Tribunal overturns tax authority's decision, reinstates original assessment order, upholding deduction entitlements.

The Tribunal quashed the Principal Commissioner of Income-tax's ex-parte order under section 263, restoring the Assessing Officer's original assessment order under section 143(3). The appeal was allowed, affirming the entitlement to deductions under sections 80P(2)(a)(i) and 80P(2)(d).

---

---

Issues Involved:
1. Validity of ex-parte order under section 263.
2. Whether the order under section 143(3) was erroneous and prejudicial to the interest of revenue.
3. Entitlement to deduction under section 80P(2) for interest income from co-operative banks.
4. Entitlement to deduction under section 80P(2)(a)(i) for income from business of banking with members.
5. Entitlement to deduction under section 80P(2)(d) for interest income from investments in co-operative banks.

Summary:

Issue 1: Validity of Ex-parte Order under Section 263
The assessee argued that the Principal Commissioner of Income-tax (PCIT) erred in passing an ex-parte order under section 263, alleging that the assessee failed to respond to the show cause notice dated 18.03.2023. The assessee contended that they had indeed responded, making the order void-ab-initio and a breach of natural justice. The Tribunal found that the assessee had responded to the notice, thereby quashing the ex-parte order.

Issue 2: Erroneous and Prejudicial Order under Section 143(3)
The PCIT held that the order framed by the Assessing Officer (AO) under section 143(3) was erroneous and prejudicial to the interest of revenue. The Tribunal disagreed, stating that the AO had taken a possible view supported by precedents, and therefore, the PCIT's assumption of jurisdiction under section 263 was not valid.

Issue 3: Deduction under Section 80P(2) for Interest Income from Co-operative Banks
The PCIT argued that the interest income from investments with co-operative banks was not eligible for deduction under section 80P(2)(d). The Tribunal, however, cited multiple precedents, including the Supreme Court's decision in Mavilayi Service Co-operative Bank Ltd. & Ors vs CIT, which held that interest income from co-operative banks is eligible for deduction under section 80P(2)(d).

Issue 4: Deduction under Section 80P(2)(a)(i) for Income from Banking Business with Members
The assessee claimed that the income arising from its business of banking with its members was fully allowable under section 80P(2)(a)(i). The Tribunal upheld this claim, noting that the assessee was entitled to the deduction as the income was derived from its business activities with its members.

Issue 5: Deduction under Section 80P(2)(d) for Interest Income from Investments in Co-operative Banks
The Tribunal reiterated that the interest income earned from investments with co-operative banks is eligible for deduction under section 80P(2)(d). The Tribunal cited various cases, including Petit Towers Co-op. Housing Society Ltd. v. ITO and Solitaire CHS Ltd. v. Pr. CIT, to support this view.

Conclusion:
The Tribunal quashed the PCIT's order under section 263, restoring the AO's original assessment order under section 143(3). The appeal filed by the assessee was allowed, confirming the eligibility for deductions under sections 80P(2)(a)(i) and 80P(2)(d). The order was pronounced in the open court on 25/07/2023.

---