2022 (12) TMI 847 - AT - Income Tax

Tribunal directs fair hearing for deduction under section 80P ensuring procedural fairness

The Tribunal allowed the appeal for statistical purposes, directing the Ld.PCIT to provide the assessee with a fair opportunity to be heard and cooperate ... Revision u/s 263 by CIT - disallowance of claim of deduction u/s 80P of the Act with respect to interest income accrued / received on the fixed deposits made with State Bank of India - HELD THAT:- As undisputed fact that the assessee society’s case for the Asst.Year 2017-18 was selected for limited scrutiny only with the reason to verify deduction under Chapter VIA of the I.T.Act and such verification was done by the then AO in the scrutiny assessment proceedings and assessment order dated 10.12.2019 u/s 143(3) was passed by accepting the claim of deduction u/s 80P and by accepting the income returned by the assessee society. As AR contended that the assessee society invested in fixed deposits with State Bank of India only as stopgap arrangement to earn some income on the then surplus funds and it was clearly incidental income, eligible for deduction u/s 80P and one more opportunity may be given to the assessee to furnish it’s explanation before the Ld.PCIT for which the Ld.DR has not raised any objection. Considering all we are of the view that it is a fit case to grant one more opportunity of being heard to the assessee - we direct the Ld.PCIT to pass order after giving opportunity of being heard to the assessee and the assessee is also directed to cooperate with the Ld.PCIT - Appeal of the assessee is allowed for statistical purpose. Issues:Dispute over deduction under section 80P of the Income Tax Act for interest income earned on fixed deposits made with State Bank of India.Analysis:1. The appeal was filed by the assessee against the order of the Principal Commissioner of Income Tax for the Assessment Year 2017-18. The assessee, a Primary Farmers Service Co-operative Society, declared NIL taxable income after claiming deduction under section 80P of the Income Tax Act. The issue arose when the Ld.PCIT observed that the assessee had claimed TDS on interest income earned from fixed deposits with State Bank of India, which was also included in the total income claimed for deduction under section 80P. However, as per section 80P(2)(d) of the Act, deduction is allowed only for income derived from investments with other cooperative societies. The Ld.PCIT held the assessee ineligible for deduction on the interest income from fixed deposits and deemed the assessment order erroneous and prejudicial to revenue, leading to a revision under section 263 of the Act.2. The assessee raised multiple grounds in appeal, arguing that the interest income from fixed deposits was incidental to its business and thus eligible for deduction under section 80P. The Ld.AR contended that the fixed deposits were a stopgap arrangement to earn income on surplus funds and should be considered incidental income. The Ld.DR supported the Ld.PCIT's decision, stating that the assessment order was erroneous and prejudicial to revenue. After hearing both parties, the Tribunal noted that the assessing officer had accepted the deduction under section 80P during the initial assessment. Considering the principles of natural justice, the Tribunal granted the assessee another opportunity to present its case before the Ld.PCIT, setting aside the previous order and remitting the matter back for reconsideration.3. The Tribunal's decision allowed the appeal for statistical purposes, emphasizing the need for the Ld.PCIT to provide the assessee with a fair opportunity to be heard and cooperate in furnishing all necessary details. The order aimed to ensure procedural fairness and adherence to natural justice principles in resolving the dispute over the deduction under section 80P of the Income Tax Act related to interest income earned on fixed deposits with State Bank of India.