THE CITIZEN CO-OP-SOCIETY LIMITED,HYDERABAD vs. DCIT., CIRCLE-9(1), HYDERABAD

The assessee is a cooperative society initially registered on 31/05/1997 and thereafter, it was converted into a Multi-State Cooperative Society w.e.f. 26/07/2005. For the A.Y under consideration, the assessee filed its return of income on 26/11/2020 declaring total income of Rs.1,20,22,790/-. The case of the assessee was selected under CASS for scrutiny of various issues and claims including the claim of deduction u/s 80P of the Act. The Assessing Officer completed the assessment u/s 143(3) r.w.s. 144 on 26/09/2022 at a total income of Rs.1,40,94,840/- as against the returned income of Rs.1,20,22,790/-. Thereafter,

Aggrieved by the impugned order, the assessee has filed the present appeal.

The learned AR has further submitted that once the Assessing Officer has conducted inquiry on the issue, it is also a subject matter of the scrutiny undertaken under CASS, then the order of the Assessing Officer cannot be held as erroneous on the ground of lack of inquiry. The learned Pr. CIT, while passing the revision order u/s 263 of the Act ought to have given a concluding finding as to how the order passed by the Assessing Officer is erroneous, being contrary to the provisions of the I.T. Act. The learned AR has submitted that once the Assessing Officer has taken a view after conducting an inquiry, then the order cannot be held as erroneous on the ground of lack of inquiry and further the Pr. CIT cannot remand the matter back to the Assessing Officer for reconsideration of the same issue which were already decided by the Assessing Officer while passing the assessment order. In support of his contention, he has relied upon the following decisions: i) Hon'ble A.P High Court in the case of Spectra Shares & Scrips (P) Ltd vs. CIT (354 ITR 35) A.P ii) Hon'ble Madras High Court in the case of CIT vs. Vijay Kumar Koganti (275 Taxman 394 (Mad). iii) Hon'ble Gujarat High Court in the case of Pr. CIT vs. Kansara Poptlal Tribhuvan Metal (P) Ltd (156 Taxmann.com 433) (Guj.) iv) Hon'ble Delhi High Court in the case of Pr.CIT vs. Clix Finance India (P) Ltd (160 Taxmann.com 357)(Del.) v) Hon'ble Allahabad High Court in the case of Pr.CIT vs. Sampark Management Consultancy LLP (170 Taxmann.com 49) vi) Coordinate Bench of the Tribunal in the case of LYCOS Internet Ltd vs. ACIT in dated 22/01/2025.

He has also referred to the decision of the Tribunal dated 22/01/2025 in the case of Lycos Internet Ltd vs. ACIT (Supra) and submitted that this Tribunal has held that the order of the Assessing Officer cannot be treated as erroneous and prejudicial to the interest of the Revenue unless the view taken by the Assessing Officer is unsustainable in law. The setting aside the order for doing fresh exercise on the part of the Assessing Officer reveals that the Pr.CIT was not sure about the correctness of the claim of the assessee and errors in the order passed by the Assessing Officer.

On the other hand, the learned DR has submitted that the Assessing Officer has allowed the claim of the assessee u/s 80P of the Act without specifying under which sub-section and clause of Section 80P, the assessee is eligible for deduction. Further, the assessment order is completely silent, which shows that there is no application of mind on the part of the Assessing Officer which renders the assessment order erroneous so far as it is prejudicial to the interest of the Revenue. The learned DR has further submitted that the learned Pr. CIT has clearly made out this point in the impugned order that for the A.Y 2017-18, the claim of the assessee was disallowed, and the assessee has settled the dispute under Vivad-se-Vishwas-Scheme. Further, for the A.Y 2018-19, the Assessing Officer disallowed the claim of deduction u/s 80P which has been accepted by the assessee as no appeal was filed by the assessee against the said disallowance of deduction u/s 80P. Thus, the learned DR has submitted that when the claim of the assessee was disallowed in earlier years, then the Assessing Officer ought to have given a finding before

We have considered the rival contentions as well as the relevant material available on record. The assessee is a Cooperative Society registered under the Multi State Cooperative Act, 2002 w.e.f. 26/07/2005. Prior to that, the assessee was formed under the Andhra Pradesh Mutually Aided Cooperative Society Act w.e.f. 31/05/1997. The assessee filed its return of income on 26/11/2020 declaring total income of Rs.1,20,22,790/- after claiming deduction u/s 80P of the Act. The case of the assessee was selected for scrutiny under the e- assessment scheme, 2019 on the following issues: i) Expenses Incurred for Earning Exempt Income ii) Verification of Genuineness of Expenses iii) Deduction from Total Income under Chapter VI-A iv) Refund Claim v) High interest expenditure/finance costs vi) Deduction u/s 80P (vii) Expenditure of Personal Nature

Therefore, the deduction claimed by the assessee under Chapter VII-A and particularly, the deduction u/s 80P was very much the subject matter of the scrutiny undertaken by the Page 8 of 32 Assessing Officer. The Assessing Officer issued notice u/s 143(2) and 142(1) of the Act, the details of which are given in para 2 of the assessment order as under:

Thus, it is clear that the show cause notices issued by the Assessing Officer u/s 142(1) dated, 01/12/2021 and 16/08/2022 were replied by the assessee and the response of the assessee to the notice issued u/s 142(1) dated 16/08/2022 is stated as full by the Assessing Officer. After considering the reply of the assessee, the Assessing Officer accepted the total income as computed by the CPC while processing the return of income u/s 143(a) of the I.T. Act and thus, no addition was made by the Assessing Officer while completing the scrutiny assessment u/s 143(3) r.w.s. 144B of the Act on 16/09/2022. Thereafter, the Principal CIT initiated proceedings u/s 263 of the Act by issuing a show cause notice dated 27/01/2025 which is reproduced in para 3 of the impugned order as under:

The Principal CIT in the show cause notice has given the reasons for invoking the provisions of section 263 that the claim of deduction u/s 80P for the A.Y under consideration need to be disallowed in the absence of principle of mutuality. It is further stated in the show cause notice that the Assessing Officer completed the assessment without verifying the issue of allowability of deduction u/s 80P. In response, the assessee filed the reply/submissions on 08/02/2025 and explained that during the course of assessment proceedings, the Assessing Officer has raised specific query about the deduction u/s 80P of the Act and Page 11 of 32 therefore, the claim of the deduction u/s 80P was allowed as the Assessing Officer was satisfied that the assessee is eligible for the deduction u/s 80P of the Act. The assessee has also raised the objection against the show cause notice that the Assessing Officer has taken one of the possible and permissible view in law and therefore, the Principal CIT cannot invoke the provisions of section 263 of the Act merely, because he does not agree with the view of the Assessing Officer. After considering the reply of the assessee, the Principal CIT has held that the Assessing Officer has failed to properly verify the deduction u/s 80P during the assessment proceedings and also observation that the deduction u/s 80P was disallowed in the earlier A.Y and therefore, allowing the same for the year under consideration renders the assessment order as erroneous so far as it is prejudicial to the interest of the Revenue. He has finally directed the Assessing Officer to pass a fresh assessment order after affording reasonable opportunity to the assessee. Apart from issuing the directions for the year under consideration, the Principal CIT also directed the Assessing Officer to verify the claim of deduction u/s 80P, if any, in the return of income for the A.Y 2019-20 and initiated suitable remedial action in the concluding paras 7 & 8 of the impugned order as under:

So far as the directions given by the Principal CIT to verify the claim of deduction u/s 80P for the A.Y 2019-20 is concerned, the same are beyond the jurisdiction of the Principal CIT u/s 263 of the Act being barred by limitation as well as beyond the scope of show cause notice dated 27/01/2025 issued u/s 263 of the Act. Therefore, the said direction issued in para 8 of the impugned order is completely illegal and liable to be quashed.

So far as the revision order passed u/s 263 of the Act for the year under consideration on the ground that the Assessing Officer has not conducted a proper inquiry on the allowability of the deduction u/s 80P of the Act is concerned, we find that the Assessing Officer has issued a show cause notice u/s 142(1) of the Act dated 1/12/2021 as well as 16/08/2022 as under:

In query No. VIII of the questionnaire, the Assessing Officer has specifically asked the assessee to submit (i) the specified details/note on the nature of the business activities carried out by the assessee during the year as well as during the last 3 years (ii) details of computation of total income (iii) calculation of amount of deduction and note on allowability of deduction u/s 80P of the Act (iv) reply whether the assessee falls under the category of cooperative bank or was constituted under part V of the Banking Regulations Act, 1994 (v) detailed note on objection of the assessee (vi) bifurcation of income earned under different heads (vii) details of other deductions claimed, if any and Page 18 of 32 (viii) justification of interest income earned from banking company is eligible for deduction u/s 80P of the Act. The assessee filed the reply dated 04/01/2021 which is reproduced at page Nos. 27 to 31 of the paper book and the relevant part of the reply to query No.(viii) is as under:

Thus, the Assessing Officer has raised a detailed queries on the claim of deduction u/s 80P of the Act which was responded by the assessee by giving a detailed reply explaining the nature of activities of the assessee and income earned from providing the financial activities/credit facilities of the Members. The assessee has clearly stated in the reply that the assessee is Page 20 of 32 not a cooperative bank which is not entitled to deduction u/s 80P and is only a Cooperative Society engaged in the business of providing credit facilities to the Members, which is in the nature of business of banking. The Assessing Officer again issued a show cause notice u/s 142(1) dated 16/08/2022 as under:

In this show cause notice, the Assessing Officer has asked the assessee to furnish further reply on certain points which are specified as to furnish (i) statements showing the total

We find that the view taken by the Assessing Officer in allowing the deduction u/s 80P is a plausible and permissible view under the law. Once the Assessing Officer has taken one of the possible views and adopted one of the permissible course under law, then the order of the Assessing Officer cannot be held as erroneous merely because the Principal CIT does not agree with the view of the Assessing Officer. Further, the disallowance of the claim of the assessee in the earlier years is based on the different business activities of the assessee providing the credit facility and banking facility to the outsiders as considered by the Hon'ble Supreme Court for the year under consideration and Page 26 of 32 thereby no business activity was carried out by the assessee with the outsiders or non-members for the year under consideration. Once this fact has been brought by the assessee on record which was very much available with the Assessing Officer as well as with the Principal CIT, then holding the assessment order as erroneous for want of inquiry on the part of the Assessing Officer and remanding the matter to the record of the Assessing Officer is not sustainable in law as laid down in various judgments of the Hon'ble High Courts relied upon by the learned Counsel for the assessee. It is also a settled proposition of law that if a proper inquiry is conducted by the Assessing Officer and after considering the reply as well as the evidence furnished by the assessee, the Assessing Officer is satisfied with the claim of the assessee, then the Assessing Officer is not required to give a detailed reasons for allowing the claim of the assessee. The Hon'ble jurisdictional High Court in the case of Spectra Shares & Scrips (P) Ltd vs. CIT (354 ITR 35) has held in para 59 of the judgment as under: “59. The contention of the counsel for Revenue that the assessee had not raised any submission before the respondent as to the justification for high frequency of transactions in March, 2006 on account of the provisions of the Finance Bill, 2006 is not tenable because the respondent, in his show cause notice dated 20.01.2010 or revised show cause notice dated 21.02.2011 did not indicate that he is going to focus on that period. Consequently, the assessee had no opportunity to highlight this fact in his replies to the respondent. The fact remains that this contention was not only raised in the written submissions before the Tribunal but also argued before it, but it did not deal with it. The contention of the Revenue that the Assessing Officer had not applied his mind to the material on record cannot be accepted because the respondent in his order dated 31.03.2011 specifically records a finding at Para 5.1 that there is application of mind by the Assessing Officer. The Revenue cannot raise a plea which is not contained in the order of the respondent and is contrary to it and to the record. The contention of the Revenue that there are no reasons given by Page 27 of 32

This Tribunal in case of Lycos Internet Ltd vs. ACIT in vide order dated 22/01/2025 has considered an identical issue in para 22 to 24 as under: “22. Once the Assessing Officer has conducted an inquiry, then the case does not fall in the category of complete lack of inquiry on the part of the Assessing Officer while passing the assessment order and therefore, the order of the Assessing Officer cannot be set aside on the ground of lack of inquiry. It is a settled proposition of law that when the Assessing Officer has conducted an inquiry and accepted the claim of the assessee, then it is not mandatory for the Assessing Officer to give a finding on each and every issue he has undertaken during the scrutiny proceedings. The Hon'ble jurisdictional High Court in the case of Spectra Shares & Scrips (P) Ltd vs. CIT (Supra) has held in para 34 and 35 as under: “34. It may be that in the Assessment Order, the Assessing Officer has not made an elaborate discussion on the issue as to the nature of activity of the assessee i.e. whether it is an investment or whether it is business income and did not refer to his query on the issue to the assessee before passing the order (in his letter dt.4.8.2008) or the reply given by the assessee to his query (vide it's letter dt.29.8.2008). As held in Vikas Polymers (supra), Sunbeam Auto (supra) and Gabriel India Ltd. (supra), when it is not incumbent on the Assessing Officer to pass a detailed order, merely because the order does not contain reasons as to why he accepted that the assessee is a trading company, his order does not become susceptible for revision. The Assessing Officer while making an assessment had examined the accounts, made inquiries, applied his mind to the facts and circumstances of the case and determined the income of the assessee. Therefore, it is not open to the Commissioner, on the ground that a different view is possible, to reopen the assessment on the ground that the Page 28 of 32 Assessing Officer did not make an elaborate discussion in that regard.

Admittedly, the assessee had given full details of these transactions in its letter/reply dated 29.08.2008 to the Assessing Officers letter dated 04.08.2008, giving details of dates of acquisition of the shares in question and dates of sale of shares. As such this material was available before the Assessing Officer. In its reply dt. 09-03-2011 to the revised show cause notice issued by the respondent also, the appellant had enclosed the list of transactions in relation to the scrips of M/s. Amara Raja Battery, M/s. Reliance Industries, M/s. Gujarat NRE Coke and M/s. Andhra Sugars Limited contending that having purchased the shares of the said companies, it had retained them for periods ranging from 1 year 2 months to 3 years 6 months before selling them. The counsel for the appellants has taken us through the said statements/list of transactions.”

It is in this context that the Supreme Court in Malabar Industrial Co. Ltd. v. Commissioner of Income Tax, [2000] 243 ITR 83 / 109 Taxman 66 (SC), had observed that the phrase 'prejudicial to the interest of Revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of Revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of Revenue. Thus, when the Assessing Officer had adopted one of the courses permissible and available to him, and this has resulted in loss to Revenue; or two views were possible, and the Assessing Officer has taken one view with which the CIT may not agree; the said orders cannot be treated as an erroneous order prejudicial to the interest of Revenue unless the view taken by the Assessing Officer is unsustainable in law. In such matters, the CIT must give a finding that the view taken by the Assessing Officer is unsustainable in law and, therefore, the order is erroneous. He must also show that prejudice is caused to the interest of the Revenue.

In the present case, the findings recorded by the Tribunal are correct as the CIT has not gone into and has not given any reason for observing that the order passed by the Assessing Officer was erroneous. The finding recorded by the CIT is that "order passed by the Assessing Officer may be erroneous". The CIT had doubts about the valuation and sale consideration received but the CIT should have examined the said aspect himself and given a finding that the order passed by the Assessing Officer was erroneous. He came to the conclusion and finding that the Assessing Officer had examined the said aspect and accepted the respondent's computation figures but he had reservations. The CIT in the order has recorded that the consideration receivable was examined by the Assessing Officer but was not properly examined and therefore the assessment order is "erroneous". The said finding will be correct, if the CIT had examined and verified the said transaction himself and given a finding on merits. As held above, a distinction must be drawn in the cases where the Assessing Officer does not conduct an enquiry as lack of enquiry by itself renders the order being erroneous and prejudicial to the interest of the Revenue and cases where the Assessing Officer conducts enquiry but finding recorded is erroneous and which is also prejudicial to the interest of the Revenue. In latter cases, the CIT has to examine the order of the Assessing Officer on merits, or the decision taken by the Assessing Officer

Therefore, merely because the Assessing Officer has not given an elaborate reasoning and finding would not lead to the conclusion that the order of the Assessing Officer is erroneous for want of any inquiry. The Principal CIT has set aside the matter to the record of the Assessing Officer for fresh adjudication, which is also not sustainable in law, particularly when the Assessing Officer has taken a plausible and permissible view after conducting a due inquiry. Thus, remanding the matter for fresh exercise on the part of the Assessing Officer reveals that the Principal CIT himself was not sure about the correctness or the erroneous order passed by the Assessing Officer. Accordingly, in Page 31 of 32 the facts and circumstances as discussed above when the assessee has brought on record all the relevant details and evidence to show that the income of the assessee from doing business with its Members is eligible deduction u/s 80P of the Act, then in the absence of any concluding finding by the Principal CIT that the claim of the assessee for deduction u/s 80P is impermissible under law, the order of the Assessing Officer allowing the said claim cannot be held as erroneous and hence, the impugned order of the Principal CIT is set aside.

In the result, appeal filed by the assessee is allowed.