Deduction for interest on co-operative bank deposits denied; section 263 revision sustained where incorrect allowance prejudiced revenue.

Interest earned from surplus funds placed in co-operative bank deposits was treated as not deductible under the special deduction provisions for co-operative societies, because such income was not regarded as attributable to the business of providing credit facilities to members and a co-operative bank was not equated with a co-operative society for that purpose. On that basis, the assessment order allowing the deduction was considered erroneous and prejudicial to the interests of the revenue, so revision under section 263 was held sustainable. The Tribunal found no infirmity in the revision order and the assessee's challenge failed.

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Issues: Whether the revision order under section 263 of the Income-tax Act, 1961 was valid, and whether interest earned from deposits with a co-operative bank was entitled to deduction under section 80P of the Income-tax Act, 1961.

Analysis: The Tribunal relied on the jurisdictional High Court's settled position that interest income from surplus funds invested in co-operative bank deposits is not deductible as income attributable to the business of providing credit facilities to members, and that co-operative banks are not to be treated as the same as co-operative societies for the purpose of the relevant deduction. In that view, the assessment order allowing the deduction was treated as erroneous and prejudicial to the interests of the revenue, justifying exercise of revisionary power under section 263. The Tribunal found no infirmity in the revision order warranting interference.

Conclusion: The revision order was upheld and the assessee's challenge failed.

Final Conclusion: The assessee did not succeed in dislodging the revisionary action, and the assessment's allowance of the disputed deduction remained unsettled in the Revenue's favour.

Ratio Decidendi: Interest earned from surplus funds invested with a co-operative bank is not deductible as business income under the special deduction provisions for co-operative societies, and a revision order under section 263 is sustainable where the assessment allows such an incorrect deduction.

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