Tribunal quashes tax order, allows deduction for co-op bank interest income.

The Tribunal quashed the order passed by the Principal Commissioner of Income Tax under section 263, ruling that the assessment was not erroneous. The assessee's appeal was allowed, confirming the deduction under section 80P(2)(d) for interest income earned from co-operative banks, as the banks were considered co-operative societies and not excluded under section 80P(4).

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Issues Involved:
1. Invocation of revisionary proceedings under section 263 of the Income Tax Act, 1961.
2. Allowability of deduction under section 80P(2)(d) of the Income Tax Act.
3. Applicability of section 80P(4) of the Income Tax Act to co-operative banks.

Summary:

Issue 1: Invocation of Revisionary Proceedings under Section 263 of the Act
The assessee challenged the invocation of revisionary proceedings under section 263 by the learned Principal Commissioner of Income Tax (PCIT). The PCIT initiated revisionary proceedings on the basis that the interest income earned by the assessee from co-operative banks was not eligible for deduction under section 80P(2)(d) and that the Assessing Officer (AO) failed to verify the details of the interest income properly. The Tribunal noted that the AO had made proper inquiries and verification of the claim during the assessment proceedings, and thus, the assessment order was not erroneous or prejudicial to the interest of the Revenue.

Issue 2: Allowability of Deduction under Section 80P(2)(d) of the Act
The assessee, a co-operative housing society, claimed a deduction of Rs. 27,20,624 under section 80P(2)(d) for interest income earned from co-operative banks. The Tribunal observed that the AO had accepted the deduction after considering the detailed replies and supporting documentary evidence provided by the assessee. The Tribunal held that the AO rightly allowed the deduction under section 80P(2)(d) as the interest was earned from investments with co-operative banks, which are considered co-operative societies under section 2(19) of the Act.

Issue 3: Applicability of Section 80P(4) to Co-operative Banks
The PCIT contended that the deduction under section 80P(2)(d) was not allowable as the interest was earned from co-operative banks, which are excluded under section 80P(4). The Tribunal referred to the Supreme Court's decision in Mavilayi Service Co-operative Bank Ltd. vs CIT, which clarified that section 80P(4) excludes only co-operative banks that function at par with commercial banks and possess an RBI license for banking business. Since the assessee was not a co-operative bank but a co-operative housing society, section 80P(4) was not applicable. The Tribunal also noted that the co-operative banks from which the interest was earned were registered as co-operative societies, thus making the deduction under section 80P(2)(d) valid.

Conclusion:
The Tribunal quashed the impugned order passed by the learned PCIT under section 263, holding that the assessment order was neither erroneous nor prejudicial to the interest of the Revenue. The appeal by the assessee was allowed.

Order Pronounced:
The order was pronounced in the open Court on 28/06/2023.

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