2024 (2) TMI 331 - AT - Income Tax

Cooperative society entitled to section 80P(2)(d) deduction for interest income from cooperative bank deposits

ITAT Indore held that assessee cooperative society was entitled to deduction under section 80P(2)(d) for interest income from deposits in cooperative ... Deduction under section 80P(2)(d) - Revisional jurisdiction under section 263 of the Income-tax Act - Possible view of the Assessing Officer - Prejudicial to the interest of revenue test - Scope of 'co-operative society' for section 80P(2)(d)Revisional jurisdiction under section 263 of the Income-tax Act - Possible view of the Assessing Officer - Prejudicial to the interest of revenue test - Whether the Principal Commissioner of Income Tax could exercise jurisdiction under section 263 to set aside the assessment where the Assessing Officer had made specific inquiries on the issue and taken a possible view allowing the deduction. - HELD THAT: - The Tribunal held that the Assessing Officer had conducted specific inquiry (notices under section 142(1)), considered the assessee's replies and documentary evidence, and allowed the claim in the scrutiny assessment framed under section 143(3) read with sections 143(3A) and 143(3B). As the AO had taken a possible view after application of mind, the revisional jurisdiction under section 263 could not be invoked merely because the Pr. CIT would have preferred a different view. The exercise of section 263 requires that the assessment be erroneous and prejudicial to the revenue; where the AO's view is a plausible one supported by material and precedents, the jurisdiction is not attracted. Applying these principles to the facts, the Tribunal concluded that there was no jurisdictional justification for the Pr. CIT to set aside the assessment solely for re-examination of the issue.Pr. CIT's order under section 263 setting aside the assessment was quashed and the AO's assessment restored.Deduction under section 80P(2)(d) - Scope of 'co-operative society' for section 80P(2)(d) - Whether interest income earned by a co-operative society from deposits with a co-operative bank is eligible for deduction under section 80P(2)(d). - HELD THAT: - Relying on coordinate decisions of the Tribunal and the reasoning in High Court decisions noted by those benches, the Tribunal observed that section 80P(2)(d) grants deduction for interest or dividends derived by a co-operative society from investments with any other co-operative society. A co-operative bank, being a co-operative society registered under the relevant co-operative societies law, therefore falls within the meaning for the purpose of this provision; the insertion of subsection (4) to section 80P did not oust the entitlement in cases where the interest is derived from an entity that is a co-operative society. As the AO had applied this possible view and allowed the deduction after inquiry, the Tribunal found the claim of the assessee to be covered by the said line of authorities and correctly allowed under section 80P(2)(d).The assessee's claim for deduction under section 80P(2)(d) in respect of interest from deposits with co-operative banks was held allowable.Final Conclusion: The Tribunal set aside the Pr. CIT's revisional order under section 263 and restored the assessment passed by the Assessing Officer for A.Y.2018-19, holding that the AO had taken a possible view after inquiry and that interest from deposits with a co-operative bank is eligible for deduction under section 80P(2)(d). Issues Involved:1. Invocation of Section 263 of the Income-Tax Act, 1961.2. Eligibility for deduction under Section 80P(2)(d) of the Income-Tax Act, 1961.3. Jurisdiction of the Principal Commissioner of Income Tax (Pr. CIT).Summary:1. Invocation of Section 263 of the Income-Tax Act, 1961:The appellant argued that the Pr. CIT erred in invoking Section 263 without considering that the original Assessment Order passed under Section 143(3) was neither erroneous nor prejudicial to the interest of the Revenue. The Pr. CIT issued a show cause notice under Section 263, questioning the deduction claimed under Section 80P(2)(d) for interest income from deposits in Co-operative Banks. The Pr. CIT opined that the interest earned from Co-operative Banks is not eligible for this deduction and directed the Assessing Officer (AO) to re-examine the issue.2. Eligibility for deduction under Section 80P(2)(d) of the Income-Tax Act, 1961:The appellant contended that the interest income from deposits with Co-operative Banks is eligible for deduction under Section 80P(2)(d). The AO had previously allowed this deduction after conducting a specific inquiry and considering the appellant's explanation and documentary evidence. The Tribunal cited various decisions, including those from the Pune and Indore Benches, which held that interest income from Co-operative Banks qualifies for deduction under Section 80P(2)(d).3. Jurisdiction of the Principal Commissioner of Income Tax (Pr. CIT):The Tribunal noted that the AO had conducted a thorough inquiry into the eligibility for the deduction under Section 80P(2)(d) and had taken a possible view supported by judicial precedents. Therefore, the Pr. CIT's invocation of Section 263 was deemed unjustified. The Tribunal referenced multiple decisions, including those from the High Courts of Karnataka and Gujarat, which supported the appellant's claim for deduction on interest income from Co-operative Banks.Conclusion:The Tribunal concluded that the Pr. CIT had no jurisdiction to invoke Section 263 as the AO had already taken a possible view on the issue. Consequently, the Tribunal set aside the Pr. CIT's order and allowed the appeal in favor of the appellant. The order was pronounced in the open court on 30.01.2024.