the conditions for invoking the provisions of section 263 of the Act are not satisfied in the present case, therefore the impugned order passed by the learned PCIT under section 263 of the Act is quashed - Decided in favour of assessee.
Issues Involved:
1. Invocation of revisionary proceedings under section 263 of the Income Tax Act, 1961. 2. Allowability of deduction under section 80P(2)(d) of the Income Tax Act. 3. Applicability of section 80P(4) of the Income Tax Act to co-operative banks. Summary: Issue 1: Invocation of Revisionary Proceedings under Section 263 of the Act The assessee challenged the invocation of revisionary proceedings under section 263 by the learned Principal Commissioner of Income Tax (PCIT). The PCIT initiated revisionary proceedings on the basis that the interest income earned by the assessee from co-operative banks was not eligible for deduction under section 80P(2)(d) and that the Assessing Officer (AO) failed to verify the details of the interest income properly. The Tribunal noted that the AO had made proper inquiries and verification of the claim during the assessment proceedings, and thus, the assessment order was not erroneous or prejudicial to the interest of the Revenue. Issue 2: Allowability of Deduction under Section 80P(2)(d) of the Act The assessee, a co-operative housing society, claimed a deduction of Rs. 27,20,624 under section 80P(2)(d) for interest income earned from co-operative banks. The Tribunal observed that the AO had accepted the deduction after considering the detailed replies and supporting documentary evidence provided by the assessee. The Tribunal held that the AO rightly allowed the deduction under section 80P(2)(d) as the interest was earned from investments with co-operative banks, which are considered co-operative societies under section 2(19) of the Act. Issue 3: Applicability of Section 80P(4) to Co-operative Banks The PCIT contended that the deduction under section 80P(2)(d) was not allowable as the interest was earned from co-operative banks, which are excluded under section 80P(4). The Tribunal referred to the Supreme Court's decision in Mavilayi Service Co-operative Bank Ltd. vs CIT, which clarified that section 80P(4) excludes only co-operative banks that function at par with commercial banks and possess an RBI license for banking business. Since the assessee was not a co-operative bank but a co-operative housing society, section 80P(4) was not applicable. The Tribunal also noted that the co-operative banks from which the interest was earned were registered as co-operative societies, thus making the deduction under section 80P(2)(d) valid. Conclusion: The Tribunal quashed the impugned order passed by the learned PCIT under section 263, holding that the assessment order was neither erroneous nor prejudicial to the interest of the Revenue. The appeal by the assessee was allowed. Order Pronounced: The order was pronounced in the open Court on 28/06/2023.
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