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Facts
The assessee, a co-operative housing society, claimed a deduction under Section 80P(2)(d) for interest income from co-operative banks. The Assessing Officer allowed the deduction after verification. The Principal CIT invoked Section 263, holding the assessment order erroneous and prejudicial to revenue.
Held
The Tribunal held that the Assessing Officer's order was not erroneous. It relied on jurisdictional High Court decisions and consistent Tribunal rulings stating that co-operative banks are co-operative societies and interest earned from them is eligible for deduction under Section 80P(2)(d).
Key Issues
Whether the Principal CIT was justified in invoking Section 263 to revise an assessment order where the deduction under Section 80P(2)(d) on interest from co-operative banks was allowed after due verification by the Assessing Officer.
Sections Cited
263, 143(3), 80P(2)(d), 143(2), 142(1), 80P(1)
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PER PAWAN SINGH, JUDICIAL MEMBER;
This appeal by assessee is directed against the order of Principal Commissioner of Income Tax (Pr. CIT)- 20, Mumbai passed under section 263 of Income Tax (Act) dated 17.03.2025 for assessment year (AY) 2020-21.
The assessee has raised following grounds of appeal:
“1. That on the facts and in the circumstances of the case and in law, the Learned Principal Commissioner of Income Tax, Mumbai-20 ("Ld. PCIT") has erred in invoking the provisions of section 263 of the Income Tax Act, 1961, without appreciating that the assessment order passed by the Learned Assessing Officer under section 143(3) was neither erroneous nor prejudicial to the interests of the Revenue, as the deduction claimed under section 80P(2)(d) was duly considered and verified based on submissions made by the Appellant.
2. That on the facts and in the circumstances of the case and in law, the Ld. PCIT has erred in exercising jurisdiction under section 263 of the Act by merely substituting the view taken by the Assessing Officer with a different opinion, without independently examining or forming his own conclusion regarding the allowability of deduction under section 80P(2)(d) of the Act.
That on the facts and in the circumstances of the case and in law, the Ld.PCIT has erred in issued notice under section 263 as well as the consequential order passed thereunder are bad in law, illegal, without jurisdiction, and liable to be quashed.
4. That on the facts and in the circumstances of the case and in law, the Ld. PCIT has erred in setting aside the assessment order passed under section 143(3) of the Act for fresh adjudication on issues which were already examined and verified by the Assessing Officer during the original assessment proceedings.
5. That on the facts and in the circumstances of the case and in law, the Ld. PCIT has failed to appreciate the principle of consistency in the Appellant's own case, particularly when there has been no change in facts or law and no fresh material brought on record to justify revision order under section 263 of the Income Tax Act, 1961.
6. The appellant craves leave to add, amend, alter, amend or drop any or all grounds of appeal at the time of appeal proceedings or before the conclusion of this appeal.”
Rival submissions of both the parties have been heard and record perused.
The learned Authorised Representative (ld. AR) of the assessee submits that assessee is co-operative housing society. The assessee while filing return of income claim deduction under section 80P(2)(d) of Rs. 42,64,306/-. The assessee claimed such deduction on account of interest received from fixed deposit with Saraswat co-operative banks. The assessing officer during assessment examined such issue and on considering the submission of assessee and order of ld. CIT(A) in assessee’s own case for assessment year (AY) 2014-15 and 2015-16 in order dated 09.03.2018 and 28.08.2018 allowed such deduction. All such details discussion is mentioned in para 3.1 of assessment order. The assessment order was revised by ld. PCIT by invoking his jurisdiction under section 263 by order dated 17.03.2025. Before revising assessment order ld Pr CIT, issued show cause notice under section
The assessee in response to show cause notice filed its reply dated 08.03.2025, which was uploaded on 11.03.2025. The assessee submitted that they have received interest on Saraswat Co-operative Bank and claim deduction under section 80P(2)(d). The ld. Pr CIT by referring certain decision held that assessment order passed by assessing officer is erroneous and in so far as prejudicial to the interest of revenue and set aside the assessment order for making fresh assessment. The ld. AR of the assessee submits that the order passed by assessing officer is not erroneous. In a series of decision by Tribunal as well as by various High Courts it has been held that co-operative banks are primarily co-operative society and interest earned from deposit with co-operative bank is eligible for deduction under section 80P(2)(d). The ld. AR further submits that in assessee’s own case in AY 2013-14 and 2014-15 similar disallowance was made by assessing officer.
However, on appeal before ld. CIT(A), the assessee was allowed relief and no further appeal was filed by revenue before Tribunal. To support his submission, the ld. AR of the assessee relied upon the following case laws: Vasai Urban Co-operative Credit Society Ltd. Vs. PCIT, Thane in Shree Jyotirling Sahakari Patsanstha Limited Vs. PCIT in Solitaire CHS Ltd. Vs. PCIT in ITA No. No. 3155/Mum/2019 Lokmanga lnagri Sahakari Path Sanstha Maryadit Vs. PCIT in ITA No. No. 231/Pun/2022 Marathwada Krishi Vidyapeeth Karmachari Sahakari Patsanstha Ltd. and Others Vs PCIT in ITA No. No. 102/Pun/2020 M/s. Vadasinor Pragati Commissioner of Co-operative Credit Society Limited Vs Pr CIT in ITA No. No. 2539/Mum2019
Palm Court M Premises Co-operative Society Limited Vs. Pr CIT in ITA No. No. 561/Mum/2021 3. On the other hand, ld. Commissioner of income Tax / departmental representative (CIT-DR ) for the Revenue supported the order of PrCIT. The ld. CIT-DR for the revenue submits that there are contrary decisions in favour of revenue wherein it has been held that interest received from co-operative bank is to be treated as income from other sources. On the specific submission of assessee that in assessee’s own case for AY 2013-14 and 2014-15, the ld. CIT(A) allow relief to the assessee on similar disallowances and no further appeal was filed by revenue, the ld. CIT-DR for the revenue submits that revenue may not have filed appeal due to the low tax appeal.
He submits that the order passed by assessing officer is erroneous and so far as prejudicial to the interest of revenue.
We have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. We have also deliberated on various case laws relied by ld. AR of the assessee. We find that there is no dispute that during the relevant financial year, the assessee has earned interest of Rs. 42,33,306/- from Saraswat Co-operative Bank. We find that during assessment, the assessee claimed deduction of such interest under section 80P(2)(d). The assessing officer in para 3.1 of assessment order discussed the issue and by referring that in assessee’s own case for AY 201415 and 2015-16, the ld. CIT(A) allowed order in favour of assessee. The ld. PCIT revised the assessment order by taking view that ‘co-operative society’ is defined separately from ‘co-operative bank’. Deduction under section 80P applies to income from investment to other co-operative society and not from co-operative banks. The ld. PCIT also referred the decision of Karnataka High Court in PCIT Vs Totagars Co-operative Sales Society [2017] 83 taxmann.com 140/395 ITR 611 (Kar). We find that in a series of decision various benches of Tribunal consistently held that co-operative banks are primarily cooperative society and interest earned from such co-operative banks are eligible for deduction under section 80P(2)(d). We find that Surat bench in case of Bardoli Vibhag Gram Vikas Co.Op. Credit Society Ltd. Vs Pr CIT (2021) 127 taxmann.com 334 (Surat-trib) on similar facts passed following order;
“11. We have considered the rival submission of both the parties. We have also deliberated on the written submission filed by learned AR of the assessee and various case laws relied by him during his submission. We have also gone through the various documentary evidences filed in the form of paper book (PB) by learned AR of the assessee. We have noted that during the assessment the Assessing Officer vide notice under section 143(2)/142(1) of the Act dated 31-8- 2015 and 13-4-2016. The assessee filed its reply through its CA (AR) and furnished required details and after examining the issue allowed the deductions under section 80P(2)(d) as discussed in para 4 of the assessment order. The Assessing Officer passed assessment order on 18-10-2016.
The ld. PCIT before passing under section 263 of the Act, identified the issue regarding the claim of deduction under section 80P(2)(d) in its show cause notice dated 6-3-2019. The assessee in its reply dated 7-3-2019 clearly explained that the issue was examined by Assessing Officer and that the assessment order is not erroneous. The assessee also explained that similar disallowances/issues was subject matter in the appeal filed by the revenue before Tribunal in A.Y. 2009-10, 2010- 11 and 2012-13 and the assessee was allowed similar deductions.
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 revision, it if further held that when Assessing Officer made full enquiry, he made up his mind, the notice of revision is not valid. (emphasis added by us). 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. (emphasis added by us)
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.
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.
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.
Moreover, we have seen that in assessee's own case for A.Y. 2009- 10, 2010-11 and 2012-13, the similar disallowance under section 80P(2)(d) was made by the assessing officer while passing assessment order under section 143(3), however, on appeal before Ld. CIT(A) , the disallowances were deleted and the order of the Ld. CIT(A) in all years were confirmed.
The ld. DR for the revenue 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 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.
In the result, appeal of the assessee is allowed.”
Considering the aforesaid factual and legal position, we find that the order passed by assessing officer in 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. Thus, the order passed by ld Pr CIT is set aside. In the result, the grounds of appeal raised by the assessee are allowed.
In the result, the appeal of assesseeis allowed.
Order pronounced in the open Court on 19/06/2025.