2023 (9) TMI 547 - AT - Income Tax

Tribunal rules in favor of assessees, allowing deduction for interest income from Co-operative Banks

The Peoples Co-Op Credit Society Ltd., Shri Ambika Co-Op. Credit Society Ltd. Versus The Pr. CIT, Ahmedabad-3, Ahmedabad

The Peoples Co-Op Credit Society Ltd., Shri Ambika Co-Op. Credit Society Ltd. Versus The Pr. CIT, Ahmedabad-3, Ahmedabad - TMI Issues Involved:1. Jurisdiction of PCIT under Section 263 of the Income Tax Act.2. Taxability of interest/dividend received from Co-operative Banks under Section 80P(2)(d).Summary:Issue 1: Jurisdiction of PCIT under Section 263 of the Income Tax ActThe Principal Commissioner of Income Tax (PCIT) exercised jurisdiction under Section 263 of the Income Tax Act, 1961, to revise the assessment orders for the Assessment Year 2018-19, arguing that the Assessing Officer (AO) had not properly examined the assessee's claim for deduction under Section 80P(2)(d). The PCIT issued a show cause notice questioning the allowance of the deduction and cited the Supreme Court judgment in Totagars Cooperative Sale Society Ltd. vs. ITO. The assessee contended that the AO had made detailed inquiries during the assessment proceedings and that the deduction was allowed based on judicial precedents, including the assessee's own cases for earlier years where similar deductions were upheld by the ITAT.The Tribunal observed that the AO had indeed conducted a thorough inquiry and allowed the deduction under Section 80P(2)(d) after due application of mind. The Tribunal cited various judicial precedents, including the Gujarat High Court's decision in Aryos Arcade Ltd. v. Pr. CIT, which held that a different belief by the Commissioner does not justify revision if the AO's view is plausible and based on full inquiry. The Tribunal concluded that the AO's order was neither erroneous nor prejudicial to the interest of the Revenue, thus invalidating the PCIT's jurisdiction under Section 263.Issue 2: Taxability of Interest/Dividend Received from Co-operative Banks under Section 80P(2)(d)The PCIT held that the interest income earned from Fixed Deposits (FDs), Savings Accounts, and Dividend Income from Co-operative Banks should be assessed as 'income from other sources' and denied the deduction under Section 80P(2)(d). The assessee argued that the interest income from Co-operative Banks is eligible for deduction under Section 80P(2)(d), supported by various judicial decisions, including the Gujarat High Court's ruling in State Bank of India v. CIT.The Tribunal noted that the Gujarat High Court in CIT vs. Sabarkantha District Co-Op. Milk Producers Union Ltd. had upheld the deduction under Section 80P(2)(d) for interest earned from investments in Co-operative Banks. The Tribunal also referred to the Karnataka High Court's decision in Totagars Cooperative Sales Society, which supported the assessee's claim for deduction. Based on these precedents, the Tribunal held that the interest income earned from Co-operative Banks is eligible for deduction under Section 80P(2)(d).Conclusion:The Tribunal allowed the appeals filed by the assessees, quashing the revision orders passed by the PCIT. The Tribunal ruled that the AO had made due inquiries and that the interest income from Co-operative Banks is eligible for deduction under Section 80P(2)(d).