SHREE MADHI SURALI VIBHAG NAGRIK SAHAKARI DHIRAN MANDALI LTD,,SURAT vs. PR.CIT-2,SURAT, SURAT

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER ITA No.305/SRT/2019 (AY 2014-15) (Hearing in Virtual Court) Shree Madhi Surali Vibhag The Principal nagrikSahakari Dhiran Mandali Commissioner of Income- Vs. Ltd., tax-2, Surat. At & PO Madhi, Tal. Bardoli, Surat – 394340. PAN: AADAS 5644 L Applicant Respondent

Assessee by Shri Yogesh Gamit-Advocate with Shri Shaunak Javeri CA. Revenue by Shri Ritesh Mishra – CIT(DR) Date of hearing 15.09.2021 Date of pronouncement 15.09.2021 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by assessee is directed against the orders of ld. Principal Commissioner of Income Tax-2, (Pr CIT) Surat, passed under section 263 Income Tax Act, (Act), dated 16.11.2016 for the Assessment Year (AY) 2014-15. The assessee raised the following grounds of appeal: “1. That on the facts and in the circumstances of the case, the Ld. Principal Commissioner of Income Tax – 2, Surat [here-in-after referred to as Ld. Pr.CIT] erred in initiating and passing the order u/s.263 of the Income Tax Act, 1961 which is bad in law and failed to apply his mind in proper perspective of the facts of the case. 2. That having regard to the facts and circumstances of the case, Pr. CIT has erred in law and on facts in assuming jurisdiction in passing the order u/s 263, more so when the assessment order passed under section 143(3) is neither erroneous nor prejudicial to the interest of Revenue.

ITA No.305/SRT/2019 Shree Madhi Surali Vibhag nagrikSahakari Dhiran Mandali Ltd., (AY 2014-15) 3. That on the facts and in the circumstances of the case, the Ld. Pr.CIT erred in setting aside the assessment order passed by the Ld. A.O. u/s.143(3) directing to examine, verify and inquiry into the claim of Rs.1,11,48,603/- made under chapter IV of Section 80P of the I.T. Act, 1961 on account of interest income received from deposited in cooperative bank interest. 4. That the order passed by the Ld. Pr.CIT u/s.263 of the I.T. Act, 1961 was arbitrary, bad in law and unjust. 5. That the appellant craves leave to add, to amend, modify, rescind, supplement or alter any of the grounds stated here-inn- above, either before or at the time of hearing of this appeal.” 2. Brief facts of the case are that the assessee is a Cooperative Society engaged in the business of providing credit facilities to its members by accepting deposits from its members. The assessee filed its return of income for the A.Y.2014-15 on 29.11.2014 declaring Nil income. In the computation of income, the assessee claimed deduction under section 80P of the Act of Rs.86,76,252/-. The case was selected for scrutiny. The Assessing Officer (AO) passed the assessment order under section 143(3) of the Act on 16.11.2016. The AO while passing the assessment order, made disallowance of interest income earned on deposit in Nationalised Bank of Rs.13,62,958/- and treated the same as income from ‘other sources’. The AO during the assessment verified the interest income earned from Cooperative Societies as well as from Nationalised Bank and disallowed the income from Nationalised Bank. Thereafter, the assessment order was revised by the ld. PCIT vide order dated 27.02.2019 under section 263 of the Act. Before revising the assessment order, the ld. Pr.CIT took his view that the interest income earned from Surat District

ITA No.305/SRT/2019 Shree Madhi Surali Vibhag nagrikSahakari Dhiran Mandali Ltd., (AY 2014-15) Cooperative Bank ltd was to be disallowed 80-P(2)(d). On the basis of aforesaid view, the Ld.Pr.CIT issued show cause notice dated 06.03.2019 under section 263. 3. The assessee filed its reply dated 13.03.2019. In the reply, the assesse stated the during the assessment, the AO examined the issue of deduction under section 80-P(2)(d) in-depth and after application of mind, allowed the deduction under section 80-P(2)(d). The assessee furnished the copy of notice issued under section 142(1) dated 30.10.2016 and their reply dated 08.11.2016 and claimed that all details about the deduction under section 80-P(2)(d) had been submitted to the AO. The assessee prayed to drop the proceedings under section 263 of the Act. 4. The reply furnished by the assessee was not accepted by the ld. Pr.CIT. The ld. Pr.CIT took his view that the Hon'ble Supreme Court in PCIT vs Totagars Co-operative Sale Society, also held that cooperative Societies are not entitled for deduction of interest income earned on deposits with Cooperative Banks under section 80-P(2)(d). The Cooperative Societies and Cooperative Banks are two separate entities. The ld. Pr.CIT set-aside the assessment order and directed the AO to pass the fresh assessment order after giving opportunity to the assessee. Aggrieved by the order of Ld. Pr.CIT, the assessee has filed this appeal before this Tribunal. 5. We have heard the submission of ld. Authorised Representative (AR) of the Assessee and the ld.CIT-DR for the Revenue. With the assistance of 3

ITA No.305/SRT/2019 Shree Madhi Surali Vibhag nagrikSahakari Dhiran Mandali Ltd., (AY 2014-15) learned representative, we have also gone through the orders of Lower Authorities. The ld.AR of the assessee submits that the assessment order passed by AO is neither erroneous, nor prejudicial to the interest of the Revenue. The deduction allowed under section 80-P(2)(d) by AO, in the assessment order under section 143(3) is not erroneous. The AO during the assessment, examined the issue in detail and took a reasonable and plausible view on the claim made by assessee. The examination of this issue is clearly discernible from the contents of assessment order. The ld.AR for assessee submits that ld. Pr. CIT by examining the record may have a different view, thus, the revision of order passed by the ld. Pr.CIT is not valid for he has some other view. 6. The ld.AR of the assessee submits that for invoking power under section 263 of the Act, twin condition as prescribed under section 263 of the Act that order is erroneous and insofar as prejudicial to the interest of the revenue, must be fulfilled simultaneously. The assessment order passed by the AO is not at all erroneous. The order passed by AO is in accordance with the decision of various Hon'ble High Courts and Tribunals. The ld.AR of the assessee submits that in the Hon'ble jurisdictional High Court in Aryan Arcade Ltd., vs. PCIT [2019] 412 ITR 277 (Gujarat) held that merely because Commissioner had a different belief, that would not permit him to take the order in revision, it is further held that when AO made full enquiry, he made up his mind, the revision of notice is not valid. To 4

ITA No.305/SRT/2019 Shree Madhi Surali Vibhag nagrikSahakari Dhiran Mandali Ltd., (AY 2014-15) strengthen his submission, the ld.AR also relied upon the decision of Hon'ble Madras High Court in CIT vs. Mepco Industries Ltd., [2007] 207 CTR 462 (Madras), wherein the Hon'ble High Court held that when two view are possible on the issue and it is not the case of commissioner that the view taken by AO is not permissible in law, Commissioner cannot invoke his jurisdiction under section 263 of the Act. The ld.AR invited our attention on para 4.2, and carried us through entire para and would submit that the AO raised a specific query on the issue regarding interest income earned from Nationalised Bank, their explanation in response to show cause notice of AO. 7. On merit, the ld.AR for the assessee submits that Cooperative Banks are primarily Cooperative Societies as has been held by various Benches of Tribunal. The Cooperative Societie’s interest income from deposit with Cooperative Bank is eligible for claim of deduction under section 80- P(2)(d), to support his submission, the ld.AR of the assessee relied upon the following decisions:  Surat Vankar Sahakari Sangh Ltd Vs ACIT [2016] 72 taxmann.com 169 (Gujarat) [2020] 421 ITR 134 (Gujarat)  Bardoli Vibhag Gram Vikas Co.Op. Credit Society Ltd Vs. The Principal Commissioner of Income Tax-2, Surat [2021] 127 taxmann.com 334 (Surat-Trib.) [2020] 189 ITR 601 (Surat-Trib.)  DCIT Vs Bardoli Vibhag Gram Vikas Co.Op. Credit Society Ltd [2019] 102 taxmann.com 110 (Surat-Trib.) [2019] 175 ITR 471 (Surat-Trib.)

ITA No.305/SRT/2019 Shree Madhi Surali Vibhag nagrikSahakari Dhiran Mandali Ltd., (AY 2014-15)  CIT Vs Sabarkantha District Co-operative Milk Producers Union [Tax Appeal No. 473 of 2014 dated 16/06/2014]

 Merwanjee Cama Park Co-operative Housing Society Vs ITO in ITA No. 6139/Mum/2014 dated 27/09/2017  Kanilndass Udyog Bhawan Premises Co-operative Society Ltd Vs ITO in ITA No. 6547/Mum/2017 dated 25/04/2018  Veer Cooperative Group Housing Society Vs ITO in ITA No. 2787 & 2788/Del/2018 dated 04/09/2018  The Uttar Gujarat Uma Co-operative Society Vs ITO in ITA No. 1670 & 1671/Ahd/2018 dated 28/02/2019  Menasi Seemeya Group Gramagala Seva Sahakari Sangh Niyamitha Venalli Vs CITin ITA No. 609 & 610/ BNG/2014 dated 06/02/2015  Solitaire CGHS Vs PCIT in ITA No. 3155/Mum/2019 dated 29-11-2019  Sasme Co-op Society Vs PCIT in ITA No. 185/SRT/2020 dated 03/03/2021  Begumpura Nagrik Dhiran Sahakari Mandli Ltd. Vs DCIT in ITA No. 2799/AHD/2015/SRT dated 04/10/2018  Sarjan Co-op Housing Society Ltd. Vs Pr. CIT-1 in ITA No. 718/SRT/2018 dated 23/08/2021  The Peoples Co-operative Credit Society Vs ACIT in ITA No. 1891/Ahd/2014 dated 23/03/2018  Shri Basvaraj, CEO Primary Agriculture Credit Co-operative Society Ltd in ITA No. 867/Bang/2017 dated 31/05/2017  ITO Vs M/s. Jafari Momin Vikas Co-op Credit Society Ltd in ITA No. 1491/Ahd/2012 dated 31/10/2012,  CIT v. Sabarkantha District Co-operative Milk Producers Union Ltd. [Tax Appeal No. 473 of 2014 dated 16-6-2014]  Pr. CIT v. Totgars Co-oprative Sales Society Ltd. [2017] 78 taxmann.com 169/392 ITR 74 (Ker.),

ITA No.305/SRT/2019 Shree Madhi Surali Vibhag nagrikSahakari Dhiran Mandali Ltd., (AY 2014-15)  Totgars Cooprative Sales Society Ltd. v. ITO [2010] 188 Taxman 282/322 ITR 283 (SC),  Solitaire CGHS v. Pr. CIT [IT Appeal No. 3155 (Mum.) of 2019, dated 29-11-2017],

ITA No.305/SRT/2019 Shree Madhi Surali Vibhag nagrikSahakari Dhiran Mandali Ltd., (AY 2014-15) from with Surat District Cooperative Bank, however, the AO disallowed other interest income of Rs.13,62,958/- earned from Nationalised Bank while passing the assessment order. These facts are clearly discernible from para 4 of the assessment order. We find the ld. Pr. CIT by examining the record, took a different view that the assessee is not entitled for deduction under section 80-P(2)(d) of the Act on the interest income earned from Surat District Cooperative Bank. We find that before passing the order under section 263 of the Act, the ld.Pr.CIT identified the issue regarding the claim of deduction under section 263 of the Act, dated 06.03.2019. The assessee in its reply dated 13.03.2019 clearly explained that issue was examined by AO in the assessment order and that assessment order is not erroneous. The reply of assessee was not accepted by ld. Pr.CIT. The ld. Pr. CIT took a different view that the assessee is not entitled for deduction under section 80-P(2)(d) of the Act on the interest income earned from Surat District Cooperative Bank Ltd. 11. Before us, the ld.AR of the assessee vehemently submitted that for revising order under section 263 of the Act, the twin condition as prescribed under section 263 of the Act, that order passed by AO is erroneous and insofar as prejudicial to the interest of the revenue must be fulfilled simultaneously. 12. The Hon'ble Jurisdictional High Court in Aryan Arcade Ltd. v. Pr. CIT [2019] 412 ITR 277 (Gujarat) held that merely because Commissioner held a different belief that would not permit him to take the order in 8

ITA No.305/SRT/2019 Shree Madhi Surali Vibhag nagrikSahakari Dhiran Mandali Ltd., (AY 2014-15) revision, it if further held that when Assessing Officer made full enquiry, he made up his mind, the notice of revision is not valid. 13. Further, Hon'ble Madras High Court in CIT v. Mepco Industries Ltd. [2007] 163 Taxman 648/294 ITR 121 (Madras) held that when two views are possible on an issue and it is not the case of the Commissioner that the view taken by Assessing Officer is not permissible in law, Commissioner cannot invoke his jurisdiction under section 263 of the Act. As we have noted above the assessing officer has made enquiries on the allowability of deduction under section 80(P)(2)(d) and passed the assessment order, thus, the Assessing Officer has taken a reasonable and possible view which cannot be held as erroneous. 14. The Hon'ble Karnataka High Court in Totagars Cooperative Sales Society (supra) held that for the purpose of section 80P(2)(d) a Co- operative Bank should be considered by a Co-operative Society and interest earned by Co-operative Society from Cooperative Bank would necessarily be deductible under section 80P(1) of the Act. Further, the Hon'ble Jurisdictional High Court in Surat Vankar Sahakari Sangh Ltd. (supra) held that assessee co-operative society is eligible for deduction under section 80P(2)(d) in respect of gross interest received from co- operative bank without adjusting interest paid to said bank.

ITA No.305/SRT/2019 Shree Madhi Surali Vibhag nagrikSahakari Dhiran Mandali Ltd., (AY 2014-15) 15. The Co-ordinate Bench of Rajkot Tribunal in Surendarnagar District Co- operative Milk Producer Union Ltd. v. Dy. CIT [2019] 111 taxmann.com 69/179 ITD 690 (Rajkot Tribunal) also held the assessee co-operative society could not claim benefit under section 80P(2)(d) in respect of interest earned by it from deposits made with nationalized/private banks, however, the said benefit was available in respect of interest earned and on deposits made with co-operative bank. Thus, in view of the aforesaid legal discussion we are of the considered view that order passed by Assessing Officer is not erroneous, though it may be prejudicial to the interest of the Revenue. Therefore, the twin conditions that orders is erroneous and so far as prejudicial to the interest of revenue, as prescribed under section 263 is not fulfilled in the present case. 16. The ld.Pr.CIT while revising the assessment order relied on the case law in Totagars Co-operative Sales Society (second case) (supra), wherein the Hon'ble Karnataka High Court held that interest earned by a Co-operative Society from surplus deposits kept with Co-operative bank, is not eligible for deduction under section 80P(2)(d). Considering the legal position that when there are conflicting decisions of non-jurisdictional High Courts, on similar issue, the decision of Jurisdictional High Court is having binding precedent. Thus, keeping in view of the decision Hon'ble Jurisdictional High Court in Surat Vankar Sahakari Sangh Ltd. (supra) wherein the assessee-co-operative society is held eligible for deduction under section 10

ITA No.305/SRT/2019 Shree Madhi Surali Vibhag nagrikSahakari Dhiran Mandali Ltd., (AY 2014-15) 80P(2)(d) in respect of gross interest received from co-operative bank without adjusting interest paid to said bank, we conclude that the order passed by assessing officer is not erroneous. Hence, the grounds of appeal raised by assessee are allowed. 17. In the result, appeal of the assessee is allowed. Order announced on 15th September, 2021 by placing the result on the notice board. Sd/- Sd/- (Dr ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat, Dated: 15 /09/2021 / SGR* Copy to: 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR 6. Guard File By order / / TRUE COPY / / Sr.Pvt. Secretary, ITAT, Surat