Section 80P(2)(d) deduction allowed on co-operative bank interest, while the grants-in-aid issue was remanded for fresh adjudication.

A revisional direction under section 263 that required the assessment to be redone afresh did not preclude appellate examination of the grants-in-aid issue on merits, because the Assessing Officer was not bound to decide it in any particular manner; the matter was remanded to the Commissioner (Appeals) for fresh adjudication in accordance with law. On deduction under section 80P(2)(d), interest earned from fixed deposits with a co-operative bank was treated as qualifying income from investments with another co-operative society, with the beneficial provision construed liberally in favour of the assessee; the deduction was allowed and the addition deleted.

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Issues: (i) Whether the disallowance concerning grants-in-aid as revenue receipt could be sustained without examining the merits of the Principal Commissioner's revisional direction, and whether the matter required fresh consideration; (ii) Whether interest earned from fixed deposits with a co-operative bank qualified for deduction under section 80P(2)(d).

Issue (i): Whether the disallowance concerning grants-in-aid as revenue receipt could be sustained without examining the merits of the Principal Commissioner's revisional direction, and whether the matter required fresh consideration.

Analysis: The revisional order under section 263 was read as permitting the Assessing Officer to redo the assessment afresh after giving an opportunity of hearing, without binding the Assessing Officer to determine the issue in a particular manner. The appellate authority was found to have misconstrued the scope of that direction by treating it as foreclosing examination of the merits. Since the assessment was to be redone in accordance with law, the merits of the grants-in-aid issue could still be examined in appellate proceedings arising from the consequential assessment.

Conclusion: The issue was remanded to the Commissioner (Appeals) for fresh adjudication in accordance with law.

Issue (ii): Whether interest earned from fixed deposits with a co-operative bank qualified for deduction under section 80P(2)(d).

Analysis: Section 80P(2)(d) grants deduction for interest or dividend derived by a co-operative society from investments with any other co-operative society. The reasoning adopted distinguished the earlier line of authority relied upon by the Revenue and treated a co-operative bank as falling within the expression co-operative society for this purpose. The provision being beneficial was construed liberally, and ambiguity was resolved in favour of the assessee. On that basis, interest income from deposits with the co-operative bank was held to satisfy the statutory requirement.

Conclusion: The deduction under section 80P(2)(d) was allowable and the addition was deleted.

Final Conclusion: The delay-based appeal was rejected, while in the connected appeal the grants-in-aid dispute was sent back for fresh decision and the deduction claim on bank interest was upheld, resulting in partial success for the assessee in the substantive tax appeal.

Ratio Decidendi: A revisional direction that only requires reassessment afresh does not bar appellate examination on merits, and for section 80P(2)(d), interest from a co-operative bank is deductible where the bank is treated as a co-operative society and the provision is construed liberally in favour of the assessee.

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