TaxTMI 
TaxTMI 
2025 (7) TMI 1107
X X X X Extracts X X X X
X X X X Extracts X X X X
....or the impugned assessment year on 06.01.2021 declaring total income at Nil after claiming the deduction of Rs. 2,89,55,992/- u/s 80P of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'). The case of the assessee was selected for limited scrutiny to verify the following issues: (i) High interest expenditure/finance costs. Assessee has claimed high interest expenditure in P & L a/c and shown huge advances in balance sheet which is in excess of total proprietors/partners fund. It may be seen whether advances given are interest bearing and whether they meet the test of commercial expediency if not, proportionate disallowance from the interest paid may be made. (ii) High Creditors/liabilities: Assessee has shown high liabilities in balance sheet as compared to low income/receipt declared in ITR, Genuineness of liabilities declared may be verified. (iii) Deduction from Total Income under Chapter VI-A: The assessee has claimed large deduction under chapter VI-A (excluding deduction claimed u/s 80-IA / 80-IAB/80-IAC/80-IB/80-IBA/80-IC/80-IE/80-ID). Here whether the assessee has claimed deduction u/s VIA correctly may be verified. 4. Accordingly ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....me earned by it on account of deposit of its surplus funds in a cooperative bank. However, the Assessing Officer has passed the order without examining the eligibility of the assessee for claim of deduction under the provisions of section 80P(2)(a) or section 80P(2)(d). Therefore, the order of the Assessing Officer has become erroneous and prejudicial to the interest of revenue. He, therefore, issued a show cause notice u/s 263 of the Act to the assessee in response to which the assessee filed its submissions. 6. However, the Ld. PCIT was not satisfied with the arguments advanced by the assessee and held the order passed by the Assessing Officer as erroneous in so far as it is prejudicial to the interest of revenue by observing as under: "7. I have carefully gone through the facts of the case as well the written submission filed by the assessee. During the assessment proceedings, the AO has not asked any specific question to the effect whether the income in question is business income or not. The provision of Sec. 80P(2)(a) of the Act provides for deduction to a cooperative society in respect of income derived by it from the business of banking or providing credit facil....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the case of Prakash Nath Khanna Vs CIT (266 ITR1) (SC) [2004]. Therefore, the claim of the assessee to treat the Co-operative Bank as Co-operative Society cannot be accepted. Further, the Hon'ble Karnataka High Court again in the case of PCIT Vs. Totgars Co-operative Sales Society Ltd. (395 ITR 611) (2017) held that a co-operative society would not be eligible for deduction u/s 80P(2)(d) on the interest income earned by it on account of deposit of its surplus funds in a co-operative bank. In the said case, it has also been held by the High Court that the banking business, even though run by a Co-operative bank is sought to be excluded from the beneficial provisions of exemption or deduction under section 80P of the Act, by bringing on the statute book sub-section (4) in section BOP. The Court noted that the words used in section 80P(4) are significant which says that 'The provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society...... 'The words 'in relation to' can include within its ambit and scope even the interest income earned by the assessee, a co-operative society from a Co-operative Bank....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssed allowing any relief without Inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person." 12. From the above cited Explanation which has come into effect from 01.06.2015, it is clear that an assessment order, which has not been passed in accordance with a decision which is prejudicial to the assessee rendered by the Hon'ble Supreme Court, will be deemed to be both erroneous and prejudicial to the interest of revenue. Thus, deduction u/s 80P has been granted without making suitable enquiry and without considering the binding judgment of the Hon'ble Supreme Court of India in the case of Totgars Co-operative Sales Society Ltd. (supra). Therefore, assessment order has been passed in violation of sub-clause (b) and sub-clause (d) of Explanation 2 to Section 263 of the I.T. Act, 1961. 13. In the light of the above facts, I am satisfied tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in favour of the assessee. Even otherwise also, it is a highly debatable issue and the Assessing Officer has taken a plausible view, therefore, the Ld. PCIT cannot invoke the jurisdiction u/s 263 of the Act on an issue which has already been examined by the Assessing Officer and who has taken a plausible view. Relying on various decisions including the recent decision of the Tribunal in the case of Shreenath Mhaskoba Credit Co-operative Society Ltd. Vs. PCIT, Pune-4, vide ITA No.488/PUN/2025 order dated 17.06.2025 for assessment year 2020-21, he submitted that the order of the Ld. PCIT assuming jurisdiction u/s 263 of the Act is not in accordance with law. 9. The Ld. DR on the other hand heavily relied on the order of the Ld. PCIT invoking the jurisdiction u/s 263 of the Act. 10. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. PCIT and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Ld. PCIT in the instant case assumed jurisdiction u/s 263 of the Act on the ground that the Assessing Officer, during the course of assessment proceedings, has n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e society vide its submission w.r.t. above issue which is reproduced verbatim as under: "2. Details of High Creditors / Liabilities: Assessee is co-operative credit society and is only dealing with its members (salary earners) in providing credit facilities and the assessee is also accepting deposits from its members, this deposits showed as unsecured Loans (including Deposits and other payables) on which interest is paid by the assessee: The assessee society vide its submission w.r.t. above issue which is reproduced verbatim as under: S No Nature of Deposit Amount 1 Fixed Deposit 24,71,53,315.00 2 Recurring Deposit 60,40,029.00 3 Permanent Deposit 3,31,531.00 Total 25,35,24,875.00 (ii) Deduction from Total Income under Chapter VI-A: The assessee has claimed deduction u/s 80P(2)(a)(i) of Rs. 2,89,55,992/-. The above submission of the assessee dated 01-12-2021 has been verified and found to be in order. 3.1 On further verification of the submission dated 01-12-2021, the assessee in its written submissions, the details of Investment made during the year under consideration has been furnished as un....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ime activities are accepting deposits and providing credit facilities to its members only. 2. In the proposed variation is mentioned that interest and dividend derived from its investments made with other than the cooperative society is not allowed deduction u/s 80P. But we have made deposit in Co-operative banks which come under the definition of Cooperative Society as per Section 2(19) of Income Tax Act, 1961. 3. As per Section 2(19) of Income Tax Act, 1961, "Co-operative society" means a cooperative society registered under the Cooperative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any state for the registration of co-operative societies;" A co-operative bank continues to be a co-operative society registered under the Cooperative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any state for the registration of co-operative societies, therefore the interest income derived by a cooperative society from its investments held with a co-operative bank would be entitled for claim of deduction under section 80P of the act. Honourable High Court of Gujarat in the case of State Bank Of Ind....