Tribunal reverses PCIT's revision, allows interest income deduction, finding PCIT exceeded jurisdiction.

The tribunal allowed the assessee's appeal, reversing the PCIT's revision directions under section 263 of the Act. The tribunal held that the interest income from deposits in cooperative banks was eligible for deduction under section 80P(2)(d), differing from the PCIT's position. It found that the PCIT exceeded jurisdiction by reviewing the AO's assessment order and restored the original assessment order in favor of the assessee.

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Issues Involved:
1. Whether the assessee is entitled to deduction u/s 80P(2)(d) for interest income derived from deposits made in cooperative banks.
2. Validity of the PCIT's revision directions u/s 263 of the Act.

Summary:

Issue 1: Deduction u/s 80P(2)(d) for Interest Income from Cooperative Banks

The assessee claimed a deduction of Rs.15,00,780/- u/s 80P for interest income derived from deposits in cooperative banks. The PCIT contended that such interest income is not eligible for deduction u/s 80P(2)(a)(i) r.w.s. 80P(2)(d) as cooperative banks are commercial banks and not cooperative societies. The revenue supported this view citing the Karnataka High Court decision in Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO (2015) 230 Taxman 309 (Kar.). However, the tribunal found merit in the assessee's arguments, referencing its own recent decision in Rena Sahakari Sakhar Karkhana Ltd. Vs. Pr.CIT (ITA No.1249/PUN/2018), which allowed such deductions.

Issue 2: Validity of PCIT's Revision Directions u/s 263

The PCIT had set aside the Assessing Officer's (AO) assessment order allowing the deduction, deeming it erroneous and prejudicial to the revenue's interest. The tribunal observed that the AO had taken a plausible view after necessary verifications, which was in line with various tribunal decisions and judicial pronouncements. The tribunal concluded that the PCIT exceeded his jurisdiction by reviewing the AO's order under the guise of revisional powers u/s 263. The tribunal noted that conflicting judicial pronouncements exist regarding this issue, and in such cases, the view favoring the assessee should be preferred. Therefore, the tribunal set aside the PCIT's order and restored the AO's original assessment order dated 18.02.2021.

Conclusion

The assessee's appeal was allowed, the PCIT's revision directions were reversed, and the AO's regular assessment dated 18.02.2021 was restored. The order was pronounced in the Open Court on 30.03.2023.

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