Section 80P deduction on interest from co-operative bank deposits protected; revision under section 263 failed for lack of error and prejudice.

Section 263 revision was not sustainable where the assessment had allowed deduction under section 80P(2)(d) on interest earned by a co-operative society from deposits with a co-operative bank. The analysis states that a co-operative bank is treated as a co-operative society for this purpose, section 80P is a beneficial provision to be construed liberally in favour of the assessee, and section 80P(4) does not by itself bar the deduction on such interest income. Because the assessment order accorded with the prevailing legal position, the statutory requirements of error and prejudice to the Revenue were not met, and revisionary jurisdiction could not be invoked.

---

---

Issues: Whether the Principal Commissioner was justified in invoking revisionary powers under section 263 of the Income-tax Act, 1961 on the premise that deduction under section 80P(2)(d) was wrongly allowed on interest income from investments made with a cooperative bank.

Analysis: The question turned on the scope of section 80P(2)(d) and whether interest earned by a co-operative society from deposits with a cooperative bank continues to qualify for deduction. The Court relied on the settled position that a cooperative bank is itself a cooperative society and that section 80P is a beneficial provision intended to promote the cooperative sector, to be construed liberally in favour of the assessee. It further held that the exclusion in section 80P(4) does not, by itself, disentitle a co-operative society from claiming deduction under section 80P(2)(d) on interest earned from investments in a cooperative bank. Since the assessment order allowing such deduction was in line with the prevailing legal position, the twin requirements for section 263, namely error and prejudice to the revenue, were not satisfied.

Conclusion: The invocation of section 263 was unjustified and the deduction under section 80P(2)(d) was correctly allowed; the question was answered in favour of the assessee and against the Revenue.

---