TaxTMI 
TaxTMI 
2022 (9) TMI 153
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..../s 143(3) of the Act, wherein minor addition of Rs.35,138/- was made on account of excess deduction claimed u/s 80P(2)(c)(ii) of the Act. Subsequently, on verification of records the Ld.PCIT noted that the assessee had received substantial interest on Fixed deposits from various banks including ADC Bank and Mehsana Urban Bank which did not qualify for deduction u/s 80P(2)(d) of the Act since the banks from which interest had been earned did not qualify as cooperative society for the purpose of claiming deduction under section 80P(2)(d) of the Act. Finding that the assessing officer had failed to examine this issue and had as a consequence incorrectly allowed assesses claim of deduction of interest income earned from deposits/FDRs under section 80P of the Act, he initiated revisionary proceedings u/s 263 of the Act, issuing show cause notice to the assessee in this regard. Due reply was filed by the assessee contending that he had claimed deduction of the said incomes u/s 80P(2)(a)(i) of the Act, which he contended it qualified for, and not u/s 80P(2)(d) of the Act as noted by the Ld.PCIT. He also contended that his claim was allowable as per both the sections, 80P(2)(d)/(a)(i) of t....
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....ce with law, before us was that: * the proceedings u/s 263 of the Act was initiated by the Ld.PCIT finding the assessment order erroneous on the premise of non allowability of claim of deduction of interest income earned as per section 80P (2)(d) of the Act, while it was held erroneous on a different premise of non allowability u/s 80P(2)(a)(i) of the Act. * that the ld.Pr.CIT while so changing track regarding the issue on which the assessment order was found erroneous, had not even confronted this change of track to the assessee and the assessee was not put to notice at all that the Ld.PCIT had found the order of the AO erroneous on account of claim of non allowability of claim of deduction u/s 80P(2)(a)(i) of the Act; Reliance was placed on the decision of the Hon'ble Bombay High Court in the case of PCIT vs Universal Music India Ltd. in Income Tax Appeal No. 238 of 2018 dated April 19, 2022, for the proposition that order passed u/s 263 without confronting the assessee with the issue on which assessment order was found erroneous was not sustainable in law being passed in contravention to the principles of natural justice. Copy of the order was placed before us.....
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....est income was earned did not qualify as "cooperative bank" for the purpose of being eligible to claim deduction. This fact is clearly brought out in para-2 of the order of the Ld.Pr.CIT, which reads as under: "2. On verification of records, it has come to notice that the assessee had received substantial interest on Fixed Deposits from various banks including ADC Bank and Mehsana Urban Bank. As per section 80P(2)(d) of the Act, in respect of any income of a Co-Operative society by way of interest or dividends from its investments with any other co-operative society is deductible while computing the total income. However, ADC Bank, Mehsana Urban Bank, etc where assesses had made investments, do not fall in the category of "Co-operative Society" for the purpose of section 80P(2)(d) of the Act. Hence, the said interest income was required to be disallowed by the Assessing Officer, not being eligible for deduction under that Section." 7. The order also reveals, as pointed out by the Ld.Counsel for the assessee, that despite initiating the said proceedings finding the assessment order erroneous on account of the assessee being ineligible to claim deduction of interest incom....
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....d) of the Act. The ld.DR was unable to demonstrate that the assessee was issued notice prior to holding the assessment order being erroneous on account of allowing deduction of interest income u/s 80P(2)(a)(i) of the Act. We have noted that the assessee in his reply filed to the Ld.PCIT in response to notice issued under section 263 of the Act had pointed out that the Ld.PCIT had wrongly found the deduction claimed by the assessee u/s 80P(2)(d) of the Act and it was clarified that the assessee had claimed deduction u/s 80P(2)(a)(i) of the Act. The assessee we have noted had also pointed out thereafter that his claim was allowable under both circumstances and cited case laws in support of his contention. But thereafter the Ld.PCIT proceeded to discuss the allowability of the claim only as per section 80P(2)(a)(i) of the Act and finding it to be not allowable ultimately held the assessment order erroneous for allowing the claim of the assessee. While so discussing the allowability of claim of deduction u/s 80P(2)(a)(i) of the Act, the Ld.PCIT noted that the decisions relied upon by the assessee were to the effect that where operational funds were invested in Banks the interest earned....
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.... Amount (Rs.) ADC Bank Fixed A/c. 2,98,85,128.00 ADC Bank Head Office A/c. 13,321.00 Mehasan Urban Fixed A/c. 60,88,615.00 State bank of India A/c. 34,449.00 Tota|(in Rs.) 3,40,21,513 Besides above, a sum of Rs.7.50 lakhs was also deposited in current account of ADC bank and a sum of Rs.5,52,404/- was shown as cash in hand. As against the above, under the current liabilities, the assessee has shown the following as its current liabilities:- Current Liabilities Amount (Rs.) Daily Saving A/c. 2,29,88,630.00 Fixed Deposit A/c. 1 2,78,558.00 Fixed Term Deposit A/c. 5,60,97,154.00 Medium Term Deposit A/c. 32,25,000.00 Recurring A/c. 3,24,700.00 Saving A/c. 35,57,524.87 Short Term Deposit A/c. 1,30,56,124.00 Voluntary Deposit A/c. 1,30,500.00 Yathashakti A/c. 2,57,550.00 Total(in Rs.) 10,09,15,690.87 It can be seen that against the Current liabilities of Rs. 10.09 Crore, the assessee has invested a total of Rs. 3.65 crore in other bank accounts. It is thus noticed that an investment of 35.69%(more than 1 /3rd) has been made by the assessee against its current liabilities, whi....
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....rning of interest on Fixed Deposits was an equally strong motive to keep funds in that form. The ITAT/High Court did not consider this aspect while adjudicating Jafari Momin case. Hence, it is clear that there is a definite motive of earning interest on the surplus funds invested in form of Fixed Deposits with other banks and therefore the Apex Court's judgment in Tofgar (supra) is applicable and the interest earned on these FDRs needs to be bought to fax, which the Assessing Officer failed to do. 6. In view of above, I am of the opinion that the income by way of interest earned on deposits or in the form of FDRs with various banks has remained to be faxed in the hands of the assessee. Therefore, the assessment order passed by the A.O. u/s. 143(3) of the Act on 23/11/2016 is erroneous and prejudicial to the interest of the revenue as the Assessing Officer has failed to charge the interest income earned from various banks while computing the total income of the assessee and has wrongly considered these for deduction. By virtue of the powers vested in me u/s. 263 of the I T Act, I hereby set-aside the order u/s. 143(3) of the Act dated 23/11/2016 and direct the Assessing....
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....arch, 2013. ITAT concluded that the said ground therefore cannot form the basis for revision of assessment order under Section 263 of the Act. It is only this finding of ITAT which is impugned in this Appeal. On the other two points, revenue has accepted the findings of ITAT that the Order under Section 263 was not warranted." 13. Hon'ble High Court thereafter distinguished the judgment of Hon'ble Apex court in the case of CIT Vs. Amitabh Bachchan, 69 taxmann.com 170 (SC) which was relied upon by the ld.counsel for the Revenue for the proposition that provisions of section 263 did not warrant any notice to be issued and what only required was to give the assessee an opportunity of being heard before reaching his decision and not before commencing the enquiry. Hon'ble High Court held that as per the judgment of Hon'ble Apex Court itself, the assessee needed to be heard before the Commissioner takes a decision on the issue, and in the present case no such opportunity being given to the assessee before the Commissioner reached his decision; the revisionary order had rightly been set aside by the ITAT as in violation of principle of natural justice. The finding of the Hon'ble High C....
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....Rather, what is required under the said provision is an opportunity of hearing to the assessee. The two requirements are different; the first would comprehend a prior notice detailing the specific grounds on which revision of the assessment order is tentatively being proposed. Such a notice is not required. What is contemplated by Section 263, is an opportunity of hearing to be afforded to the assessee. Failure to give such an opportunity would render the revisional order legally fragile not on the ground of lack of jurisdiction but on the ground of violation of principles of natural justice. Reference in this regard may be illustratively made to the decisions of this Court in Gita Devi Aggarwal vs. CIT [1970] 76 ITR 496 and in CIT v. Electro House [1971] 82 ITR 824 (SC). Paragraph 4 of the decision in Electro House (supra) being illumination of the issue indicated above may be usefully reproduced hereunder: "This section unlike Section 34 does not prescribe any notice to be given. It only requires the Commissioner to give an opportunity to the assessee of being heard. The section does not speak of any notice. It is unfortunate that the High Court failed to notice the diff....
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....one a notice proposing the revisional exercise is given to the assessee indicating therein broadly or even specifically the grounds on which the exercise is felt necessary. But there is nothing in the section (Section 263) to raise the said notice to the status of a mandatory show cause notice affecting the initiation of the exercise in the absence thereof or to require the C.I.T. to confine himself to the terms of the notice and foreclosing consideration of any other issue or question of fact. This is not the purport of Section 263. Of course, there can be no dispute that while the C.I.T. is free to exercise his jurisdiction on consideration of all relevant facts, a full opportunity to controvert the same and to explain the circumstances surrounding such facts, as may be considered relevant by the assessee, must be afforded to him by the C.I.T. prior to the finalization of the decision. 13. The above ground which had led the learned Tribunal to interfere with the order of the learned C.I.T. seems to be contrary to the settled position in law, as indicated above and the two decisions of this Court in Gita Devi Aggarwal (supra) and M/s Electro House (supra). The learned Tribunal in ....
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....r: "3. Without prejudice to above, interest income earned by co-operative society from the co-operative bank still qualifies for deduction under section 80 P(2)(d) of the Act as held by Surat ITAT in case of ITO Vs. Bardoli Vibhag Gram Vikas Co-op. Credit Society Ltd 49 CCH 573 (2017). Surat ITAT recorded its finding in para 5 of its order relying on the Judgment of Hon'ble Gujarat High Court in case of Surat Vankar Sahakari Sangh Ltd. V/s. Assistant Commissioner of Income Tax (2016) 72 taxmann.com 169 Para 5 of the Hon'ble ITAT Surat in case of Surat Vankar Sahakari (supra): "5. We have heard rival contentions. We have also gone through the paper book furnished by the Id. Counsel containing judicial pronouncements, written submission made before the Id. CIT(A), audit reports etc. We have noticed that the assessee has been statutorily investing its surplus fund from the year 1992 with other Co-operative Societies which include Cooperative Banks and on such investments, the appellant has been receiving interest and dividend which has been claimed as deduction u/s. 80P(2)(d) of the Act. We find that the provision of section 80P(4) are not applicable....
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....rest income derived by a co-operative society from its investments held with a co-operative bank, would be entitled for claim of deduction under section 80P(2)(d). Para 7 of the Hon'ble ITAT Mumbai in case of Kaliandas Udvog (supra): "7. We have deliberated at length on the issue under consideration and are unable to persuade ourselves to be in agreement with the view taken by the lower authorities. Before proceeding further, we may herein reproduce the relevant extract of the said statutory provision, viz. Sec. 80P(2)(d), as the same would have a strong bearing on the adjudication of the issue before us, "80P(2)(d) (1) Where in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in subsection (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely :- (a)to(c)** (d) in respect of any income by way of interest or dividends derived by the cooperative society from its invest....
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....e for the registration of co-operative societies, therefore, the interest income derived by a cooperative society from its investments held with a cooperative bank, would be entitled for claim of deduction under Sec.80P(2)(d) of the Act." 3.2 The honourable Hyderabad ITAT in case of Assistant Commissioner of Income tax vs. Metrocity Criminals Courts 43 CCH 217 also had an occasion to consider the same issue wherein para 4 and 5of its order, assessee was allowed to take deduction of interest earned from co-operative banks under section 80P(2) (d) of the Act. Para 4 of the Hon'ble ITAT Hyderabad in case of Metrocity Criminals (supra): "4. After considering the rival contentions, we do not see any reason to interfere with the order of Ld.CIT(A). Obviously, assessee is a cooperative society engaged in the business of providing credit facilities to its Members. There is no dispute with reference to the transactions with the Members, as Assessing Officer has not considered that issue at all in the order. Therefore, assessee being a co-operative society registered under the APMACS Act is eligible for deduction u/s.80P(2)(a)(i) of the Act. Not only that, asse....
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....th any other cooperative society. Therefore, in the case of the assessee society, sub-section (4) is not applicable and deduction under section 80P(2)(d) is certainly eligible to assessee. In the assessment of a Cooperative Bank, the incomes may not be exempt after 01.04.2007 by virtue of sub-section (4), but assessee is not a Cooperative Bank. Therefore, the Revenue ground is not only illogical but also not supported by the facts of the case. Moreover as seen, the recommendation made by the A.O. to the Ld. CIT in their internal correspondence is extracted as a ground. This also indicates non-application of mind either by the A.O. or by higher authority like CIT. This sorry state of affairs should come to an end and Officers should act responsibly while preferring second appeal on the orders of the senior officer like Ld. CIT(A). Revenue appeal is dismissed". 5. In view of the above, we do not see any merit in the Revenue's grounds. Accordingly, Revenue's appeals are dismissed." 3.3 The Hon'ble Gujarat High Court in case of Suarat Vankar Sahakari Sangh Ltd. V/s. Assistant Commissioner of Income tax 72 taxmann.com 169 had an occasion to consider followi....