1992 (3) TMI 108

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....lowed deduction under section 80P of the Income-tax Act in respect of its dividend income. He thereupon initiated proceedings under section 263 of the Act and, after having heard the assessee, passed the impugned order and directed the Income-tax Officer to make a fresh assessment withdrawing the deduction under section 80P in respect of the dividend derived by the assessee from its investments with persons other than Co-operative Societies. 3. The assessee is a Co-operative Society established under the provisions of the Maharashtra Co-operative Societies Act. As its very name suggests, the assessee is engaged in the business of raising funds and advancing them by way of long-term loans for the purpose of land development in the State of ....

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....mmissioner felt that the Income-tax Officer had allowed the deduction without proper verification of the facts or without application of mind to the relevant provisions of law. He accordingly set aside the assessment order insofar as it related to the grant of exemption under section 80P in respect of the aforesaid dividend income for the two years and directed the Income-tax Offices to make a fresh assessment withdrawing the deduction. 4. Assailing the impugned order, the learned counsel for the assessee, at the very outset, conceded that this part of the assessee's income was not derived from investments with Co-operative Society (or societies) and, therefore, clause (d) of sub-section (2) of section 80P did not come into play. He, howev....

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.... find no hesitation in agreeing with the learned counsel for the assessee that the impugned order of the Commissioner is totally misconceived and liable to be quashed. The assessee, a co-operative society, is engaged in carrying on the business, which is essentially and in pith and substance a business of banking. It accepts deposits and otherwise raises funds and lends long-term loans to agriculturists for the development of their lands. This part of the activities of the assessee thus clearly constitutes carrying on the business of banking. Now, under the provisions of the Banking Regulations Act or similar other laws, every banking company has to maintain a specified liquidity ratio or is statutorily required to invest in specified or ap....

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....levant part of the Commissioner's order, in which he has taken this view, reads as under : " In my view the income from the investment in shares of various companies will fall for consideration under section 80P(2)(d) as this is a special provision dealing with this source. It will make no difference to the issue that the investments indirectly held carrying on the business of the assessee. Since the dividends are not from the co-operative society, those will not qualify for exemption under that provision. As dividends fell under clause (d) they cannot be considered under clause (a)(1). It is well settled that action under section 263 can be taken where deduction has been allowed or relief granted without proper verification of the facts o....