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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
O R D E R
PER PAVAN KUMAR GADALE, JM:
The assessee has filed an appeal against the order of the Principal Commissioner Of Income Tax -1 (Pr.CIT), Thane passed u/s 263 of the Act dated 21.03.2022. The assessee has raised the following grounds of appeal:
Malshej Nagri Sahakari Patsanstha Ltd, Mumbai. - 2 -
1. The learned Pr. CIT erred in holding the order framed by the assessing officer u/s 143(3) of the I. Tax Act on 12.11.2019 to be erroneous and prejudicial to the interest of revenue as per section 263 of the I. T. Act, 1961 and accordingly the assumption of jurisdiction by the Pr. CIT u/s 263 was not valid and justified.
2. The learned Pr. CIT erred in framing the order u/s 263 on 21.03.2022 holding the order framed by the assessing officer u/s 143(3) of the I. Tax Act on 12.11.2019 to be erroneous and prejudicial to the interest of revenue, when as per the order u/s 263 itself, the ld Pr. CIT held a view that claim of the appellant for deduction u/s 80P(2)(d) was correct and that the revision proceedings are at the instance of Internal Audit Party (IAP) and therefore the proceedings u/s 263 are not as per law and bear to be quashed and set aside.
3. The learned Pr. CIT erred in setting aside the assessment for A.Y. 2017-18 framed on 12.11.2019 by the ld AO u/s 143(3) of the I. Tax Act 1961, with a direction to examine the applicability of provisions of section 80P(2)(d) and 269SS of the income tax Act, 1961 and redo the assessment, which direction of the Hon. Pr. CIT is not appropriate by law and for this reason the order u/s 263 is required to be set aside and quashed.
The appellant craves leave to add, alter, amend and/or vary the grounds of appeal at any time before the decision of the appeal.
The brief facts of the case are that the assessee is a cooperative society engaged in the business of Malshej Nagri Sahakari Patsanstha Ltd, Mumbai. - 3 - banking and providing credit facilities to its members. The assessee has filed the return of income for the A.Y 2017-18 electronically on 14.10.2017 disclosing a total income of Rs.Nil and the return of income was processed u/s 143(1) of the Act. Subsequently the case was selected for scrutiny under CASS for reasons “Large deduction under chapter VI-A from total income and Low income in comparison to high/loans/ advance /investments in shares appearing in balance sheet. Accordingly the A.O. has issued notice u/s 143(2) &142(1) of the Act along with questionnaire. In compliance to the notice, the assessee has made submission online on 20.09.2019.The AO having considered the facts, information placed on record and the details filed has dealt on the issues raised in the scrutiny assessment and finally accepted the returned income and passed the order u/s 143(3) of the Act determining the total income of Rs.Nil dated 12.11.2019.
Subsequently, the Pr.CIT on perusal of the facts and the assessment record and Audit objection query raised observed that the A.O has not made any enquiry/ verified the facts that the assesse has claimed
Malshej Nagri Sahakari Patsanstha Ltd, Mumbai. - 4 - the deduction u/sec80(P)(2)(d) of Rs 58,29,153/- of interest income from deposits with the various co- operative bank which is not allowed, as the income earned from co-operative banks has to be taxed under income from other sources and not as business income. The Pr.CIT is of the opinion that the assessment order passed u/s 143(3) of the Act is erroneous and prejudicial to the interest of revenue and issued notice u/s 263 of the Act dated 07.03.2022. In compliance to notice, the assessee has filed the submissions on 15-03-2022 on the disputed issue of eligibility of claim of deduction and also explained that the assessee has not claimed the alleged deduction u/sec80P(2)(d) of the Act but has claimed the deduction U/sec 80P(2)(a)(i) of the Act to the extent of Rs.27,95,959/- in the computation of income and applicability of principal of mutuality. Whereas the Pr.CIT was not satisfied with the explanations and observed that the order passed U/sec143(3) of the Act is erroneous and prejudicial to the interest of revenue and has set aside the assessment and issued directions to the A.O to examine the applicability of provisions of section 80P(2)(d) and 269SS of the Act
Malshej Nagri Sahakari Patsanstha Ltd, Mumbai. - 5 - and redo the assessment order and passed the order U/sec263 of the Act dated 21-03-2022. Aggrieved by the revision order, the assessee has filed an appeal before the Hon’ble Tribunal.
4. At the time of hearing, the Ld.AR submitted that the Pr.CIT has erred in set aside the order u/s 143(3) of the Act, which does not satisfy the twin conditions of erroneous and prejudicial to the interest of the revenue and direct the A.O to do a fresh assessment. The Ld.AR submitted that the explanation 2 to sec 263 of the Act ought to be considered only when the AO has not applied his mind, the facts are to be verified and no enquiry is conducted. The Ld. AR emphasized that the assessee has complied with the notices and the clarifications were filed. The A.O. has dealt on the facts in respect of the issues raised in the scrutiny notice. Further the Pr.CIT has erred in observing that deduction of interest income from various cooperative banks u/s 80P(2)(d) of the Act should be denied. Whereas, the assessee in the computation of income has claimed deduction U/sec 80P(2)(a)(i) of the Act to the extent of Rs.27,95,959/- on the applicability of principal of mutuality.The assessee has filed the Malshej Nagri Sahakari Patsanstha Ltd, Mumbai. - 6 - written submissions before the lower authorities on the applicability. The Ld.AR emphasized that the A.O. having satisfied with the provisions of Act has allowed the claim and accepted the income as per the return of income filed. Further the observation of claim of deduction U/sec80P(2)(d) of the Act is not acceptable as the asseessee never claimed deduction under the said section and the examination of applicability of sec269 SS of the Act is not the part of the revision notice issued U/sec263 of the Act. The Ld.AR substantiated the submissions with the judicial decisions and factual paper book and prayed for allowing the appeal. Contra, the Ld.DR supported the order of the Pr.CIT.
We heard the rival submissions and perused the material available on record. The Ld.AR contentions are that the order passed by the A.O. does not satisfy the twin conditions that (i) erroneous and (ii) prejudicial to the interest of the revenue. The Ld. AR further submitted that the Pr.CIT is of the opinion that the AO has not conducted proper inquiries, investigation and examination on the aspects of claim of deduction u/sec80(P)(d)(2) of the Act with respect to interest on Malshej Nagri Sahakari Patsanstha Ltd, Mumbai. - 7 - deposits earned from the co-operative Banks. The Ld. AR submitted that the interest income derived by a co- operative society from its deposits with the co- operative banks would be business income and society has claimed the deduction U/sec80P(2)(a)(i) of the Act.
Further the Ld.AR has demonstrated the facts of earning of interest on fixed deposits and application for the benefits of members and referred to the Audited financial statements, in particular, the Audited Income & Expenditure Account for the year ended 31 March 2015 at page 14 to 34 of the paper book. We find that the assessee has complied with the notice u/se 142(1) of the Act and referred to the submissions dated 20- 09-2019& 7.11.2019 in the paper book in particular page 9 were the claim of deduction U/sec80P(2)(a)(i) of the Act was mentioned in respect of deduction under chapter VIA was claimed. The Ld.AR in the course of hearing has demonstrated the submissions made on the deduction u/sec80P(2)(a)(i) of the Act under Chapter VI A of the Act at page 11 & 12 of the paper book. We find the submissions of the Ld. AR are realistic duly supported with the material information
Malshej Nagri Sahakari Patsanstha Ltd, Mumbai. - 8 - and it is clear from the details demonstrated in the course of hearing that the assessee has claimed deduction U/sec80P(2)(d)(i) of the Act in the computation of income and the A.O. has raised queries in the assesseement proceedings on the issue and allowed the claimed. Now the question arise that the Pr.CIT has issued directions to the Asssessing officer based on the Audit objection to examine the claim of deduction U/sec 80P(d)(2)(d) of the Act. When a query was raised to Ld.DR to find from the material available on the claim of deduction as discussed above and also the verification of provisions applicable u/sec269SS of the Act. The Ld.DR explanations are not satisfactory and relied on the order of the Pr.CIT.
We find that the Pr.CIT has not considered the facts that the A.O has called for the information and the case was discussed and there cannot be any non application of mind by the A.O. We find that the A.O has considered one of the possible views based on the information. The Ld. AR has referred to the submissions, financial statements and explanations filed before the Assessing Officer. Prima facie the asssessee has not claimed deduction u/sec80P(2)(d) of Malshej Nagri Sahakari Patsanstha Ltd, Mumbai. - 9 - the Act in respect of interest income. We Considering the overall facts, circumstances, judicial decisions and the details submitted in the course of hearing are of the view that the if any query is raised in the assessment proceedings and it was responded by the assessee, mere fact that it is not dealt with by the A.O. in the order cannot implied that there is no application of mind. Hence, the Pr.CIT action cannot be acceptable as the order passed by the A.O. does not satisfy the twin conditions of erroneous and prejudicial to the interest of the revenue. Accordingly, we set aside the order of the Pr.CIT and allow the grounds of appeal in favour of the assessee.
In the result, the appeal filed by the assessee is allowed.