Tribunal restores AO's order, finding PCIT's jurisdictional error under Section 263.

The Tribunal set aside the PCIT's order and restored the AO's order, concluding that the PCIT wrongly exercised revisional jurisdiction under Section 263. The appeal by the assessee was allowed, with the order pronounced on 01.09.2021.

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Issues Involved:
1. Jurisdiction of Principal Commissioner of Income Tax (PCIT)
2. Deduction under Section 80P of the Income Tax Act
3. Disallowance under Section 40(a)(ia) of the Income Tax Act

Detailed Analysis:

Jurisdiction of PCIT:
The assessee contested the jurisdiction of the PCIT, arguing that the PCIT erred in holding the order passed by the Assessing Officer (AO) as erroneous and prejudicial to the interests of the revenue. The Tribunal observed that the case was selected for 'Limited scrutiny' under Section 143(2) for examining the assessee's claim for deduction under Chapter VI-A of the Act. The Tribunal found substantial force in the claim that the AO's jurisdiction was limited to scrutinizing the assessee's claim for deduction under Chapter VI-A, and therefore, the assessment order could not be held erroneous for failing to make a disallowance under Section 40(a)(ia). The Tribunal cited a coordinate bench's decision in a similar case, reinforcing that the PCIT could not broaden the scope of the AO's limited jurisdiction in the garb of revisional jurisdiction under Section 263.

Deduction under Section 80P of the Act:
The PCIT revised the AO's order on the grounds that the AO failed to disallow the assessee's claim for deduction under Section 80P(2)(d) for interest income received from cooperative banks. The assessee argued that the interest income from deposits with cooperative banks was eligible for deduction under Section 80P(2)(d). The Tribunal agreed with the assessee, citing multiple decisions from coordinate benches and high courts that supported the view that interest income from deposits with cooperative banks qualifies for deduction under Section 80P(2)(d). The Tribunal concluded that the AO had taken a possible view supported by judicial precedents, and therefore, the PCIT was in error in exercising revisional jurisdiction under Section 263 to dislodge the AO's view.

Disallowance under Section 40(a)(ia) of the Act:
The PCIT contended that the AO failed to disallow 30% of the amount paid by the assessee society without deduction of tax at source under Section 40(a)(ia). The Tribunal noted that the issue of disallowance under Section 40(a)(ia) was not within the limited scrutiny jurisdiction and hence could not have been the basis for revision under Section 263. The Tribunal reiterated that the AO's jurisdiction was limited to examining the assessee's claim for deduction under Chapter VI-A, and any disallowance beyond this scope could not render the AO's order erroneous.

Conclusion:
The Tribunal set aside the PCIT's order and restored the AO's order, concluding that the PCIT had wrongly exercised revisional jurisdiction under Section 263. The appeal filed by the assessee was allowed, and the order pronounced in the open court on 01.09.2021.

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