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Income Tax Appellate Tribunal, PUNE ‘A’ BENCH, PUNE
Before: SHRI SATBEER SINGH GODARA & SHRI G. D. PADMAHSHALI
ORDER PER G. D. PADMAHSHALI, AM; This appeal of the assessee for assessment year 2017-18 [for short ‘AY’] is assailed against revisionary order of Pr. Commissioner of Income Tax-2, [for short ‘PCIT’] dt. 21/03/2022 passed u/s 263 of the Income-tax Act, 1961 [for short ‘the Act’], which ascended out of assessment order dt. 24/12/2019 passed u/s 143(3) by the Income Tax Officer, Ward 3(5), Pune [for short ‘AO’].
Briefly stated the facts of the case are that; 2.1 By an assessment order passed u/s 143(3) of the Act, the Ld. AO without variation had accepted the return of income filed by the assessee society declaring NIL income after a claim for deduction u/s 80P(2)(a)(i) for sum of ₹50,24,411/- & deduction u/s 80P(2)(d) for sum of ₹14,19,057/-.
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Maharaja Rajya Pathyapustak Mandal Karmachari Sahakari Pat Sanstha Maryadit, 2.2 The interest & dividend on investment claimed as deduction u/s 80P(2)(d) of the Act and allowed by the Ld. AO is held as erroneous and prejudicial to the interest of Revenue by the Ld. PCIT in his revisionary jurisdiction for the solitary reasons that interest & dividend on investment was earned from Pune District Central Co-op. Bank [for short ‘PDCC’] being a bank and ineligible owing to law laid down by Hon’ble High court of Karnataka in the case of ‘PCIT Vs Totgar Co-op. Sale Society’ reported in 395 ITR 611. Thus the Ld. PCIT set-aside the order of assessment on this score with a direction to decide the issue of a fresh and decide the deduction u/s 80P(2)(d) of the Act.
2.3 Aggrieved assessee came in present appeal assailing the impugned revisionary on following grounds raised in its appeal memo: “1. On the facts and in the circumstances of the case and in law the action taken by Pr. CIT under S. 263 of the Act holding order of the A. O. as erroneous and prejudicial to the interest of Revenue is not sustainable. Since the A.O. has followed judicial precedents including that of Hon'ble Supreme Court and jurisdictional Bombay High Court and host of others. The order passed under S. 263 setting aside the assessment be cancelled.
2. On the facts and in the circumstances of the case and in law it appears no proper opportunity was not provided to assessee before the action was initiated in this case. The Revision order be set aside.
3. On the facts and in the circumstances of the case and in law the filing of the appeal is delayed for 444 days. The appellant was prevented by sufficient cause. The application for condonation of delay along with sworn affidavit will be filed at the time of hearing. The delay be condoned and appeal be admitted for hearing.
4. The appellant craves to leave, add/amend or alter any of the above grounds of appeal.”
3. We have heard rival contentions of both the parties and subject to the provisions of rule 18 of ITAT, Rules perused the material placed on record, case ITAT-Pune Page 2 of 7
Maharaja Rajya Pathyapustak Mandal Karmachari Sahakari Pat Sanstha Maryadit, laws relied upon and duly considered the facts of the case in the light of settled legal position which are forewarned to learned representatives of both side.
4. At the outset we note that, the institution of present appeal is time barred by 444 days. We find merits in the submission made by the appellant in establishing sufficiency of reasons beyond delay caused in filing the present appeal. In view of Hon’ble Apex Court’s decision in ‘Collector Land Acquisition Vs MST Katiji and Others’ reported at 167 ITR 5 (SC) and the decision of Hon’ble Bombay High Court in ‘CIT Vs Velingkar Brothers’ reported at 289 ITR 382 (Bom), we deem fit to condone the delay in the larger interest of justice and dismiss the objection of the Revenue.
5. We find that the solitary issue raised in the present appeal is covered by the decision of the co-ordinate bench in for assessment year 2017-18, order dated 29/11/2022, wherein also it was the order passed u/s 263 of the Act read with issue of deduction u/s 80P(2)(a)(i) & or 80P(2)(d) of the Act. We observe that the Co-ordinate bench after an elaborated discussion has quashed the revisionary order as contra-legem as follows: ‚3“. The appellant is a cooperative society formed under the Maharashtra Co-operative Societies Act, 1960. It is engaged in the business of accepting deposits from members and providing credit facilities to its members. The original Return of Income for the assessment year 2017- 18 was filed on 18.10.2017 disclosing total income of Rs.3,11,740/-. Subsequently, the assessee revised the return of income declaring Rs.Nil income after claiming deduction of Rs.6,32,86,382/- under the provisions of section 80P of the Income Tax Act, 1961 (‘the Act’). Against the said return of income, the assessment was completed by the ITAT-Pune Page 3 of 7
Maharaja Rajya Pathyapustak Mandal Karmachari Sahakari Pat Sanstha Maryadit, Assessing Officer accepting the returned income vide order dated 19.11.2019 passed u/s 143(3) of the Act.
Subsequently, on examination of the assessment order, the Ld. PCIT formed an opinion that failure the Assessing Officer to examine the taxability of interest earned on the investments made with the cooperative banks, as the same constitutes business income, rendered the assessment order erroneous. Accordingly, the Ld. PCIT issued a show cause notice dated 08.03.2022 u/s 263 calling upon the appellant society to explain as to why the assessment order dated 19.11.2019 should not be treated as erroneous and prejudicial to the interests of the revenue. In response to the show cause notice, the appellant filed a detailed submission stating that the interest income earned by the cooperative bank on the investments made with the other cooperative bank is eligible for deduction under the provisions of section 80P(2)(a)(i) as well as under the provisions of section 80P(2)(d) placing reliance on the following decisions : (i) Gurumauli Nagari Sahkari Pat Sanstha vs. PCIT order dated 13.01.2022 (Pune – Trib.). (ii) Tumkur Merchants Souharda Credit Cooperative Ltd. vs. ITO 230 Taxman 309 (Kar – HC). (iii) Sureshdada Jain Nagari Sahakari Patsanstha Maryadit (ITA No.713/PUN/2016). (iv) Nasik Road Nagri Sahakari Patsanstha (ITA No.1700/PUN/2017 order dated 27.12.2021). (v) ITO vs. Shri Laxmi Narayan Nagari Sahakari Pathsanstha (ITA No.2827/PUN/2016 order dated 19.09.2018). (vi) Sant Motiram Maharaj Patsanstha Ltd. vs. ITO, 120 taxmann.com 10.
It is further submitted that the Assessing Officer had allowed the claim of exemption after due application of mind on the issue in appeal and, therefore, the Explanation 2 to section 263 cannot be invoked. However, the Ld. PCIT on due consideration of explanation filed by the appellant held that the failure of the Assessing Officer to examine the issue rendered the assessment erroneous and prejudicial to the interests ITAT-Pune Page 4 of 7
Maharaja Rajya Pathyapustak Mandal Karmachari Sahakari Pat Sanstha Maryadit, of the revenue. Accordingly, Ld. PCIT set aside the assessment order with a direction to examine the assessee’s claim of deduction u/s 80P(2)(a)(i) as well as interest of Rs.19,88,77,712/- u/s 80P(2)(d) after affording reasonable opportunity of being heard to the appellant.
6. Being aggrieved, the appellant is in appeal before us in the present appeal.
The Ld. AR submits that the issue of eligibility of income earned on the investment made with the cooperative bank was examined by the Co-ordinate Bench of this Tribunal in the case of M/s. Jan Kalyan Nagri Sahakari Pat. Limited Sanstha in for A.Y. 2014- 15 order dated 26.08.2022. The Ld. AR submits that the issue is covered in favour of the appellant. In support of this proposition, Ld. AR relied on the following judicial precedents :- (i) Nashik Road Nagari Sahkari Patsanstha Limited vs. ITO (ITA No.1700/PUN/2017 dated 27.12.2021). (ii) Rena Sahakari Sakhar Karkhana Ltd. vs. Pr.CIT (ITA No.1249/PUN/2018 dated 07.01.2022). (iii) Shri Chandraprabhu Urban Co-operative Credit Society Ltd. vs. ITO (ITA No.61 & 62/PAN/2018 dated 10.05.2022).
Thus, it was contended that when the issue was stands covered and decided in favour of the assessee, then it cannot be said that the assessment order is erroneous as well as prejudicial to the interests of the revenue.
On the other hand, Ld. CIT-DR placing reliance on the order of the Ld. PCIT submits that failure of the Assessing Officer to examine the taxable income earned on the investments from cooperative bank rendered assessment order erroneous and prejudicial to the interests of the revenue. Therefore, he submits that the Ld. PCIT was justified in exercising the power of revision u/s 263 of the Act.
We heard the rival submissions and perused the material on record. The issue in the present appeal relates to the validity of assumption of ITAT-Pune Page 5 of 7
Maharaja Rajya Pathyapustak Mandal Karmachari Sahakari Pat Sanstha Maryadit, 263 by the Ld. PCIT. The Parliament had conferred the power of revision on the Commissioner of Income Tax u/s 263 of the Act in case the assessment order passed is erroneous and prejudicial to the interests of revenue. In order to invoke the power of revision, the above two conditions are required to be satisfied cumulatively. References in this regard can be made to the decision of the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT, 243 ITR 83 (SC) and in the case of CIT vs. Max India Ltd., 295 ITR 282 (SC). The error in the assessment order should be one that it is not debatable or plausible view. In a case where the Assessing Officer examined the claim, took one of the plausible views, the assessment order cannot be termed as an ‚erroneous‛. In the present case, we find that admittedly the interest income was earned from the cooperative banks, the cooperative bank is also a specie of cooperative society, therefore, the interest income earned by the cooperative society from the cooperative banks qualifies for deduction u/s 80(P)(2)(d) of the Act. Such interest also qualifies for exemption u/s 80P(2)(a)(i) as held by the Co-ordinate Bench of Pune Tribunal in the case of Nashik Road Nagari Sahkari Patsanstha Limited (supra) wherein the Tribunal held as under:- ‚9. We heard the rival submissions and perused the material on record. Admittedly, the appellant is a Cooperative society formed under the provisions of Maharashtra Cooperative Societies Act,1960 with the objective of accepting deposits and lending money to its members. The money which is not immediately required for the purpose of lending to the members is deposited with Bank of Baroda in the form of Fixed Deposit. The question is whether the interest so earned qualifies for exemption u/s. 80P(2)(a)(i) of the Act. The AO as well as the CIT(A) were of the opinion that the interest earned from third parties or nonmembers does not quality for exemption u/s.80P. It is an admitted position that the interest so earned should be taxed as ‘income from other sources’ There is a cleavage of judicial opinion among several High Courts on the issue of eligibility of this kind of income for exemption u/s. 80P(2)(a)(i) of the Act. The Hon’ble Punjab & Haryana High Court in the case of CIT vs. Punjab State Cooperative Federation of Housing Building Societies Ltd. 11 taxmann.com 448, the Hon’ble Gujarat High Court in the case of State Bank of India Vs. CIT 389 ITR 578 (Guj.), the Hon’ble Delhi High Court in the case of Mantola Cooperative Thrift & Credit Society Ltd. Vs. CIT 50 taxmann.com 278, the Hon’ble Punjab & Haryana High Court in the case of CIT Vs. Punjab State Cooperative Agricultural Development Bank Ltd. 389 ITR 68 and the Hon’ble Kolkata High Court in the case of CIT Vs. Southern Eastern Employees Cooperative Credit Society Ltd. 390 ITR 524 took a view that the income arising on the surplus invested in short term deposits and securities cannot be attributed to the activities of the society and, therefore, not eligible for exemption u/s.80P(2)(a)(i) of the Act. However, the Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO (2015) 230 taxmann 309 (Kar.) and the Hon’ble Telangana and Hon’ble Andhra Pradesh High Court in the case of Vaveru Co-operative Rural Bank Ltd. v CIT [(2017) 396 ITR took a view that such interest income is attributable to the activities of the society and, therefore, eligible for exemption ITAT-Pune Page 6 of 7
Maharaja Rajya Pathyapustak Mandal Karmachari Sahakari Pat Sanstha Maryadit, u/s.80P(2)(a)(i) of the Act. The Coordinate Bench of Pune Benches in the case of M/s. Ratnatray Gramin Bigar Sheti Sah. Pat Sanstha Maryadit Vs. ITO (ITA Nos.559/560/PUN/2018, dated 11-12- 2018) has taken view in favour of the assessee following the judgment of Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra). Respectfully following the decision of the Coordinate Bench, we hold that the interest income earned on the investment of surplus money with banks is also eligible for exemption u/s.80P(2)(a)(i) of the Act. Thus, the grounds of appeal
No. 1 & 2 stands allowed.‛
11. Thus, we find that the issue which is subject matter of revision is covered in favour of the assessee by judicial precedents. Therefore, it cannot be said that the assessment order is erroneous or prejudicial to the interests of the revenue. Therefore, we are of the considered opinion that the order of revision passed by the Ld. PCIT u/s 263 of the Act cannot be sustained in the eyes of law. Hence, the grounds of appeal raised by the assessee stand allowed.‛
6. A similar view found fortified in ‘Castlemaine Premises Co-op Society Ltd Vs PCIT’ (ITA No. 576/PUN/2023 dt. 15/06/2023). Respectfully following the decision cited (supra), we find that the issue which is subject matter of revision is covered in favour of the assessee by judicial precedents. Therefore, we are of the considered opinion that the impugned order of revision passed cannot be sustained in the eyes of law, thus stands quashed. The grounds of appeal raised are stands allowed accordingly.
In result, the appeal of the assessee stands ALLOWED. U/r 34 of ITAT Rules, order pronounced in open court on this Tuesday 26th day of September, 2023.