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Facts
The assessee, a cooperative society, filed a return declaring Nil income after claiming a deduction under Section 80P(2)(a)(i) on interest income. The PCIT revised the assessment order under Section 263, holding that the deduction was wrongly allowed. The assessee contested this, arguing the AO had taken a plausible view after considering details.
Held
The Tribunal held that the PCIT's order under Section 263 was incorrect. The Tribunal noted that the issue of allowing deduction under Section 80P(2)(a)(i) on interest income was debatable, and the AO had taken a plausible view after examining the assessee's submissions. Therefore, the PCIT's revision was not justified.
Key Issues
Whether the PCIT was justified in exercising powers under Section 263 to revise the assessment order when the AO had allowed a deduction based on a plausible view of a debatable issue.
Sections Cited
263, 143, 143(3A), 143(3B), 80P(2)(a)(i), 143(3)
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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: JUSTICE (RETD.) C V BHADANG&
(Assessment Year: 2018-19) Yashomandir Sahakari Patpedhi Pr.CIT-27, Maryadit, 307, Mahavir Apartment, 4th Floor, Tower No.6, Pant Nagar, Ghatkopar (E), Vs. Vashi Station Commercial Complex, Mumbai-400075. Vashi, Maharashtra-400703. PAN: AAAAY0015A Appellant) : Respondent) Appellant /Assessee by : Shri Kumar Kale, CA Revenue / Respondent by : Shri Swapnil Choudhary, Sr.DR : 03.06.2025 Date of Hearing : 19.06.2025 Date of Pronouncement O R D E R Per Padmavathy S, AM:
This appeal by the assessee is against the order of the Pr. Commissioner of Income Tax, Mumbai-26 (in short "PCIT") dated 28.03.2023 passed under section 263 of the Income Tax Act, 1961 (the Act) for Assessment Year (AY) 2018-19. The assessee raised the following grounds: “1. On the facts and in the circumstances of the case, and also in law, the Ld. Pr. CIT erred in passing the impugned order u/s. 263 of the Act setting aside the assessment order u/s. 143 r. w. s. 143(3A) and 143(3B) of the Act passed by the Ld. AO on 12.02.2021, holding the same to be erroneous in so far as it Yashomandir Sahakari Patpedhi is prejudicial to the interest of the revenue. Your appellant submits that the assessment order was neither erroneous, nor was it prejudicial to the interest of the revenue. Your appellant, therefore, prays that the impugned order u/s. 263 be set aside.”
2. The assessee is a cooperative society engaged in the activity of accepting money from its members through savings and fixed / recurring deposits and also obtaining overdraft facility from Banks to support the financial needs of its members through various loan schemes. For AY 2018-19 the assessee filed the return of income on 01.10.2018 declaring Nil income after claiming deduction under section 80P(2)(a)(i) of the Act to the tune of Rs. 3,66,44,343/-. The case was selected for scrutiny for the reason that the turnover shown in the income tax return is substantially lower in comparison to turnover shown in GSTR 3B return, deduction under chapter VIA, investment advances, loans expenses incurred for earning exempt income and low income in comparison to high investment appearing in balance-sheet. The assessment was completed after examining the details furnished by the assessee accepting the income return. Subsequently the PCIT invoked the provisions of section 263 and issued a show-cause notice calling on the assessee to show cause as to why deduction under section 80P(2)(a)(i) against the interest income cannot be denied. The assessee in response to show-cause notice replied stating that the income earned by the assessee from interest is arising out of the surplus funds being placed in deposits and therefore should be considered as part of the business income of the assessee. Accordingly, the assessee submitted that deduction under section 80P(2)(a)(i) is correctly claimed by the assessee. The assessee also submitted that the required details with respect to deduction under section 80P(2)(a)(i) has been furnished before the AO during the course of hearing and that the AO has taken a conscious decision to allow the said claim. The PCIT did not accept the submissions of the assessee and held the order under section 143(3) of the Act as erroneous and prejudicial to the interest of the revenue for the Yashomandir Sahakari Patpedhi reason that the interest income earned by the assessee is not eligible for deduction under section 80P(2)(a)(i). The PCIT in this regard placed reliance on the decision of the Hon'ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd. vs. ITO [2010] 188 taxman 282 (SC). The assessee is in appeal before the Tribunal against the order of the PCIT.
3. There is a delay of 521 days in filing the appeal before the Tribunal. The assessee filed a petition for condonation of delay along with an affidavit. The ld. AR with regard to condonation of delay submitted that the assessee was incorrectly advised by the Tax Consultant that the issue arising out of the revision order under section 263 can be contended only in the appeal against the order under section 143(3) r.w.s. 263 and accordingly the assessee waited for the AO to pass the order under section 143(3) r.w.s 263 to contend the issue of revision under section 263. The ld. AR further submitted that subsequently when the appeal against the order under section 143(3) r.w.s 263 filed, the assessee was advised that order under section 263 can be independently appealed. The ld AR in this regard submitted the affidavit filed by the Tax Consultant of the assessee who incorrectly advised the assessee admitting the fact that he provided the advice to the assessee. The ld AR therefore submitted that the delay in filing the appeal by the assessee is not intentional or deliberate but due the bonafide belief based on the advise of the tax consultant. The ld AR thus prayed for the condonation of delay.
The ld. DR on the other hand vehemently opposed the condonation of delay and submitted that assessee being not aware of the law cannot be a valid ground for delay in filing the appeal before the Tribunal.
Having heard both the parties and perused the material on record, we are of the view that there is a reasonable and sufficient cause for the delay in filing the Yashomandir Sahakari Patpedhi appeal before the Tribunal. Therefore following the ratio laid down by the Hon’ble Supreme Court in the case of Collector, Land Acquisition Vs. MST.Katiji & Ors., (167 ITR 471) (SC) we condone the delay of 521 days in filing the appeal and admit the appeal for adjudication.
On merits the ld. AR submitted that the AO during the course of assessment proceeding has called for the details of deduction claimed under chapter VIA (page no. 6 of Paper Book) and that the assessee has provided the breakup of interest income which is claimed as a deduction under section 80P(2)(a)(i) along with the case laws in support of the claim (page no. 8 to 10 of Paper Book). Therefore, the ld. AR argued that the AO after considering the relevant details filed by the assessee has taken one of the plausible view by allowing the deduction claimed by the assessee under section 80P(2)(a)(i). The ld. AR further argued that the issue of deduction under section 80P(2)(a)(i) against the interest income earned by the assessee is a debatable issue and that the Hon'ble Supreme Court in the case of Malabar Industries Co. Ltd. [2000] 243 ITR 83 (SC) has held that when two views are possible the provisions of section 263 cannot be invoked. The ld. AR also brought to our attention that for AY 2010-11 in assessee's case a similar issue arose with regard to deduction under section 80P(2)(a)(i) which travelled up to the Tribunal and that the Co-ordinate Bench has held that the assessee is eligible for deduction under section 80P(2)(a)(i) towards interest earned from FD's placed out of the surplus funds. Accordingly the ld. AR argued that there is no error that is prejudicial to the interest of the revenue warranting revision under section 263 of the Act.
The ld. DR on the other hand submitted that the interest earned by placing surplus funds in FD does not have any nexus to the business of the assessee and Yashomandir Sahakari Patpedhi therefore the claim towards the same as deduction under section 80P(2)(a)(i) is not allowable. The ld. DR further submitted that though the assessee has submitted the details with regard to the deduction claimed there is no evidence to substantiate the claim that the AO has verified the submissions as to whether the income earned is connected with the main business activity of the assessee. Therefore, the ld. DR argued that the PCIT has rightly invoked the provisions of section 263 of the Act.
We heard the parties and perused the material on record. The condition precedent to the exercise of jurisdiction under section 263 is that the order sought to be revised must be erroneous insofar as it is prejudicial to the interests of the revenue. Following the judgments of the Supreme Court in Malabar Industrial Co. Ltd.'s case (supra) and CIT v. Max India Ltd. [2007] 295 ITR 282/[2008] 166 Taxman 188, it is now a settled principle that where the AO has adopted one of the courses permissible in law or where two views are possible and the AO has taken one of the views with which the Principle Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue, unless the view taken by the AO is unsustainable in law. In assessee's case the PCIT has held the order to be erroneous for the reason that the AO has allowed the deduction under section 80P(2)(a)(i) to the assessee against the interest income earned. The impugned issue has been subject matter of litigation in many other cases and therefore there is merit in the contention that in assessee's case the AO has taken one of the plausible views by allowing the deduction. This is substantiated by the fact that the AO during course assessment proceeding has called for details pertaining to deduction under section 80P(2)(a)(i) and that the assessee has made a detailed submission justifying the claim by placing reliance on various decisions. Therefore respectfully following the ratio laid down by the Hon'ble Supreme Court we hold Yashomandir Sahakari Patpedhi that the PCIT is not correct in exercising the powers of revision under section263 in assessee's case. Accordingly the order passed under section 263 is hereby quashed.
In result the appeal of the assessee is allowed.