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TMI Blog2022 (10) TMI 223X X X X Extracts X X X X X X X X Extracts X X X X ..... d fault with each and every assessment order, without conducting any enquiry or verification in order to establish that the assessment order is not sustainable in law, since such an interpretation will lead to unending litigation and there would not be any point of finality in the legal proceedings. The opinion of the ld. PCIT referred to in section 263 of the Act has to be understood as legal and judicious opinion and not arbitrary opinion. AO after undertaking requisite enquiries, had taken one of the plausible views on the claim of the assessee u/s 80P of the Act and has made the disallowance in this respect while completing the assessment for which assessee did not go into appeal. Accordingly, the impugned revision order passed by ld. PCIT u/s 263 holding the assessment order as erroneous in so far as it is prejudicial to the interest of revenue is not sustainable and is therefore, quashed. Thus, the grounds of appeal by the assessee are allowed. - ITA No.206/Kol/2022 - - - Dated:- 23-9-2022 - Shri Sanjay Garg, Judicial Member And Shri Girish Agrawal, Accountant Member For the Appellant : Shri Palas Chattopadhyay, FCA For the Respondent : Shri Amal Kamat, CIT/D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r rescind any or all of the above grounds. 3. Brief facts of the case are that assessee is a Co-operative Society registered and constituted under the West Bengal Co-operative Societies Act, 1940 and is a Primary Co-operative Agriculture Rural Development Bank. Nature of business of the assessee is to provide long term finance to agriculture farmers who are members of the assessee society. Assessee receives deposits from members as margin money deposits against loan sanctioned to its members and also receives the deposits from its members to create a savings habit in rural area. NABARD has also provided finance to the assessee through the The W.B. State Co-operative Agriculture Rural Development Bank Ltd. (WBSCARD Bank) and Hooghly Central Co-operative Bank Ltd. (HDCCB). In compliance with the orders issued by Registrar of Co-operative Societies, Govt. of West Bengal, it is required that 70% of the total deposits are to be kept in NSC/Fixed Deposit/Certificate of the Bank. Assessee provides interest to its members on the said deposits. Details of interest received along with the source of deposits and the cost relating thereto is tabulated as below: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perative Bank Ltd and the West Bengal State Cooperative Agriculture Rural Development Bank Ltd amounting to Rs. 53,43,665/- during the AY under consideration. As per section 80P(2)(a)(i) of Income tax Act, 1961 and as per judicial decision of the Hon'ble Apex Court in the case of Totgars Co-operative Sale Society Ltd Vs ITO(2010) [322 ITR 283], the interest earned by Co-operative bank/society from investments in short term deposit and securities has to be taxed u/s. 56 of the Income Tax Act, 1961. On scrutiny of the assessment records it is revealed that the assessee has received interest on fixed deposits, details of which are tabulated as under: Interest earned during the year Rs. 52,44,225/- Add: interest receivable during the year Rs. 6,22,510/- Total interest Rs. 58,66,735/- Less: interest receivable for last year Rs. 5,23,070/- Net interest received during the year Rs.53,43,665/- [as shown by the assessee in P/L A/c] The above income was requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the findings as per para 2 supra, by the Assessing Officer at the time of assessment and accordingly the order is erroneous in so far as it is prejudicial to the interest of the revenue in terms of Explanation 2 to section 263(1) of the Income Tax Act, 1961. 5. Thus, based on the above consideration arrived at by the ld. PCIT, he held that impugned assessment order dated 27.12.2019 passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of revenue and thus set aside the same directing the ld. AO to frame the assessment afresh after considering his observations and decisions of Hon ble Courts, as per law. 6. Aggrieved, assessee is in appeal before the Tribunal. 7. Before us, Shri Palas Chattopadhyay, FCA represented the assessee and Shri Amol Kamat, CIT, DR represented the department. 8. Present appeal before us is only in respect of allowability of deduction towards interest income received from Co-operative banks claimed u/s 80P(2)(a)(i) of the Act. 9. Ld. Counsel reiterated the submissions made before the authorities below which are not repeated for the sake of brevity. In addition to this, ld. Counsel before us submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g revisional jurisdiction u/s 263 of the Act by the CIT. The twin conditions are that the order of the Assessing Officer must be erroneous and so far as prejudicial to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous order, that is (i) if the Assessing Officer s order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii) Assessing Officer s order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the AO has not investigated the issue before him; [because AO has to discharge dual role of an investigator as well as that of an adjudicator] then in aforesaid any of the events, the order passed by the AO can be termed as erroneous order. Looking at the second limb as to whether the actions of the AO can be termed as prejudicial to the interest of Revenue, one has to understand what is prejudicial to the interest of the revenue. The Hon ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. prejudicial to the interest of the revenue has to be read in conjunction wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of facts and circumstances. 11.2 In the case of Totgars, Co-operative Sale Society Ltd. v. ITO (supra): (i) Facts referred are that the assessee was a co-operative credit society. Its business was to provide credit facilities to its members and to market their agricultural produce. During the relevant assessment years, it had surplus funds which it invested in short-term deposits with the banks and in the Government securities and earned interest thereon. (ii) As referred in para 10 of the said judgment, Hon ble Supreme Court was concerned with the tax treatment of interest income arising on the surplus invested in short-term deposits and securities which arose from the marketing of the produce of its members whose sale proceeds at times were retained by it and was not required immediately for its business purposes. Thus, the question before the Hon ble Court was - whether interest on such deposits/securities, which strictly speaking accrues to the members' account, could be taxed as business income under section 28 of the Act? It was held that such interest would come in the category of income from other sources taxable u/s 56 of the Act. Relevant extracts from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer was right in taxing the interest income, indicated above, under section 56 of the Act. [emphasis supplied by us by underline] (iii) From the above, it is noted that Hon ble Supreme Court held that surplus retained out of the marketing activity of agriculture produce of its members not required for immediate business purposes when invested in to certain securities and resulting into interest income is taxable as income from other sources u/s 56 of the Act and therefore not available for deduction u/s 80P(2)(a)(i) of the Act as business income . (iv) In the present case before us, business of assessee is to provide long term finance to agriculture farmers who are its members. Assessee receives deposits from its members as margin money in respect of loan facilities sanctioned to them. Assessee also receives deposits from its members in their savings accounts. NABARD also provides finance to the assessee for its business. In compliance with the orders issued by Registrar of Co-operative Societies, Govt. of West Bengal, it is required that 70% of the total deposits are to be kept in NSC/Fixed Deposit/Certificate of the Bank. Assessee provides intere ..... X X X X Extracts X X X X X X X X Extracts X X X X
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