RAMESHWARA KUDUMANGALORE PRATHAMIKA KRUSHI PATTINASAHAKARA SANGA NIYAMITHA,KODUGU vs. THE PRINCIPAL COMMISSIONER OF INCOME TAX, KODUGU

The assessee raised following grounds:- “1. The Impugned Order as passed by the Hon'ble Pr.CIT u/s 263 of the Income-tax Act, 1961 is arbitrary, unjust and illegal under the facts and circumstances of the appellant case. 2. On the facts and circumstances of the case and on law, the Hon'ble Pr.CIT has assumed the jurisdiction u/s 263 under incorrect application of law as twin condition of "erroneous Order and Prejudicial to interest of revenue" as enunciated u/s 263 were not satisfied simultaneously and therefore assumption of jurisdiction u/s 263 and impugned Order passed thereunder liable to be quashed as void-ab-initio. 3. On the facts and circumstances and law, the original Order passed by the learned AO was after proper application of mind and proper appreciations of law and the intervention caused by the Hon'ble Pr. CIT by invoking the provisions of section 263 has no sanction of settled position of Law and therefore liable to be quashed as non-est. 4. On the facts and circumstances and on Law, the Hon'ble Pr.CIT observations and directions by way of impugned Order u/s 263 is incorrect on facts and further untenable in law and the case law relied on by the Hon'ble Pr.CIT is distinguishable on facts and circumstances of the appellant case and therefore premise on which impugned Order u/s 263 passed is an impermissible act and therefore final impugned Order u/s 263 deserved to be annulled. 5. On the facts and circumstances and on law, the Hon'ble Pr.CIT has assumed the jurisdiction u/s 263 on the issues which were not part of CASS Limited scrutiny mandate resulting-in violating the CBDT guidelines/instructions and therefore assumption of improper jurisdiction u/s 263 by breaching CBDT Instructions and impugned Order thus passed thereof is bad in law and liable to be annulled. 6. On the facts and circumstances and on law, the Order passed by the learned AO as on 19.12.2017 u/s 143(3) was neither erroneous nor prejudicial to the interest on revenue and therefore the intervention by the Hon'ble Pr.CIT by invoking

The brief facts of the case are that the assessee filed the return of income for the assessment year 2015-16 on 28/9/2015 declaring a total income of Rs.1,77,980 after claiming deduction u/s 80P(2)(a)(i) of the Income Tax Act (the Act) of Rs.10,63,923/-. The assessment in this case was completed u/s 143(3) of the Act on 19/12/2017 by the ITO- Ward-1, Madikeri determining total taxable income of Rs.5,78,780/-. The AO during the course of hearing called for details of loan given and deposits taken from the nominal member and interest received on account of such loans/deposits. The AO stated that these details were called for since the assessee is not entitled to deduction u/s 80P of the Act in respect of income earned on such loans or deposits given to nominal member in the light of decision of Hon’ble Supreme Court judgment rendered in the case of Citizen Cooperative Society Vs. ACIT in Civil Appeal No.10245/2017. The AO noticed that the total amount of interest received on account of transaction with the nominal members of Rs.4,52,588/- and held that the assessee is not entitled for

The PCIT proposed to revise the order of the AO u/s 263 stating that the order of the AO is erroneous and prejudicial to the interest of the revenue. The PCIT noticed that the P&L account of the assessee for the year ended 31/3/2015 reflected an amount of Rs.1,28,311/- as interest income from investment which the PCIT held to be earned not from the business of banking or lending credit to the members of the society thereby not being eligible for deduction u/s 80P(2)(a)(i) of the Act as per the ratio laid down by the Karnataka High Court in the case of PCIT vs Totagars Cooperative Sale Society. The PCIT also noticed that the assessee has made a provision of Rs.1,32,013 towards leave encashment and Rs.45,552 which the PCIT proposed to add back to the net profit for the reason that there is no proof for the expenditure having been incurred. The PCIT further noticed that the interest on income tax refund Rs.1,490 was offered by the assessee as Business Income against which the deduction u/s.80(2)(a)(i) was claimed. The PCIT proposed to bring it back to tax as income from other sources.

In reply to the show cause notice, the assessee filed a reply stating that the investments were made in the District Cooperative Bank which is eligible for deduction u/s 80P(2)(d) of the Act. In this regard, the assessee placed reliance on the decision of the Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Society Ltd., Vs. ITO in ITA No.307/2014 dated 28.10.2014, wherein Hon’ble High Court held that the interest accrued from the deposits made by the assessee in a nationalized bank out of the amounts which was used by the assessee for providing credit facilities to its members and therefore interest earned there from is eligible for deduction u/s 80P(2). With regard to amount paid towards leave encashment the assessee submitted that the same is paid to one Mr.Shivanna M who retired from the services and submitted the vouchers substantiating the transfer of money to his account. The audit fees, the assessee submitted that is paid towards audit of the accounts for the financial year 2014-15 and is a specific expenditure paid subsequently.

The PCIT did not agree with contention of the assessee and concluded to this extent held that order of the AO is erroneous and prejudicial to the interest of revenue and issued directions to the AO to verify the claim of deduction u/s 80P(2)(a)(i) of the interest income earned by the assessee, whether the leave encashment and audit fee are ascertained liabilities and that the interest on income tax refund to be brought to tax under the head Income from Other Sources.

Aggrieved, the assessee is in appeal before us.

None appeared for the assessee and we heard the ld DR who supported the order of the PCIT. We notice that the coordinate bench of the Tribunal in the case of Kakkabe VSSN Bank Ltd., in ITA No.490/Bang/2021 dated 28.02.2022 has dealt with the similar issue, where the Hon’ble Tribunal has remanded the issue back to the file of the AO for de novo assessment with certain directions and held that

Respectfully following the decision of the coordinate bench of the Tribunal, we remand the case back to the AO to carry out de novo verification on the issues considered by the PCIT in the impugned order in the light of the principles laid down by the Hon’ble Supreme Court in the case of Mavilayi Services Cooperative Bank Ltd., (Supra) and provide reasonable opportunity of being heard to the assessee . The assessee is directed to file the required documents before the AO and extend full cooperation to the AO.

In the result, the appeal by the assessees is allowed for statistical purpose.