2021 (4) TMI 800 - AT - Income Tax

Tribunal upholds AO's assessment under Section 80P(2)(d)

The Sasme Co-Op. Society Ltd Versus The Principal Commissioner of Income Tax, Surat-2.

The Sasme Co-Op. Society Ltd Versus The Principal Commissioner of Income Tax, Surat-2. - TMI Issues Involved:1. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act.2. Validity of invoking Section 263 on issues already examined by the Assessing Officer (AO).3. Eligibility of the assessee for deduction under Section 80P(2)(d) of the Income Tax Act.4. Prejudicial impact on revenue and erroneous nature of the AO's order.Detailed Analysis:1. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act:The appeal by the assessee challenges the jurisdiction of the PCIT under Section 263. The PCIT issued a show cause notice and revised the assessment order, claiming that the interest income earned by the assessee on deposits with cooperative banks does not qualify for exemption under Section 80P(2)(d). The PCIT held that the AO’s order was erroneous and prejudicial to the interests of the revenue.2. Validity of invoking Section 263 on issues already examined by the Assessing Officer (AO):The assessee argued that the AO had already examined the issue of deduction under Section 80P(2)(d) during the assessment process. The AO issued statutory notices and considered the assessee's responses before allowing the deduction. The assessee contended that the PCIT cannot invoke Section 263 to take a different view on the same matter. The Tribunal agreed, noting that the AO had made sufficient inquiries and taken a reasonable view, thus the order was not erroneous.3. Eligibility of the assessee for deduction under Section 80P(2)(d) of the Income Tax Act:The assessee, a cooperative society, claimed a deduction under Section 80P(2)(d) for interest income earned from deposits with cooperative banks. The Tribunal examined various case laws and concluded that cooperative banks are considered cooperative societies. Therefore, interest income from deposits with cooperative banks is eligible for deduction under Section 80P(2)(d). This view was supported by decisions from the Gujarat High Court and the Rajkot Tribunal.4. Prejudicial impact on revenue and erroneous nature of the AO's order:The PCIT argued that the AO’s order allowing the deduction was erroneous and prejudicial to the interests of the revenue, referencing the Karnataka High Court's decision in the Totagars case. However, the Tribunal emphasized that when there are conflicting decisions from non-jurisdictional High Courts, the jurisdictional High Court's decision prevails. The Gujarat High Court had ruled in favor of allowing the deduction under Section 80P(2)(d), making the AO’s order neither erroneous nor prejudicial to revenue.Conclusion:The Tribunal concluded that the AO's order was not erroneous and the conditions for invoking Section 263 were not met. The appeal by the assessee was allowed, and the PCIT's revision order was set aside. The Tribunal's decision was based on the principle that the AO had made a reasonable and permissible decision after sufficient inquiry, supported by binding precedents from the jurisdictional High Court.