2023 (9) TMI 547 - AT - Income Tax

Revision u/s 263 - Deduction u/s 80P(2)(d) - allowability of interest earned by the assessee from cooperative banks - assessee herein Co-operative Society providing credit facilities by way of loans and advances to its members - HELD THAT - Hon'ble Karnataka High Court in Totagars Cooperative Sales Society 2017 (7) TMI 1049 - KARNATAKA HIGH COURT held that for the purpose of section 80P(2)(d) a Co-operative Bank should be considered by a Co-operative Society and interest earned by Co-operative Society from Cooperative Bank would necessarily be deductible under section 80P(1) Cordinate Bench of Rajkot Tribunal in Surendarnagar District Co-operative Milk Producer Union Ltd. 2019 (9) TMI 978 - ITAT RAJKOT held the assessee co-operative society could not claim benefit under section 80P(2)(d) in respect of interest earned by it from deposits made with nationalized/private banks, however, the said benefit was available in respect of interest earned and on deposits made with co-operative bank. Thus, order passed by AO is not erroneous, though it may be prejudicial to the interest of the Revenue. Therefore, the twin conditions that the assessment order is erroneous and so far as prejudicial to the interest of revenue, as prescribed under section 263 is not fulfilled in the present case. PCIT erred in holding that the order passed by A.O. as erroneous and prejudicial to the interest of the Revenue on account of allowability of interest earned by the assessee from cooperative banks, coupled with the fact when the Ld. Assessing Officer had made due enquiries on this issue, during the course of original assessment proceedings .Appeal filed by the Assessee is hereby allowed.

Summary

Issues Involved:
1. Jurisdiction of PCIT under Section 263 of the Income Tax Act.
2. Taxability of interest/dividend received from Co-operative Banks under Section 80P(2)(d).

Summary:

Issue 1: Jurisdiction of PCIT under Section 263 of the Income Tax Act

The Principal Commissioner of Income Tax (PCIT) exercised jurisdiction under Section 263 of the Income Tax Act, 1961, to revise the assessment orders for the Assessment Year 2018-19, arguing that the Assessing Officer (AO) had not properly examined the assessee's claim for deduction under Section 80P(2)(d). The PCIT issued a show cause notice questioning the allowance of the deduction and cited the Supreme Court judgment in Totagars Cooperative Sale Society Ltd. vs. ITO. The assessee contended that the AO had made detailed inquiries during the assessment proceedings and that the deduction was allowed based on judicial precedents, including the assessee's own cases for earlier years where similar deductions were upheld by the ITAT.

The Tribunal observed that the AO had indeed conducted a thorough inquiry and allowed the deduction under Section 80P(2)(d) after due application of mind. The Tribunal cited various judicial precedents, including the Gujarat High Court's decision in Aryos Arcade Ltd. v. Pr. CIT, which held that a different belief by the Commissioner does not justify revision if the AO's view is plausible and based on full inquiry. The Tribunal concluded that the AO's order was neither erroneous nor prejudicial to the interest of the Revenue, thus invalidating the PCIT's jurisdiction under Section 263.

Issue 2: Taxability of Interest/Dividend Received from Co-operative Banks under Section 80P(2)(d)

The PCIT held that the interest income earned from Fixed Deposits (FDs), Savings Accounts, and Dividend Income from Co-operative Banks should be assessed as "income from other sources" and denied the deduction under Section 80P(2)(d). The assessee argued that the interest income from Co-operative Banks is eligible for deduction under Section 80P(2)(d), supported by various judicial decisions, including the Gujarat High Court's ruling in State Bank of India v. CIT.

The Tribunal noted that the Gujarat High Court in CIT vs. Sabarkantha District Co-Op. Milk Producers Union Ltd. had upheld the deduction under Section 80P(2)(d) for interest earned from investments in Co-operative Banks. The Tribunal also referred to the Karnataka High Court's decision in Totagars Cooperative Sales Society, which supported the assessee's claim for deduction. Based on these precedents, the Tribunal held that the interest income earned from Co-operative Banks is eligible for deduction under Section 80P(2)(d).

Conclusion:

The Tribunal allowed the appeals filed by the assessees, quashing the revision orders passed by the PCIT. The Tribunal ruled that the AO had made due inquiries and that the interest income from Co-operative Banks is eligible for deduction under Section 80P(2)(d).