Deduction for cooperative society interest and dividend from co-operative bank investments sustained where AO made plausible, reasoned enquiry.

Revision under revisionary powers was contested regarding entitlement to deduction for a co-operative society's interest and dividend from investments with co-operative banks; the assessing officer had made enquiries, verified details and accepted the claim, and that plausible, reasoned assessment cannot be treated as erroneous even if prejudicial to revenue, therefore revisionary jurisdiction was not exercisable on that basis. The issue is further supported by consistent prior favorable findings in the same forum, reinforcing that allowance of the deduction for cooperative society investment income stands.

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Issues: Whether the Principal Commissioner of Income Tax was justified in invoking the revisionary jurisdiction under section 263 of the Income-tax Act, 1961 in respect of the Assessing Officer's acceptance of deduction claimed by a co-operative society under section 80P (interest and dividend earned from investments with co-operative banks) for AY 2020-21.

Analysis: The applicable legal framework requires simultaneous satisfaction of two conditions for exercise of jurisdiction under section 263: (i) the assessment order must be erroneous and (ii) the order must be prejudicial to the interests of the Revenue. Examination of the assessment record and the queries raised by the Assessing Officer indicate that specific enquiries were made and the assessee furnished replies which the Assessing Officer considered before accepting the returned income. The question of allowability of deduction under section 80P involves characterisation of interest/dividend as profits and gains of business attributable to specified activities or as income from other sources, and has been the subject of differing judicial precedents. Coordinate-bench decisions, including the assessee's own favourable decision for AY 2022-23, support allowability of section 80P deduction on the facts where the investments/deposits arise from the business of providing credit and statutory/regulatory requirements. Where the Assessing Officer has made enquiries and adopted a plausible view on a debatable legal issue, the twin conditions for invoking section 263 are not satisfied.

Conclusion: The invocation of section 263 is not justified as the assessment order cannot be said to be erroneous though it may be prejudicial to Revenue; the Assessing Officer had made enquiries and taken a plausible view and the issue is covered by coordinate-bench precedents in favour of the assessee. The revision order under section 263 is set aside and the assessee's grounds of appeal are allowed.

Ratio Decidendi: Section 263 cannot be exercised unless the assessing officer's order is both erroneous and prejudicial to Revenue; where the assessing officer has made relevant enquiries and adopted a plausible view on a debatable issue (including in the light of consistent coordinate-bench precedent), the order is not "erroneous" for purposes of section 263.

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