AI Drafter 
TaxTMI 
TaxTMI 
2022 (10) TMI 223
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....of the Act suffers from jurisdictional requirement. ii. That, the Ld. Pr.CIT has wrongly assumed jurisdiction u/s.263 of the Act for setting aside the original assessment order with regard to the issue in the bank interest income earned by the assessee qualifies for deduction u/s 80P and allowed interest paid to the members for the purpose of earning Interest from HCCB has already been considered and inquired into by the A.0. iii. That the learned AO have considered the decision pronounced by the Ld High Court of Judicature at Calcutta in the case of Commissioner Of Income Tax Kolkata - X v. South Eastern Railway Employees Co-op Credit Society Ltd, while passing the original assessment order, the learned PCIT wrongly assumed jurisdiction u/s 263 of the Act. iv. For that the Ld. PCIT was not justified in holding that the Interest income earned by the assessee a Co operative Society on its Statutory Fund amounting to Rs. 16,10,258/- does not qualify for deduction u/s 80P and cost associated of Rs. 35,83,528/ to earn Interest of Rs. 37,78,688/-. v. That the ld. Pr. CIT has wrongly assumed jurisdiction u/s 263 of the Act for setting aside the origina....
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....has earned net income from fixed deposit with HDCCB of Rs. 1,95,160/-. While completing the assessment, ld. AO observed that deduction u/s 80P is allowed only when there is direct connection with or nexus to the income earned from the business carried on by the society. He noted that income on deposits made with banks is not attributable to income of co-operative society and thus by treating it as income from other sources, disallowed the claim u/s 80P and added it to the total income whereby the income was assessed at Rs. 1,95,160/-. 4.1 Subsequent to the assessment, from the perusal of assessment order and records, ld. PCIT noted the discrepancies from which he pointed out that assessee has earned interest in short term deposit with HDCCB and WBSCARD Bank amounting to Rs. 53,43,665/- which is not allowable u/s 80P(2)(a)(i) of the Act as it has to be taxed as income from other sources u/s 56 of the Act. The discrepancies noted by the Pr. CIT are reproduced as under: "On examination of the assessment record, it is found that the assessee have earned interest in short-term deposits with Hooghly District Central Cooperative Bank Ltd and the West Bengal State Cooperative A....
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.... v. Anil Shah vs. ACIT [2007] 162 taxman 39 (Mum)(Trib.) vi. CIT vs. Ashish Rajpal [2009] 320 ITR 674 (Delhi) (HC), CIT vs. Vikash Ploymers [2010] 194 Taxman 57 (Delhi) (HC)." 4.2. Based on the submissions made in the revisionary proceedings u/s 263, ld. PCIT arrived at his consideration for holding the assessment order as erroneous in so far as it is prejudicial to the interest of revenue by observing that assessment order was passed without making necessary enquiries or verification which should have been made with respect to the discrepancies noted by him. The same is reproduced as under: "In view of the above discussion and findings it is evident that the Assessing Officer should have added the interest earned by the assessee on the deposits with Hooghly District Central Co-operative Bank Ltd. In the present case the assessment order was passed without making necessary enquiries or verification which should have been made, with respect to the findings as per para 2 supra, by the Assessing Officer at the time of assessment and accordingly the order is erroneous in so far as it is prejudicial to the interest of the revenue in terms of Explanation 2 to sec....
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....322 ITR 283 (SC), ld. PCIT is of the view that assessee is not eligible for deduction u/s. 80P(2)(a)(i) of the Act in respect of interest income received from these two Co-operative Banks. 9.2. We observe that in the course of proceedings u/s 263 of the Act before the ld. PCIT, assessee had furnished the relevant details and explained the issue raised through the show cause notice by the Ld. PCIT, supporting its contentions by various decisions. It is well settled law that for invoking the provisions of section 263 of the Act, both the conditions that the order must be erroneous and prejudicial to the interest of revenue needs to be satisfied. This ratio stands laid down by various Hon'ble Courts. 10. For that, let us take the guidance of judicial precedence laid down by the Hon'ble Apex Court in the case of Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83 (SC) wherein their Lordships have held that twin conditions needs to be satisfied before exercising revisional jurisdiction u/s 263 of the Act by the CIT. The twin conditions are that the order of the Assessing Officer must be erroneous and so far as prejudicial to the interest of the Revenue. In the following circumst....
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.... (iv) ... (v) ... (vi) ... (vii) ... the whole of the amount of profits and gains of business attributable to any one or more of such activities" 11.1 From the perusal of the above provision, we note that business of the assessee is to provide credit facilities to its members which constitutes 'eligible activity' under the said provision of 80P(2)(a)(i) of the Act. Interest received from the members for providing credit facilities to them is available for deduction under this provision. What is sought to be taxed by the ld. PCIT by way of revisionary proceedings is the interest received from the co-operative banks in respect of deposits made by it out of the funds received from its members. In this respect, since ld. PCIT has formed his consideration for revision on the basis of decision of Hon'ble Supreme Court in the case of Totgars, Co-operative Sale Society Ltd. v. ITO (supra), we find it appropriate to delve on the same to understand its applicability in the present set of facts and circumstances. 11.2 In the case of Totgars, Co-operative Sale Society Ltd. v. ITO (supra): (i) Facts referred are that the assessee was a c....
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.... stated above, in this case, interest held as ineligible for deduction under section 80P(2)(a) is not in respect of interest received from members. In this case, we are only concerned with interest which accrues on funds not required immediately by the assessee(s) for its business purposes and which have been only invested in specified securities as "investment". Further, as stated above, assessee(s) markets the agricultural produce of its members. It retains the sale proceeds in many cases. It is this "retained amount" which was payable to its members, from whom produce was bought, which was invested in short-term deposits/securities. Such an amount, which was retained by the assessee-Society, was a liability and it was shown in the balance-sheet on the liability-side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in section 80P(2)(a)( i) of the Act or in section 80P(2)(a)( iii) of the Act. Therefore, looking to the facts and circumstances of this case, we are of the view that the Assessing Officer was right in taxing the interest income, indicated above, under section 56 of the Act." [emphasis ....