IRIS CO-OPERATIVE HOUSING SOCIETY LIMITED,MUMBAI vs. PRINCIPLE COMMISSIONER OF INCOME TAX, , MUMBAI

The only dispute raised by the assessee, in the present appeal, is against the invocation of revisionary proceedings under section 263 of the Act by the learned PCIT.

The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is a co-operative housing society, registered under the Maharashtra Co-operative Societies Act, 1960. For the year under consideration, the assessee filed its return of income on 24/08/2018 declaring a total income of Rs.1910. The return filed by the assessee was selected for scrutiny and statutory notices under section 143(2) as well as section 142(1) of the Act were issued and served on the assessee. During the assessment proceedings, the assessee was asked to explain and justify the deduction claimed under section 80P of the Act with supporting evidence. In response thereto, the assessee filed a detailed reply along with supporting documentary evidence in respect of its claim of deduction under section 80P of the Act on account of interest income of Rs.27,20,624 earned from the co-operative banks. The Assessing Officer (“AO”) vide order dated 06/01/2021 passed under section 143(3) read with sections 143(3A) and 143(3B) of the Act, after considering the replies filed by the assessee, accepted the income returned by the assessee and granted the deduction claimed under section 80P of the Act.

Subsequently, vide notice dated 06/03/2023 issued under section 263 of the Act, the learned PCIT initiated revisionary proceedings on the basis that interest income earned by the assessee out of surplus funds is not eligible for deduction in terms of provisions of section 80P(2)(d) of the Act. It was further alleged that the interest income is mainly earned from investments made in co-operative bank, which is not a co-operative society as referred to in section 80P(4) of the Act. Thus, it was alleged that the AO has not verified the details of interest income earned by the assessee during the year under consideration and has also not applied his mind on the issue as was expected under the facts

In response thereto, the assessee submitted that section 263 cannot be invoked in the present case, as the AO has made proper enquiry and verification of the claim of the assessee under section 80P of the Act. The assessee further submitted that the only issue for which the case was selected for scrutiny was to examine the claim of deduction under Chapter VI-A of the Act. The assessee also submitted that it provided complete details in respect of its claim of deduction under section 80P(2)(d) of the Act during the assessment proceedings and only after consideration of the details so filed by the assessee, the scrutiny assessment concluded at the returned income.

The learned PCIT vide impugned order did not agree with the submissions of the assessee and held that while accepting the explanation filed by the assessee, the AO has completely acted in a manner prejudicial to the interest of the Revenue inasmuch as the investments have been made by the assessee with banks that do not form part of excluded categories as per section 80P(4) of the Act. The learned PCIT further held that the income earned by the assessee does not fall in section 80P(2)(d) of the Act, as the deduction cannot be extended to the interest income earned from the investment in any co-operative bank. It was also held that all the conditions of the principle of mutuality are not satisfied in case of interest earned from co- operative banks by the assessee. Thus, the learned PCIT held that the AO had to complete the assessment in light of the provisions of section 80P(2)(d) and section 80P(4) of the Act, which the AO has failed to do. Vide impugned order, the learned PCIT held the assessment order to be erroneous and prejudicial to the interest of Revenue and accordingly, set aside the same, with a direction to the AO to frame the assessment de novo after proper application of the provisions of the Act regarding the applicability of section 80P(2)(d) in the case of the assessee. Being aggrieved, the assessee is in appeal before us.

We have considered the submissions of both sides and perused the material available on record. The assessee is a co-operative housing society registered under the Maharashtra Co-operative Societies Act 1960, whose only source of revenue is from contributions from members and interest on deposits held with co-operative banks and non-cooperative banks. The interest income earned from co-operative banks of Rs.27,20,624 was claimed as a deduction under section 80P(2)(d) of the Act, and the interest earned from non- cooperative banks was offered to tax under the head “other sources”. We find that vide notice dated 22/09/2019 issued under section 143(2) of the Act, forming part of the paper book from pages 7-8, the return filed by the assessee was selected for limited scrutiny in respect of deduction claimed under Chapter VI-A of the Act. Vide notice dated 11/12/2020 issued under section 142(1) of the Act, the assessee was asked to furnish a note on eligibility criteria of deduction claimed under sections of Chapter VI-A along with documentary evidence. The assessee was also asked to furnish a note on the deduction claimed under section 80P of the Act. We find that the said notices were duly responded to by the assessee vide submission dated 17/12/2020, forming part of the paper book from pages 12-17. During the assessment proceedings, the assessee submitted that the only deduction claimed under Chapter VI-A is the interest earned from co-operative banks as per the provisions of section 80P(2)(d) of the Act. The assessee also submitted that the interest claimed as deduction under section 80P(2)(d) has been received from the co-operative banks, namely, Maharashtra State Co- operative Bank, Saraswat Co-operative Bank, and Shamrao Vithal Co- operative Bank, which are registered as co-operative societies. In this regard, the assessee furnished the confirmation of registration as co-operative societies received from the respective co-operative banks, forming part of the paper book from pages 41-46. The AO vide assessment order dated 06/01/2021 after considering the detailed reply filed by the assessee along with supporting documentary evidence accepted the claim of deduction under section 80P(2)(d) of the Act. However, the learned PCIT vide impugned order passed under section 263 of the Act set aside the aforesaid assessment order on the basis that the interest has been earned from the co-operative banks Page | 5

Before proceeding further, it is relevant to note the provisions of section 80P of the Act under which the assessee has claimed the deduction in the present case. As per the provisions of section 80P(1) of the Act, the income referred to in sub-section (2) to section 80P shall be allowed as a deduction to an assessee being a co-operative society. Further, section 80P(2)(d) of the Act, reads as under:

Thus, for the purpose of provisions of section 80P(2)(d) of the Act, two conditions are required to be cumulatively satisfied- (i) income by way of interest or dividend is earned by the co-operative society from the investments, and (ii) such investments should be with any other co-operative society. Further, the term „co-operative society‟ is defined under section 2(19) of the Act as under:

In the present case, there is no dispute that the assessee is a co- operative housing society. Thus, if any income as referred to in sub-section (2) to section 80P of the Act is included in the gross total income of the assessee, Page | 6

Therefore, in view of the above, we are of the considered view that the AO has rightly allowed the claim of deduction under section 80P(2)(d) of the Act in respect of the interest earned from the co-operative banks and thus the Page | 7

In the result, the appeal by the assessee is allowed. Order pronounced in the open Court on 28/06/2023