2022 (5) TMI 1055 - AT - Income Tax

Tribunal reinstates assessment order, finding PCIT's actions lacked jurisdiction.

Nagothane Vyapari Sahakari Patsanstha Maryadit Versus Principal Commissioner of Income Tax Thane-1

The Tribunal allowed the appeal, setting aside the order passed by the PCIT under Section 263 and reinstating the assessment order. It held that the ... Revision u/s 263 - deduction u/s 80P (2)(a)/(d) of the Act in respect of interest received from banks disallowed - HELD THAT:- AO had conducted the necessary inquiry and examined the issue of allowability of deduction under Section 80P(2)(a) as well as 80P(2)(d) of the Act. The view taken by the AO is in line with the decision of Kaliandas Udyog Bhavan Premise [2018 (4) TMI 1678 - ITAT MUMBAI] wherein after considering the provisions of Section 80P(4) of the Act it has been held by the Tribunal that a cooperative bank continues to be a co-operative society, and even after introduction of Section 80P(4), a co-operative society is entitled to claim deduction under Section 80P(2)(d) of the Act in respect of the interest received from a cooperative bank. Thus it is clear that the assessment order passed by the AO was neither erroneous nor prejudicial to the interest of revenue. Assuming arguendo even if the contention of PCIT is accepted, the view taken by the AO regarding allowability of deduction under Section 80P(2)(d) of the Act in respect of interest received by the Appellant from a cooperative bank would still qualify as a plausible view and thereby taking away the jurisdiction of PCIT to invoke powers of revision under Section 263 of the Act. It is settled legal position that in case the view taken by the AO is a plausible view, PCIT cannot be permitted to substitute his opinion in place of the AO to arrive to a contrary finding. Thus, we hold that in the facts and circumstances of the present case the PCIT lacked the jurisdiction to exercise powers under Section 263 - Decided in favour of assessee. Issues Involved:1. Violation of principles of natural justice.2. Jurisdiction of PCIT under Section 263 of the Income Tax Act.3. Allowability of deduction under Section 80P(2)(d) of the Income Tax Act.4. Applicability of Direct Tax Vivad Se Vishwas Scheme on the assessment.Detailed Analysis:1. Violation of Principles of Natural Justice:The Appellant argued that the order under Section 263 was passed without granting sufficient opportunity to present their case, constituting a violation of the principles of natural justice. The PCIT issued a notice on 18.03.2021, requiring a response by 22.03.2021, and passed the order on 26.03.2021 without giving further notice or hearing to the Appellant. This undue haste resulted in a violation of the principles of natural justice and unnecessary multiplicity of proceedings.2. Jurisdiction of PCIT under Section 263 of the Income Tax Act:The Appellant challenged the jurisdiction of the PCIT to pass the order under Section 263 on the grounds that the assessment order was neither erroneous nor prejudicial to the interest of the revenue. The Tribunal found that the Assessing Officer (AO) had conducted the necessary inquiry and examined the issue of allowability of deduction under Section 80P(2)(a) as well as 80P(2)(d) of the Act. The view taken by the AO was in line with the decision of the Mumbai Bench of the Tribunal in the case of Kaliandas Udyog Bhavan Premises vs. ITO, which held that a cooperative bank continues to be a cooperative society and is entitled to claim deduction under Section 80P(2)(d). Therefore, the PCIT lacked jurisdiction to invoke powers under Section 263, as the AO's view was a plausible one.3. Allowability of Deduction under Section 80P(2)(d) of the Income Tax Act:The Tribunal examined whether the interest income earned from cooperative banks qualifies for deduction under Section 80P(2)(d). The AO had allowed the deduction for interest income from cooperative banks but disallowed it for commercial banks. The PCIT, however, contended that the interest income from cooperative banks should be taxable under Section 56 as 'Income from Other Sources' based on the Supreme Court's decision in Totgars Cooperative Society Vs. ITO. The Tribunal disagreed, citing that the interest income derived from investments with cooperative banks qualifies for deduction under Section 80P(2)(d), as supported by multiple judicial pronouncements and the CBDT Circular No. 14, dated 28.12.2006.4. Applicability of Direct Tax Vivad Se Vishwas Scheme:During the pendency of the appeal before the Commissioner of Income Tax (Appeals), the Appellant opted for the Direct Tax Vivad Se Vishwas Scheme, which was approved, and Form No. 4 was filed on 02.03.2021. The Tribunal noted that the PCIT issued the notice under Section 263 after the approval of the scheme, which further complicated the proceedings. This was seen as an unnecessary action that added to the multiplicity of proceedings.Conclusion:The Tribunal allowed the appeal by the assessee, setting aside the order passed by the PCIT under Section 263 and reinstating the assessment order dated 29.11.2018. The Tribunal emphasized that the AO's view was a plausible one, and the PCIT's action was in violation of the principles of natural justice and lacked jurisdiction. The assessment order was neither erroneous nor prejudicial to the interest of the revenue, and the deduction under Section 80P(2)(d) for interest income from cooperative banks was rightly allowed.