2021 (8) TMI 1087 - AT - Income Tax

Tribunal upholds deduction for interest income from cooperative banks under Income Tax Act

The Tribunal held that the Assessing Officer's order was not erroneous or prejudicial to the Revenue's interest. It confirmed that interest income from ... Revision u/s 263 - irregularities computing deduction claimed u/s 80P(2) - whether interest on savings bank account and interest from fixed deposits are eligible for deduction under section 80P(2)(d) of the Act or not, specially where the assessee has submitted the details of interest on savings bank account and interest on fixed deposit before the AO - HELD THAT:- Assessee has shown income from other sources comprising interest income from savings bank account, fixed deposits, sale proceeds of old newspapers. The AO has examined these issues in respect of interest and interest on fixed deposits, and took a possible view, therefore, order passed by the AO is neither erroneous nor prejudicial to the interest of the Revenue. Assessee has submitted the details of interest income from savings bank account and interest income from fixed deposits before the AO which is evident from page no.2 of the order of the Assessing Officer passed by him under section 143(3) of the Act, dated 18.10.2016. Just because, the assessee has, by mistake and inadvertently, mentioned the interest on saving bank and interest on fixed deposits under the head “Income from other sources” , does not mean that assessee would not be eligible to claim deduction under section 80P(2)(d) of the Act. Right income should be taxable in the hands of the assessee in the right assessment year. Income returned under an erroneous understanding or misconception of law is not chargeable under the Act [Abdul v CIT [1989 (12) TMI 37 - ALLAHABAD HIGH COURT]]. During the assessment proceedings, the AO has issued notice under section 142(1) of the Act, dated 8th September, 2016, wherein the AO asked the assessee to furnish the details, documents and explanations about the deduction claimed under chapter VIA - Therefore, the AO having examined the submissions and documents filed by the assessee, passed the order under section 143(3) of the Act dated 18.10.2016. We also note that assessment order passed by the assessing officer is sustainable in law, as the Coordinate Bench of ITAT Mumbai in the case of Lands and Co-Operative Housing Society Ltd. [2016 (2) TMI 620 - ITAT MUMBAI] has held that interest earned by Co-Operative Housing Society on Investment with a Co-Operative Bank is eligible for deduction U/s 80P(2)(d) - An order of assessment passed by the Assessing Officer should not be interfered with only because another view is possible, as held by Hon`ble Supreme Court in the case of CIT vs. Green World Corporation [2009 (5) TMI 14 - SUPREME COURT] - Hence, such order passed by the AO is neither erroneous nor prejudicial to the interest of the Revenue. Therefore, we quash the revision proceedings initiated by the learned PCIT under section 263 - Decided in favour of assessee. Issues Involved:1. Whether the order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interest of the Revenue.2. Eligibility for deduction under section 80P(2)(d) of the Income Tax Act, 1961 for interest income from savings bank accounts and fixed deposits.3. Interpretation of the concept of mutuality, investment, co-operative society, and co-operative bank under section 80P(2)(d) of the Act.Issue-wise Detailed Analysis:1. Whether the order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interest of the Revenue:The assessee challenged the correctness of the order passed by the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act, 1961. The PCIT exercised jurisdiction under section 263, claiming that the AO's order was erroneous and prejudicial to the interest of the Revenue because the AO allowed a deduction under section 80P(2)(d) which was not permissible. The PCIT noted an underassessment of income by Rs. 31,57,772/- due to this erroneous deduction. However, the Tribunal observed that the AO had examined the details of interest income from savings bank accounts and fixed deposits during the assessment proceedings and took a possible view. Therefore, the Tribunal concluded that the AO's order was neither erroneous nor prejudicial to the interest of the Revenue, thus quashing the revision proceedings initiated by the PCIT.2. Eligibility for deduction under section 80P(2)(d) of the Income Tax Act, 1961 for interest income from savings bank accounts and fixed deposits:The assessee, a co-operative housing society, claimed a deduction under section 80P(2)(d) for interest income from savings bank accounts and fixed deposits with the Surat District Co-Op Bank Ltd. The PCIT contended that such interest income does not qualify for deduction under section 80P(2)(d), referencing a judgment by the Karnataka High Court in the case of Totagars Co-operative Sale Society. However, the Tribunal noted that the interest earned from co-operative banks is eligible for deduction under section 80P(2)(d), as supported by the ITAT Mumbai's decision in the case of Lands and Co-Operative Housing Society Ltd. vs. ITO. The Tribunal emphasized that the AO had verified the interest income details and allowed the deduction based on the correct interpretation of the law.3. Interpretation of the concept of mutuality, investment, co-operative society, and co-operative bank under section 80P(2)(d) of the Act:The PCIT argued that the interest earned from deposits with a co-operative bank does not qualify for deduction under section 80P(2)(d) as it does not align with the concept of mutuality. The assessee countered that the Surat District Co-Op Bank Ltd. is a co-operative society, and the interest earned from such deposits is eligible for deduction under section 80P(2)(d). The Tribunal supported the assessee's interpretation, noting that co-operative banks are considered co-operative societies under the Banking Regulation Act, 1949, and the NABARD Act, 1981. The Tribunal also referenced decisions by the ITAT and CIT(A) in similar cases, affirming that interest earned by co-operative housing societies from investments with co-operative banks is eligible for deduction under section 80P(2)(d).Conclusion:The Tribunal concluded that the AO's order was neither erroneous nor prejudicial to the interest of the Revenue. The interest income from savings bank accounts and fixed deposits with the Surat District Co-Op Bank Ltd. is eligible for deduction under section 80P(2)(d). The Tribunal quashed the revision proceedings initiated by the PCIT under section 263 and allowed the appeal filed by the assessee.