Cooperative society wins appeal on interest income deduction under section 80P(2)(d) from bank deposits

ITAT Chandigarh allowed the appeal of a cooperative society against PCIT's revision order under section 263. The case involved interest income from long-term fixed deposits with banks claimed as deduction under section 80P(2)(d). ITAT held that the AO had properly applied his mind while allowing the deduction, making PCIT's revision erroneous. Following precedents from ITAT Jaipur, the tribunal confirmed that cooperative societies are entitled to deduction under section 80P(2)(d) for interest income from cooperative banks. The revisionary order was set aside and the original assessment order was restored.

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Issues Involved:
1. Legality of invoking jurisdiction u/s 263 based on audit objection.
2. Validity of the assumption of jurisdiction u/s 263 by the PCIT.
3. Examination of the assessment order by the AO.
4. Eligibility for deduction u/s 80P(2)(d) for interest income from cooperative banks.

Summary:

1. Legality of invoking jurisdiction u/s 263 based on audit objection:
The learned Counsel for the assessee stated that Ground Number 1 was not pressed. Consequently, it was rejected as not pressed.

2. Validity of the assumption of jurisdiction u/s 263 by the PCIT:
The PCIT issued a show cause notice stating that the interest income earned on long-term fixed deposits with banks, claimed as deduction u/s 80P, was taxable under Section 56 as 'income from other sources'. The PCIT held that the AO failed to disallow this deduction and did not examine the issue, rendering the assessment order erroneous and prejudicial to the interests of the Revenue. However, the Tribunal found that the AO had applied his mind, as evidenced by the detailed questionnaire and the examination of the assessee's responses. The Tribunal cited several precedents to assert that the AO's application of mind was discernible from the record, and the PCIT's invocation of jurisdiction u/s 263 was based on a mere difference in opinion, which is not permissible.

3. Examination of the assessment order by the AO:
The Tribunal noted that the AO had issued a detailed questionnaire and examined the assessee's responses, including the specifics of the deduction claimed u/s 80P. The AO's assessment order indicated that the AO had discussed the matter with the assessee's counsel and examined the books of account before allowing the deduction. The Tribunal emphasized that the AO's enquiry and examination were adequate, and the PCIT's assertion of inadequate enquiry was subjective and unjustified.

4. Eligibility for deduction u/s 80P(2)(d) for interest income from cooperative banks:
The Tribunal held that the interest income earned by the assessee from investments with cooperative banks is eligible for deduction u/s 80P(2)(d). The Tribunal referred to several judicial precedents, including the decisions of the Honorable Karnataka High Court and the Honorable Gujarat High Court, which supported the view that cooperative banks are considered cooperative societies for the purposes of Section 80P(2)(d). The Tribunal rejected the PCIT's reliance on the Supreme Court's decision in the case of 'Totgar's Cooperative Sale Society Limited', stating that it was not applicable to the facts of the present case, as it dealt with Section 80P(2)(a)(i) and not Section 80P(2)(d).

Conclusion:
The Tribunal set aside the revisionary order passed by the PCIT and revived the assessment order, allowing the assessee's appeal for the assessment year 2012-13. The Tribunal also applied the same findings to the assessee's appeal for the assessment year 2013-14. The appeal arising out of the AO's consequential order was dismissed as infructuous. Thus, the assessee's appeals in ITA No. 515/CHD/2017 and ITA No. 569/CHD/2018 were partly allowed, and the appeal in ITA No. 645/CHD/2019 was dismissed as infructuous.

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