2024 (6) TMI 1046 - AT - Income Tax

PCIT's revision order under section 263 quashed for cooperative society's section 80P(2)(a)(i) deduction on interest income from statutory investments

ITAT Bangalore quashed PCIT's revision order under section 263 regarding deduction under section 80P(2)(a)(i) for interest income from fixed deposits. The ... Revision u/s 263 - deduction u/s 80P(2)(a)(i) - AO held that the interest income earned out of the investments in FDs is to be allowed as a deduction u/s 80P(2)(a)(i) - HELD THAT:- We find that for the immediately preceding Assessment Year viz., 2017-18, assessee had earned interest income out of investments with SCDCC Bank Ltd.- The same was brought to tax by the AO in the Assessment Order for Assessment Year 2017-18 as “income from other sources” and the claim of deduction under section 80P of the Act was rejected. On further appeal, the CIT(A) allowed the claim of the assessee for the Assessment Year 2017-18 and held that the said interest income received by the assessee is out of statutory compulsions and is part of operational income entitled to deduction under section 80P(2)(a)(i) of the Act Since there was factual finding in the instant case that investments in FDs with SCDCC Bank Ltd., is out of statutory compulsions and interest income received on the same is part of operating income, we are of the view that the order of the PCIT invoking his revisionary powers under section 263 of the Act, is not valid. In other words, there is no error much less an error prejudicial to the interest of the Revenue in the Assessment Order dated 02.12.2022 warranting revision u/s 263 of the Act. Therefore, we hold that the Assessment Order granting the benefit of deduction u/s 80P(2)(a)(i) of the Act with respect to the interest income of Rs.3,53,68,999/- is justified on facts of the instant case. Hence, we quash the order of PCIT passed under section 263 of the Act - Assessee appeal of assessee allowed. Issues Involved:1. Validity of the order passed u/s 263 of the Act.2. Deduction u/s 80P(2)(a)(i) for interest income from SCDCC Bank.3. Deduction u/s 80P(2)(d) for interest income from co-operative banks.4. Assessment of interest income under the head 'Business' or 'Other Sources'.Summary:1. Validity of the order passed u/s 263 of the Act:The assessee challenged the order passed by the PCIT u/s 263 of the Act, arguing that there was no error prejudicial to the interest of the Revenue in the original assessment order. The Tribunal found that the AO had thoroughly examined the issue of interest income from SCDCC Bank and had concluded that the interest was part of operational income due to statutory obligations. Therefore, the Tribunal held that the PCIT's invocation of revisionary powers u/s 263 was not valid and quashed the order.2. Deduction u/s 80P(2)(a)(i) for interest income from SCDCC Bank:The Tribunal noted that the AO had allowed the deduction u/s 80P(2)(a)(i) for the interest income from SCDCC Bank, as it was earned out of statutory compulsions under the Karnataka Co-operative Societies Act, 1959. The Tribunal upheld this finding, stating that the interest income was part of the operational income and thus eligible for deduction u/s 80P(2)(a)(i).3. Deduction u/s 80P(2)(d) for interest income from co-operative banks:The PCIT argued that the interest income from SCDCC Bank should not be eligible for deduction u/s 80P(2)(d) based on the Supreme Court and Karnataka High Court rulings. However, the Tribunal found that the investments were made out of statutory obligations, making the interest income part of the operational income and eligible for deduction u/s 80P(2)(a)(i), rendering the PCIT's argument moot.4. Assessment of interest income under the head 'Business' or 'Other Sources':The Tribunal examined whether the interest income should be assessed under the head 'Business' or 'Other Sources.' It was found that the interest income from SCDCC Bank was due to statutory requirements and thus should be assessed under 'profits and gains from business/profession,' entitling the assessee to the deduction u/s 80P(2)(a)(i). The Tribunal also noted that similar findings were made for the previous assessment year, which were not challenged by the Revenue.Conclusion:The Tribunal allowed the appeal filed by the assessee, quashing the order of the PCIT passed u/s 263 of the Act and upholding the AO's original assessment allowing the deduction u/s 80P(2)(a)(i) for the interest income from SCDCC Bank.