CIT validly exercised revision powers under section 263 when AO failed to verify cooperative society's interest deduction claims under section 80P(2)(d)

ITAT Raipur upheld CIT's revision order u/s 263 against a cooperative society regarding deduction u/s 80P(2)(d) on interest from deposits with cooperative banks. The tribunal found AO failed to verify whether interest income claimed as deduction actually pertained to deposits with cooperative banks, accepting the claim summarily without proper inquiry. Despite society's argument that CIT acted without examining records or applying independent mind, ITAT held CIT validly exercised jurisdiction as AO's order was erroneous and prejudicial to revenue due to inadequate verification of material aspects.

---

---

Issues Involved:

1. Jurisdiction under Section 263 of the Income Tax Act, 1961.
2. Claim of deduction under Section 80P(2)(d) of the Act.
3. Verification of expenditure.
4. Non-application of mind by the Assessing Officer (AO).
5. Consistency in the treatment of income in previous assessment years.
6. Adequacy of inquiries conducted by the Principal Commissioner of Income Tax (Pr. CIT).

Detailed Analysis:

1. Jurisdiction under Section 263 of the Income Tax Act, 1961:

The Pr. CIT assumed jurisdiction under Section 263 of the Act, believing that the assessment order passed by the AO was erroneous and prejudicial to the interest of the revenue. The Pr. CIT issued a "Show Cause Notice" (SCN) to the assessee society, stating that the AO had failed to conduct necessary inquiries and apply his mind to the issues of claim of deduction under Section 80P(2)(d) and verification of expenditure. The Pr. CIT relied on "Explanation 2" to Section 263, which allows revision if the AO's order is passed without making necessary inquiries or verification.

2. Claim of Deduction under Section 80P(2)(d) of the Act:

The assessee society claimed a deduction under Section 80P(2)(d) for the interest income earned on its seed capital deposited with a cooperative bank. The Pr. CIT observed that the AO had not verified whether the interest income was indeed from deposits with a cooperative bank, which is a prerequisite for claiming the deduction under Section 80P(2)(d). The Tribunal upheld the Pr. CIT's observation that the AO had summarily accepted the assessee's claim without proper verification.

3. Verification of Expenditure:

The Pr. CIT noted that the AO had failed to verify the veracity of certain expenses claimed by the assessee society, such as "payable to society" and other heads like "Incentive Wages," "Sale Purchase & Processing of Non-Nationalized MFP," and "Revolving Fund." The Tribunal agreed with the Pr. CIT that the AO's failure to verify these expenses rendered the assessment order erroneous and prejudicial to the interest of the revenue.

4. Non-application of Mind by the Assessing Officer (AO):

The Pr. CIT concluded that the AO had not applied his mind while framing the assessment order, as evidenced by the lack of proper inquiries and verification. The Tribunal supported this view, stating that the AO's failure to conduct necessary inquiries justified the Pr. CIT's exercise of jurisdiction under Section 263.

5. Consistency in the Treatment of Income in Previous Assessment Years:

The assessee argued that the AO's treatment of its income in the current year was consistent with the treatment in previous assessment years, where similar claims were accepted. However, the Tribunal noted that the principle of consistency does not apply if a mistake was made in earlier years. The Tribunal emphasized that each assessment year is independent, and the Pr. CIT was justified in revising the order if it was found to be erroneous and prejudicial to the interest of the revenue.

6. Adequacy of Inquiries Conducted by the Principal Commissioner of Income Tax (Pr. CIT):

The Tribunal observed that the Pr. CIT had called for and examined the records of the assessee society before issuing the SCN and passing the order under Section 263. The Tribunal rejected the assessee's claim that the Pr. CIT had merely acted upon the reasons recorded by the ACIT-1(1), Raipur, without independent application of mind. The Tribunal upheld the Pr. CIT's order, stating that the Pr. CIT had applied his mind and conducted necessary inquiries before concluding that the assessment order was erroneous and prejudicial to the interest of the revenue.

Conclusion:

The Tribunal dismissed the appeals filed by the assessee society, upholding the Pr. CIT's orders under Section 263 for the assessment years 2015-16, 2016-17, 2017-18, and 2018-19. The Tribunal found no infirmity in the Pr. CIT's exercise of jurisdiction under Section 263, as the AO had failed to conduct necessary inquiries and verification, rendering the assessment orders erroneous and prejudicial to the interest of the revenue.

---