TaxTMI 
TaxTMI 
2026 (1) TMI 32
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....- "a) Assessee has disclosed substantial amount of investments/advances /loans in the asset side of Balance Sheet as per the Income Tax Return whereas the Total Income (including exempt income) as per the Income Tax Return is significantly low. There is a possibility that assessee has not shown its correct income. Further, it needs to be examined whether interest free advances have been given and whether disallowance of corresponding interest is warranted b) Assessee has shown high liabilities in balance sheet as compared to low income/receipt declared in ITR Genuineness of liabilities declared may be verified c) 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/c VIA correctly may be verified." 3.1 Accordingly, statutory notices u/s. 143(2) and 142(1) of the Act were issued and served on the assessee in response to which, the assessee filed the requisite details. The Assessing Officer (AO), after considering the reply of the assessee filed from time to time, completed the assessment u/s. 143(3) r.w.s 144B of....
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....e assessee on this issue on its face value without considering facts of the case, the legal position on the issue and without application of mind. In the instant case, the assessee-society invested funds not immediately required for business purposes. Interest earned on such investments, therefore, will not fall within the meaning of the expression' profits and gains of business'. It is clear that the above interest income earned by the assessee is from Co-operative banks which are deemed not to be Co- operative societies as per provision of section 80P(4) of the I.T.Act 1961. Also the said Co-operative banks do not fall under the purview of a 'Co-operative Society' referred in Section 80P(2)(d) of the Act. Therefore, it is only the interest derived from the credit provided to its members which is deductible under section 80P(2)(a)(i) of the Act and the interest derived by depositing surplus funds with the Co- operative banks not being attributable to the business cannot be deducted under section 80P(2)(a) of the Act Such an interest income is not the 'operational income' of assessee society from providing credit facilities to its members. Consequen....
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....)(i). It was argued that the order passed by the AO is in accordance with the various decisions of the coordinate benches of the Tribunal. Accordingly, the assessee requested to drop the proceedings initiated u/s. 263 of the Act. 6. However, Ld. PCIT was not satisfied with the arguments advanced by the assessee and set aside the order passed by the AO with a direction to verify the facts properly and re-examine the issue after affording opportunity of being heard to the assessee. The relevant order passed by the Ld. PCIT reads as under :- "7 I have carefully considered the entire written submission of the assessee. First of all, it is seen from the assessment order u/s. 143(3) read with section 144B of the Act dated 20/09/2022 that the FAO has mentioned that the case was selected for scrutiny under the 'Limited Scrutiny' category through CASS. Whereas it is clear from the notice under section 143(2) of the Act through which the case has been selected for scrutiny that the selection is under 'Complete Scrutiny' category. Since the FAO has mentioned the scrutiny category as 'Limited Scrutiny', naturally his scope of enquiry had remained limited and....
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....nd out whether the interest income on the investments made with cooperative banks mentioned in detail in. earlier paragraph is attributable to the main activity of the assessee society, namely: carrying on the business of providing credit facilities to its members, or not. In case such interest income doesn't constitute the operational income of the assessee society then the ratio of the decision of the Apex Court, which is the law of land, becomes fully applicable to the case of the assessee and such income will fall in the category of 'other income' which needs to be taxed under section 56 of the Act. The case laws cited by the assessee will also not be applicable in the case of the assessee, if as a result of enquiries/ examinations, it is found that the interest income earned by the assessee society from the deposits with the cooperative banks, mentioned earlier is not attributable to the main business activity. Therefore, the arguments, made by the assessee based on all of those case laws are not tenable. 10. It is also to be considered here that the Hon'ble Apex Court in the case of Totagars co-operative Sale Society Ltd. vs. ITO [(2010) 188 Taxmann 2....
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....ied this aspect while completing the assessment proceedings. 12. Considering the above facts, it is noticed that the FAO has accepted the claim of the assessee of deduction u/s. 80P of the Act without considering the aspects discussed above; without making proper verification in this regard and without examining the facts of the case. Failure on the part of the FAO rendered the assessment order dated 20/09/2022 under section 143(3) read with section 144B of the Act as erroneous and also prejudicial to the interests of revenue. 13. It is seen from the profit and loss account of the assessee that it has debited amount of Rs. 7,25,000/- under the head 'NPA provision'. Such a debit is neither an expenditure nor an allowance permitted under section 28 to 43B of the Act for a co-operative society. The assessee's contention in this regard is that even if the NPA provision is disallowed, the enhanced profit after disallowance is eligible for deduction under section 80P of the Act and there would not be any change in the profit eligible for deduction. The assessee's say in this regard is considered. In fact, the assessee has accepted that such a provision d....
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....cts discussed in the foregoing paragraphs and decide the issues afresh. However, before arriving at any conclusion, the Assessing Officer shall give reasonable opportunity to the assessee to adduce the evidence and information with regard to the issues involved. The Assessing Officer shall, accordingly, frame the assessment afresh." 7. Aggrieved such order of the Ld. PCIT, the assessee is in appeal before this Tribunal. 8. Learned counsel for the assessee, at the outset, drew our attention to the notice dated 15/02/2022 issued by the AO, wherein at clause (f) of the questionnaire, he has asked the assessee to justify the claim u/s. 80P. Referring to page Nos. 48 & 49 of the paper book, learned counsel for the assessee drew the attention of the Bench to the reply given by the assessee vide letter dated 18/02/2022 wherein the assessee has given the submission justifying its claim u/s. 80P, which reads as under :- "This Co-operative society is registered under Maharashtra Co- operative societies Act, 1961 and Co-operative society carrying on the business of banking or providing credit facilities to the members of the society. The prime objective of the society is to acc....
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....in the profit eligible for deduction. 12. We find some force in the above arguments of the learned counsel for the assessee. A perusal of the questionnaire issued by the AO shows that vide letter dated 15/02/2022, copy of which is placed at page Nos. 44 & 45 of the paper book, the AO at clause (f) has asked the assessee to justify its claim of deduction u/s. 80P. We find the assessee vide submissions dated 18/02/2022, copy of which is placed at page Nos. 48 to 49 of the paper book, has justified its claim of deduction u/s. 80P. We find, after considering the reply given by the assessee, the AO passed the order allowing deduction u/s. 80P. Further, a perusal of the assessment order for A.Y. 2018-19, copy of which is placed at page Nos. 37 to 39, shows that AO in the assessment order passed u/s. 143(3), dated 02/02/2021 has allowed the claim of deduction u/s. 80P. Under these circumstances, when the AO after considering the submissions made by the assessee has allowed the claim of deduction u/s. 80P(2)(a)(i) which is in line with the decisions of the coordinate Benches of the Tribunal, therefore, the order passed by the AO, in our opinion, cannot be held to be erroneous. It has be....
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.... and, therefore, Section 80(P)(4)shall not be applicable and that the respondent/ Assessee shall be entitled to exemption/benefit under section 80(P)(2) of the Income-tax Act. 6. In view of the above and for the reasons stated hereinabove, the present appeal deserves to be dismissed and is accordingly dismissed, answering the question against the Revenue and in favour of the Assessee." Unquote 11.1 The above order of Hon'ble Supreme Court was rendered in the context of the appeal filed by the Revenue against the order dated 14-10-2019 passed by the Hon'ble High Court of Judicature at Bombay in ITA No.933/2017, by which the High Court has dismissed the said appeal preferred by the Revenue. 6. The Hon'ble Bombay High Court's order in ITA No.933/2017 vide order dated 14.10.2019 in the case of Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd., emanates from the ITAT order in ITA No.2515/MUM/2014 dated 20.05.2016. The facts recorded in the ITAT order in ITA No.2515/ MUM/ 2014 are that Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd.,is a Co-operative CreditSociety registered under the Maharashtra Co-operative Society Act, had claimed d....