Section 80P deduction denied on bank interest; revision under section 263 upheld as assessment was erroneous and prejudicial.

Interest earned by a co-operative credit society on surplus funds placed with a commercial bank was held not to form part of business profits eligible for deduction under section 80P(2)(a)(i) and was taxable as income from other sources. On that basis, the Principal Commissioner's revisionary action under section 263 was upheld because the assessment order allowing the deduction was unsustainable, and the show cause notice and final revision order were found materially consistent on the core issue. The assessment was therefore treated as erroneous and prejudicial to the interests of revenue.

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Issues: Whether the Principal Commissioner validly exercised revisionary jurisdiction under section 263 by holding that the assessment allowing deduction under section 80P on interest earned from deposits with a commercial bank was erroneous and prejudicial to the interests of revenue.

Analysis: The assessee co-operative credit society had earned interest on surplus funds placed with HDFC Bank. The Tribunal noted that the controversy was covered by its earlier decision and by the Supreme Court authorities relied upon by the Revenue, holding that such interest on deposits with commercial banks does not form part of business profits eligible for deduction under section 80P(2)(a)(i) and is taxable under the head income from other sources. It further found that the Principal Commissioner's show cause and final revision order were materially consistent on the core issue of denial of deduction in respect of the bank interest, and that the assessment order allowing the claim was therefore unsustainable.

Conclusion: The revision under section 263 was justified and the assessment order was correctly treated as erroneous and prejudicial to the interests of revenue.

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