Section 263 revision and cooperative bank interest deduction: debatable assessments cannot be revised, and 80P(2)(d) relief applies.

Section 263 revision is permissible only where an assessment order is both erroneous and prejudicial to the Revenue; a merely debatable view or a legally plausible view taken by the Assessing Officer does not justify revision. On that basis, revisional action was held unsustainable. The note also states that interest earned by a co-operative society from deposits with co-operative banks qualifies for deduction under section 80P(2)(d), because co-operative banks were treated as co-operative societies for that purpose and the deduction was not defeated by section 80P(4). Mutuality was held not to be a controlling requirement for this deduction.

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Issues: (i) Whether the Commissioner could invoke revisional jurisdiction under section 263 of the Income-tax Act, 1961, in respect of the assessment orders; (ii) Whether interest earned by a co-operative society from deposits placed with co-operative banks is eligible for deduction under section 80P(2)(d) of the Income-tax Act, 1961.

Issue (i): Whether the Commissioner could invoke revisional jurisdiction under section 263 of the Income-tax Act, 1961, in respect of the assessment orders.

Analysis: Revision under section 263 is permissible only when the order is both erroneous and prejudicial to the interests of the Revenue. An assessment order cannot be revised merely because another view is possible. Where the Assessing Officer adopts a view that is legally plausible, the existence of a different view does not by itself justify revision. In the present case, the allowability of the claim was debatable and supported by a co-ordinate bench decision.

Conclusion: The invocation of section 263 was not sustainable and was against the assessee.

Issue (ii): Whether interest earned by a co-operative society from deposits placed with co-operative banks is eligible for deduction under section 80P(2)(d) of the Income-tax Act, 1961.

Analysis: The deduction under section 80P(2)(d) applies to income by way of interest or dividends derived by a co-operative society from its investments with any other co-operative society. The Tribunal treated co-operative banks, for this purpose, as falling within the expression co-operative society and held that the benefit is not defeated merely because section 80P(4) withdraws deduction from co-operative banks themselves. It also held that the doctrine of mutuality is not a controlling requirement for section 80P(2)(d). The Revenue's contrary reliance was not accepted.

Conclusion: The interest income was held deductible under section 80P(2)(d), in favour of the assessee.

Final Conclusion: The revisional orders were set aside and the assessee's claim for deduction on interest income from co-operative bank deposits was accepted.

Ratio Decidendi: Section 263 cannot be invoked unless the assessment order is simultaneously erroneous and prejudicial to the Revenue, and interest earned by a co-operative society from investments with a co-operative bank is deductible under section 80P(2)(d) where the bank is treated as a co-operative society for that purpose.

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