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Issues: Whether the Principal Commissioner was justified in revising the assessment under section 263 of the Income-tax Act, 1961 on the ground that deduction under section 80P(2)(a)(i) was wrongly allowed on interest income earned from co-operative banks.
Analysis: The assessee was a co-operative society and the interest income in dispute arose from deposits with co-operative banks. The Tribunal followed the settled legal position that a co-operative society which is not itself engaged in banking business and does not hold a banking licence cannot be treated as a co-operative bank for the purpose of excluding deduction under section 80P(4). The Tribunal relied on binding precedent holding that such societies remain entitled to deduction under section 80P(2)(a)(i), and that the Assessing Officer had rightly allowed the claim. On that basis, the foundation for revision under section 263 failed because the assessment order could not be treated as erroneous and prejudicial to the interests of the Revenue on the issue considered.
Conclusion: The revision order was unjustified and the deduction under section 80P(2)(a)(i) on the impugned interest income was held allowable in favour of the assessee.
Ratio Decidendi: A co-operative society that is not itself a co-operative bank and does not carry on banking business with a banking licence remains entitled to deduction under section 80P(2)(a)(i), and revision under section 263 cannot be sustained merely because the interest income was earned from deposits with co-operative banks.
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