2019 (8) TMI 508 - AT - Income Tax

Appeal upheld, interest income qualifies for deduction under

M/s. The Sri Gowri Co-operative Society Versus Pr. CIT-1, Visakhapatnam.

M/s. The Sri Gowri Co-operative Society Versus Pr. CIT-1, Visakhapatnam. - TMI Issues Involved:1. Eligibility of interest income from surplus funds for deduction under Section 80P(2)(a)(i) of the Income Tax Act.2. Validity of the Principal Commissioner of Income Tax (Pr.CIT) invoking Section 263 to revise the assessment order.Issue-wise Detailed Analysis:1. Eligibility of Interest Income from Surplus Funds for Deduction under Section 80P(2)(a)(i):The assessee, a Co-operative society, claimed a deduction under Section 80P(2)(a)(i) of the Income Tax Act for interest income amounting to Rs. 8,41,002/- derived from deposits of surplus funds with banks. The Assessing Officer (AO) initially allowed this claim after examining the books of account and details filed by the assessee.The Pr.CIT, however, issued a notice to the assessee under Section 263, arguing that the interest income from surplus funds deposited in banks is not entitled to deduction under Section 80P(2)(a)(i) and directed the AO to redo the assessment. The Pr.CIT relied on the Supreme Court judgment in the case of Totgar’s Co-operative Sale Society Ltd. Vs. ITO (322 ITR 283), which held that interest income from surplus funds not immediately required for business purposes does not qualify for deduction under Section 80P(2)(a)(i).The Tribunal, however, observed that the facts of the present case are different from the Totgar’s case. The Tribunal referred to the Andhra Pradesh & Telangana High Court judgment in The Vevveru Co-operative Rural Bank Ltd. Vs. CCIT & Another [(2007) 281 ITR 6 (SC)], which held that interest income received from deposits of surplus funds collected from members is eligible for deduction under Section 80P(2)(a)(i). The Tribunal also cited its own decision in Sri Uma Kamandaleswara Co-operative Rural Bank Ltd. Vs. Addl. CIT, which followed similar reasoning.The Tribunal concluded that the interest income from surplus funds deposited with banks by the assessee is attributable to the business of providing credit facilities to its members and is thus eligible for deduction under Section 80P(2)(a)(i).2. Validity of the Principal Commissioner of Income Tax (Pr.CIT) Invoking Section 263:The Pr.CIT invoked Section 263, claiming that the AO’s order allowing the deduction was erroneous and prejudicial to the interests of the Revenue. The Tribunal examined whether the AO’s order was indeed erroneous and prejudicial.The Tribunal found that the AO had called for various details and evidence regarding the deduction claim under Section 80P(2)(a)(i) and had allowed the claim after due verification. Therefore, the AO’s order could not be considered erroneous.The Tribunal also noted that the Pr.CIT’s reliance on the Totgar’s case was misplaced as the facts were different. The Andhra Pradesh & Telangana High Court had already distinguished the Totgar’s case and ruled in favor of allowing such deductions in similar circumstances.Given these findings, the Tribunal held that the order passed by the AO was neither erroneous nor prejudicial to the interests of the Revenue. Consequently, the invocation of Section 263 by the Pr.CIT was not justified.Conclusion:The Tribunal allowed the appeal filed by the assessee, quashing the Pr.CIT’s order under Section 263 and upholding the AO’s original assessment order allowing the deduction under Section 80P(2)(a)(i) for interest income from surplus funds deposited with banks. The Tribunal emphasized that the interest income is attributable to the business of providing credit facilities to members and is thus eligible for the deduction.