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Facts
The assessee, a Cooperative Society, filed a Nil income return for A.Y. 2020-21. The AO completed assessment under Section 143(3), allowing deductions for interest income from Cooperative Banks under Section 80P(2)(d) and for provisioning of expenses. The PCIT initiated revisional proceedings under Section 263, finding the assessment order erroneous and prejudicial to revenue on these two issues, and set aside the assessment for fresh examination by the AO.
Held
The Tribunal held that the PCIT erred in assuming jurisdiction under Section 263. It found that the AO had conducted proper inquiries and taken a plausible view regarding the Section 80P(2)(d) deduction for interest from cooperative banks, consistent with Tribunal decisions. For the provisioning of expenses, it was noted that the assessee had already added back the expenses, and the resultant increased net profit was also eligible for deduction under Section 80P(2)(a)(i). Thus, the AO's order was neither erroneous nor prejudicial to the interest of revenue.
Key Issues
1. Whether the PCIT correctly assumed jurisdiction under Section 263 concerning the allowance of deduction under Section 80P(2)(d) for interest income from cooperative banks. 2. Whether the PCIT correctly assumed jurisdiction under Section 263 concerning the allowance of provisioning of expenses.
Sections Cited
263, 143(3), 144B, 80P(2)(d), 143(2), 142(1), 80P, 80P(2)(a), 80P(4), 144A, 120, 129
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Income Tax Appellate Tribunal, PUNE BENCHES “B”, PUNE
Before: DR.MANISH BORAD & SHRI VINAY BHAMORE
आदेश / ORDER
PER DR. MANISH BORAD, ACCOUNTANT MEMBER :
The captioned appeal at the instance of assessee pertaining to A.Y. 2020-21 is directed against the order dated 10.03.2025 passed u/s.263 of the Income-tax Act, 1961 by PCIT, Nashik-1 arising out of Assessment Order dated 05.09.2022 passed u/s.143(3) r.w.s.144B of the Act.
Assessee has raised four grounds of appeal but the grievance is against the assumption of jurisdiction u/s.263 of the Act and also finding of ld.PCIT holding that the assessment order by Assessing Officer dated 05.09.2022 for A.Y. 2020-21 is erroneous and prejudicial to the interest of Revenue with regard to two issues firstly allowing the claim of deduction u/s.80P(2)(d) at Rs.45,75,176/- earned by the assessee towards interest from investments held with Cooperative Banks and secondly regarding the allowing of provisioning of expenses at Rs.13,70,000/- during the assessment proceedings.
Brief facts of the case are that the assessee is a Cooperative Society and return for A.Y. 2020-21 filed on 25.12.2021 declaring Nil income. Ld. Assessing Officer (AO) initiated the assessment proceedings u/s.143(3) of the Act by issuing valid notices u/s.143(2) and 142(1) of the Act. Various details called for including those relating to claiming deduction under Chapter VIA. After examining the details filed by the assessee, ld. AO assessed the income at Nil.
Thereafter, ld. PCIT called for the assessment records and observed that even though the assessee is not eligible for deduction u/s.80P(2)(d) of the Act at Rs.45,75,176/-, ld. AO has allowed the claim and secondly he observed that provisioning of expenses at Rs.13,70,000/- have also been allowed during the assessment proceedings thus making the assessment order erroneous and prejudicial to the interest of Revenue. Ld. PCIT issued show cause notice u/s.263 of the Act on 30.01.2025 calling for the submission of details by 07.02.2025 to which necessary compliance was made by the assessee by filing the requisite details. However, after considering the same, ld. PCIT was not satisfied and he held the assessment order to be erroneous and prejudicial to the interest of Revenue for the two issues referred hereinabove by holding as under :
“10. In the light of the above facts, I am satisfied that the assessment order dated 05/09/2022 passed for the Assessment Year 2020-21 is erroneous in so far as it is prejudicial to the interest of the Revenue. Consequently, the said assessment order dated 05/09/2022 for the A.Y.2020-21 is hereby set aside to the file of the A.O for examining the following issues and passing fresh assessment order in the light of enquiries made i) The A.O shall examine the eligibility of deduction available to the assessee u/s.80P(2)(a) of the Act in the light of decision of the Hon'ble Supreme Court in the case of Totgars Co-operative Sales Society Ltd. Vs. ITO, (SC) (322 ITR 283)(2010) ii) The A.O shall also examine whether the interest income received by the assessee is related to its core business or is a residual income which is required to be taxed under the head "Other Sources" iii) The AO shall examine whether the assessee is ineligible for deduction u/s 80P in view of specific provision of section 80P(2)(d) rws section 80P (4) of the Act iv) The AO shall examine the issue of various provisions amounting to Rs.13,70,000/-claimed by the assesee as expenses.
The AO is directed that the assessment order be framed afresh as per the provisions of law, after considering proper facts and submissions of the assessee on the issue set-aside herein above, after affording proper opportunity to the assessee within the time allowed under the Income-tax Act, 1961.
Aggrieved assessee is now in appeal before this Tribunal.
Ld. Counsel for the assessee submitted that detailed enquiry has been conducted by the Assessing Officer for the issues referred by ld. PCIT. He further submitted that interest income on investments held with Cooperative Banks is eligible for deduction u/s.80P(2)(d) of the Act and the same has been held consistently by this Tribunal in plethora of decisions. Reliance placed on the decision of Ruby Hall Clinic Karmachari Sahakari Pat Sanstha Maryadit Vs. ITO (2024) 161 taxmann.com 23 (Pune) and other decisions.
So far as the allowability of provisioning of expenses at Rs.13,70,000/- he submitted that the said amount has already been disallowed in the computation of income and is part of the total disallowance offered in the income-tax computation at Rs.17,56,526/-. He further submitted that even after adding/disallowing of the provisioning of expenses, the increased amount is eligible for deduction u/s.80P of the Act for the activity carried out by the assessee society.
Ld. DR on the other hand supported the order of ld. PCIT.
We have heard the rival contentions and perused the record placed before us. In the instant case, ld. PCIT has assumed jurisdiction u/s.263 of the Act for the two issues namely allowability of deduction u/s.80P of the Act at Rs.45,75,176/- and allowing of provisioning of expenses at Rs.13,70,000/-.
We find that the provision of Section 263 of the Act has direct bearing on the issue raised before us, therefore, it is pertinent to take note of this section which reads as under:
"263(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
Explanation- For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,-
(a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include-
(i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A;
(ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorized by the Board in this behalf under section 120;
(b) record shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner;
(c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.
(2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.
(3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, the High Court or the Supreme Court.
Explanation- In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded."
On a bare perusal of the sub section-1 would reveal that powers of revision granted by section 263 to the learned Commissioner have four compartments. In the first place, the learned Commissioner may call for and examine the records of any proceedings under this Act. For calling of the record and examination, the learned Commissioner was not required to show any reason. It is a part of his administrative control to call for the records and examine them. The second feature would come when he will judge an order passed by an Assessing Officer on culmination of any proceedings or during the pendency of those proceedings. On an analysis of the record and of the order passed by the Assessing Officer, he formed an opinion that such an order is erroneous in so far as it is prejudicial to the interests of the Revenue. By this stage the learned Commissioner was not required the assistance of the assessee. Thereafter the third stage would come. The learned Commissioner would issue a show cause notice pointing out the reasons for the formation of his belief that action u/s 263 is required on a particular order of the Assessing Officer. At this stage the opportunity to the assessee would be given. The learned Commissioner has to conduct an inquiry as he may deem fit. After hearing the assessee, he will pass the order. This is the 4th compartment of this section. The learned Commissioner may annul the order of the Assessing Officer. He may enhance the assessed income by modifying the order. He may set aside the order and direct the Assessing Officer to pass a fresh order. At this stage, before considering the multi-fold contentions of the ld. Representatives, we deem it pertinent to take note of the fundamental tests propounded in various judgments relevant for judging the action of the CIT taken u/s 263.
Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT (2000) 243 ITR 83 (SC)has laid down following ratio with regard to provisions of section 263 of the Act:
“There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase 'prejudicial to the interests of the 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 interests of the revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the revenue - RampyariDevi Saraogi v. CIT [1968] 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC). [Emphasis Supplied]”
Now examining the facts of the case in light of the settled judicial precedents and the provisions of section 263 of the Act, we firstly find that specific query was raised by the AO regarding the claim of deduction under Chapter VIA and the same has been complied by the assessee which has been duly mentioned in the assessment order also. Secondly, regarding the disallowance of provisioning of expenses at Rs.13,70,000/- we note that the assessee has added back the provisioning of expenses to the net profit which are part of the total disallowance at Rs.17,56,526/- and the same was very much available before the AO and after necessary verification has accepted the claim. Therefore, since both the issues have already been examined by the AO, ld. PCIT failed to assume jurisdiction u/s.263 of the Act.
Even otherwise on merits of the case, deduction u/s.80P of the Act for the interest income earned from investments held with Cooperative Banks at Rs.45,75,176/-, issue has come up for adjudication before this Tribunal in plethora of decisions and consistent view has been taken that since Cooperative Banks are basically Cooperative Societies, therefore the interest earned on investments held with Cooperative banks are eligible for deduction u/s.80P(2)(d) of the Act. Our view is fortified by the decision of this Tribunal in the case of Ruby Hall Clinic Karmachari Sahakari Pat Sanstha Maryadit Vs. ITO (supra), Rena Sahakari Sakhar Karkhana Ltd. Vs. PCIT (2022) 138 taxmann.com 532 (Pune) and Shree Parashar Vividh Kary Kari Sahakari Vikas Sanstha Maryadit Vs. ITO (2024) 161 taxmann.com 208 (Pune). Since ld. AO has duly referred to the decisions of this Tribunal and has taken a plausible view, therefore, the order of AO is neither erroneous nor prejudicial to the interest of Revenue on this issue of allowing deduction u/s.80P(2)(d) of the Act.
Regarding the allowability of provisioning of expenses at Rs.1,70,000/-, we find that assessee has filed necessary details and the same indicates that in the computation of income assessee has added back the expenses of Rs.17,56,526/- and the details of the same inter alia includes the provisioning of expenses at Rs.13.30 lakh. It is an admitted fact that in the case of Cooperative Societies where they are eligible for deduction u/s.80P(2)(a)(i) of the Act, even if there is disallowance of expenses or adding back of the provisions, the increased net profit is also eligible for deduction u/s.80P(2)(a)(i) of the Act. Since there is no dispute that the assessee society is eligible for deduction u/s.80P(2)(a)(i) of the Act the provisioning of expenses added back to the income have again become eligible for deduction. Therefore, on this issue also, the order of AO is neither erroneous nor prejudicial to the interest of Revenue.
Under these facts and circumstances and the discussion made hereinabove, we hereby set aside the impugned order and hold that ld. PCIT erred in assuming jurisdiction u/s.263 of the Act. Accordingly, impugned order u/s.263 is quashed and the assessment order dated 05.09.2022 is restored.
In the result, the appeal filed by the assessee is allowed.
Order pronounced on this 23rd day of September, 2025.