SRI VISHNU VILAS SOUHARDA PATTINA SAHAKARI SANGHA NIYAMITA ,BALLARI vs. INCOME TAX OFFICER, WARD-1 & TPS, , BALLARI

The Appellant craves leave to add or delete or modify or revise any ground at the time of hearing before the Hon'ble Tribunal.

The present appeal has been filed with a delay of 38 days and the assessee also filed an application to condone the said delay. In the said application, the assessee submitted that because of the wrong advice given by their consultants, the assessee was not able to file the appeal in time. Later on, the assessee came to know that the consequential order could be challenged before the appellate authority but the grounds for revising the assessment order could not be challenged before the appellate authority and therefore the assessee was advised to file the appeal, challenging the section 263 order of the Ld.PCIT. Therefore the delay has been occurred and being a co-operative society, the said delay is neither wilful nor wanton and therefore prayed to condone the said delay and decide the appeal on merits.

The brief facts of the case are that the assessee is a credit co-operative society registered under the provisions of the Karnataka Souharda Sahakari Act, 1997. The assessee filed the return of income and claimed the deduction under Chapter VIA of the Act on the interest income earned by it through the statutory deposits made with the banks. The said return was taken up for complete scrutiny and notice u/s. 142(1) was issued on 10/11/2021. The assessee also filed their detailed reply along with the documents on 28/11/2021. In the said reply, the assessee had given the details about the interest received from the co-operative banks as well as the scheduled banks and explained that the interest is on the short term deposits. In the said reply, the assessee also relied on the judgment of the Hon’ble Juri ictional High Court in the case of Tumkur Merchants Souharda Credit Co-operative Ltd. vs. ITO reported in (2015) 55 taxmann.com 447 (Karnataka). Before the issuance of notice u/s. 142(1), the AO had issued notice u/s. 143(2) on 29/06/2021 and the assessee also filed their reply on 13/07/2021 and also gave an explanation about the deduction claimed u/s. 80P(2) on the interest income earned by the assessee by relying on the three judgments of the Hon’ble Juri ictional High Court and also one order of the Coordinate Bench of this Tribunal. Subsequently, the AO issued a show cause notice on 15/03/2022 for which also the assessee filed their reply on 18/03/2022. In the said reply, again the assessee explained the circumstances under which the assessee had claimed deduction u/s. 80P of the Act and also relied on the Hon’ble Juri ictional High Court judgment cited supra. In the said reply, the assessee had explained the circumstances under which the Hon’ble Juri ictional High Court had differentiated the judgment rendered by the Hon’ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd. Vs. ITO reported in (2010) 322 ITR 283 and therefore submitted that the Page 4 of 19 judgment of the Hon’ble Juri ictional High Court would apply to the facts of the present case and prayed to drop the proposals.

The AO considered the various details furnished by the assessee and also considered the judgments of the Hon’ble Juri ictional High Court and accepted the claim made by the assessee and granted the deduction claimed u/s. 80P(2)(a)(i) of the Act by passing an order u/s. 143(3) of the Act. From the facts as narrated above, the AO had completed the assessment by considering the detailed replies filed by the assessee to the notices issued u/s. 143(2), 142(1) and show cause notice. The AO had also considered the judgment of the Hon’ble Juri ictional High Court Tumkur Merchants Souharda Credit Co-operative Ltd. vs. ITO reported in (2015) 55 taxmann.com 447 (Karnataka).

Later on, the Ld.PCIT had proposed to initiate revision proceedings u/s. 263 of the Act against the assessment order dated 20/09/2022 in which the AO had accepted the claim of the assessee that the interest income earned on short term deposits are eligible for deduction u/s. 80P(2)(a)(i) of the Act. A show cause notice was issued by the Ld.PCIT in which the Ld.PCIT had stated that the interest income on investment in banks received by the assessee would be treated as income u/s. 56 of the Act as held by the Hon’ble Supreme Court in the case of Totgars Co- operative Sale Society Ltd. Vs. ITO reported in (2010) 322 ITR 283. Therefore the Ld.PCIT had concluded that the assessment order passed u/s. 143(3) by the AO is an erroneous one and also it is prejudicial to the interest of the revenue since the AO had failed to examine and verify the issue and failed to tax the income under the head income from other sources.

The assessee filed their response to the show cause notice issued u/s. 263 of the Act on 09/03/2025. In the response, the assessee had explained the interest income earned by the assessee is pursuant to the mandatory provisions in the Karnataka Souharda Sahakari Act, 1997 and therefore the interest income earned from the said short term deposits are in the nature

The Ld.PCIT had not accepted the reply filed by the assessee and arrived a conclusion that the AO had not made proper enquiries and therefore the interest income earned by the assessee would be treated as income from other sources. In the impugned order, the Ld.PCIT had relied on the another judgment of the Hon’ble Juri ictional High Court in the case of PCIT, Hubballi vs. The Totagars Co-operative Society reported in (2017) 395 ITR 611 and held that the interest income earned by the assessee would be treated as income from other sources u/s. 56 of the Act. The Ld.PCIT had given a direction to the AO to pass orders accordingly.

As against the said order, the present appeal has been filed by the assessee before this Tribunal.

At the time of hearing, the Ld.AR submitted that the assessee had conducted enquiry and based on the submissions made by the assessee, as well as by following the judgment of the Hon’ble Juri ictional High Court

The Ld.DR submitted that the order of the AO, without making proper enquiries is an erroneous one and therefore the Ld.PCIT had invoked the powers vested with him u/s. 263 of the Act and prayed to dismiss the appeal.

We have heard the arguments of both sides and perused the materials available on record.

We have perused the various notices issued by the AO pursuant to the complete scrutiny proceedings and the notice issued u/s. 143(2) of the Act.

1 Notes on Deduction claimed u/s 80P: Our Society is a credit Co Operative Society registered under the Karnataka Souharda Sahakari Act, 1997 and also registered with the