TaxTMI 
TaxTMI 
2022 (9) TMI 153
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....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 the Act. The Ld.PCIT however dismissed the con....
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....ted 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. * that in any case it had been demonstrated to the Pr.CIT, when the show cause notice was iss....
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.... 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 income as per section 80(P)(2)(d) of the Act, the ld.Pr.CIT went on to hold the assessment order erroneous for the reasons that the ....
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....roneous 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 thereon would qualify for deduction u/s 80P(2)(a)(i) of the Act. He thereafter analysized certain facts emanating from the balance s....
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....ia 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, which according to the assessee, is tor the purpose of maintaining liquidity to serve the liability of its members by keeping funds in hand. Assessee had also submitted that instead of keeping these funds in curren....
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....ng 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 Officer to pass a fresh assessment order as per law after examining properly the above legal position after allowing assessee adequate opportunity of being heard, in accordance with law and following prescribed procedure. 7. It may be ensured ....
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....ngs 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 Court had para 7 to 10 as under: "7. It is true that the Apex Court in Amitabh Bacchan (supra) has held, all that CIT is required to do before reaching his decision and not before commencing the enquiry, CIT must give the assessee an opportunity of being heard. It ....
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....tice 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 difference in language between Sections 33-B and 34. For the assumption of jurisdiction to proceed under Section 34, the notice as prescribed in that section is a condition precedent. But no such notice is contemplated by Section 33-B. The jurisdiction of the Commissioner to proceed under Section ....
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.... 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 its order dated 28th August, 2007 had not recorded any finding that in course of the suo motu revisional proceedings, hearing of which was spread over many days and attended to by the authorized representative of the assessee, opportunity of hearing was not afforded to the assessee and that th....
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.... 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 to the assessee, because section 80P(4) says that provision of this section shall not apply in relation to Co-op Bank other than Primary Agricultural Credit societies or a Primary Coop agricultural and Rural Development Bank. Regarding eligibility for receiving interest received from the co-operative bank we have noticed from the ....
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....o 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 investments with any other cooperative society, the whole of such income;" Thus, from a perusal of the aforesaid Sec. 80P(2)(d) it can safely be gathered that income by way of interest income derived by an assessee co-operative society from its investments held with any other cooperative society, shall be deducted in computing the total income of the assessee. We'may herein observe, tha....
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....ue 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, assessee is also eligible for deduction u/s.80P(2)(d) on the incomes received from other eligible co-operative societies/banks. Therefore, on the facts of the case, we do not see any reason to disallow the deduction u/s.80P. Revenue has raised the grounds that provisions of u/s.80P(4) were applicable to assessee. We do not see any reason to consider this ground as the restrictions brought out subsequently u/s.80P(4) is applicable i....
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....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 following question of Law: "Whether the assessee co-operative society was entitled under sec. 80P(2)(d) of the entire interest of Rs.10,17,976/- received by it from the co- operative Bank?" While answering the above question of law in favour of assessee, Hon'ble Gujarat High Court held as under: "8. Section 80P(2)(d) of the Act allows whole deduction of an income by way of interest or dividends 'derived by the co-operative society from its investment with any other co-....