2020 (2) TMI 24 - AT - Income Tax

Tribunal rules in favor of assessee, allowing deduction for interest from cooperative banks

Shree Vivekanad Co. op. Credit Society Ltd. Versus ITO Patan, Ward-4, Unjha, Patan

The Tribunal ruled in favor of the assessee, setting aside the Commissioner of Income Tax's order under Section 263 and affirming the eligibility of the ... Revision u/s 263 - interest earned by the assessee society from deposits placed in Scheduled Co.op. Bank is not eligible for deduction u/s 80P(2) - HELD THAT:- In the light of reasoning of the Tribunal in UTTAR GUJARAT UMA CO-OP CREDIT SOCIETY LTD.[2019 (3) TMI 381 - ITAT AHMEDABAD] in favour of assessee on eligibility of deduction under s.80P of the Act on interest earned from deposits placed with co-operative banks, the issue cannot be regarded to be free of any debate to the least. In the circumstances, the action of the AO in granting relief under s.80P of the Act cannot be dubbed as erroneous per se. Therefore, the twin conditions for invoking provisions of Section 263 of the Act are clearly not satisfied. Thus, the revisional action of the CIT cannot be regarded to be within the spheres of jurisdiction available under s.263 of the Act. Hence, the order of the CIT under s.263 of the Act is required to be set aside and cancelled. - Decided in favour of assessee. Issues Involved:1. Revisional jurisdiction under Section 263 of the Income Tax Act.2. Deduction eligibility under Section 80P(2) of the Income Tax Act for interest earned from deposits in cooperative banks.Issue-wise Detailed Analysis:1. Revisional Jurisdiction under Section 263 of the Income Tax Act:The assessee challenged the revisional jurisdiction exercised by the Commissioner of Income Tax (CIT) under Section 263 of the Income Tax Act. The CIT had held that the orders passed by the Assessing Officer (AO) under Section 143(3) were erroneous and prejudicial to the interests of the Revenue. The CIT's primary contention was that the AO had wrongly allowed deductions under Section 80P of the Act to the assessee society, without making the requisite inquiry into the eligibility of such deductions. The Tribunal noted that Section 263 confers power upon the CIT to revise any order if it is both erroneous and prejudicial to the interests of the Revenue. However, the Tribunal emphasized that an erroneous order does not necessarily mean an order with which the CIT disagrees. The Tribunal cited the precedent set in CIT vs. Greenworld Corporation, which held that if two views are possible and one legally plausible view has been adopted by the AO, then the existence of another possible view alone would not justify the exercise of revisional powers under Section 263. Therefore, the Tribunal concluded that the CIT's action under Section 263 was not justified as the twin conditions of the order being erroneous and prejudicial to the interests of the Revenue were not simultaneously satisfied.2. Deduction Eligibility under Section 80P(2) of the Income Tax Act for Interest Earned from Deposits in Cooperative Banks:The core issue was whether the interest earned by the assessee society from deposits placed in cooperative banks was eligible for deduction under Section 80P(2)(d) of the Income Tax Act. The assessee argued that the deduction was permissible, citing the Tribunal's decision in Uttar Gujarat Uma Co-op Credit Society Ltd. vs. ITO, which supported the eligibility of such deductions. The Revenue, however, contended that post the insertion of Section 80P(4) by the Finance Act, 2006, the benefits of deduction under Section 80P were not available to cooperative banks and credit societies, except in specific situations. The Tribunal examined the provisions and noted that Section 80P(2)(d) allows for the deduction of income derived by a cooperative society from its investments with any other cooperative society. The Tribunal further clarified that the scope of Section 80P(2)(d) is not restricted to business income alone but extends to income derived from investments, including interest income. The Tribunal also addressed the distinction between Section 80P(2)(a) and 80P(2)(d), highlighting that the latter does not require the income to be from business operations. The Tribunal found that the CIT's reliance on the Karnataka High Court's decision in Pr.CIT vs. The Totagars Co-Operative Sale Society was misplaced as it did not consider the distinction between the two sub-sections. Consequently, the Tribunal upheld the assessee's claim for deduction under Section 80P(2)(d), concluding that the AO's order was not erroneous.Conclusion:The Tribunal ruled in favor of the assessee, setting aside the CIT's order under Section 263 and affirming the eligibility of the deduction under Section 80P(2)(d) for interest earned from deposits in cooperative banks. Both appeals filed by the assessee were allowed.