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Income Tax Appellate Tribunal, MUMBAI BENCHES “G”, MUMBAI
Before: SHRI RAJESH KUMAR (AM) & SHRI RAM LAL NEGI (JM)
O R D E R
PER RAM LAL NEGI, JM
This appeal has been filed by the assessee against the order dated 24.01.2019 passed by the Ld. Pr. Commissioner of Income Tax (for short ‘the. (Pr. CIT) 29, Mumbai, for the assessment year 2014-15, whereby the Ld. Pr. CIT has revised the assessment order passed u/s 143(3) of the Income Tax Act, 1961 (for short the ‘Act’) by exercising the jurisdiction under section 263 of the Act.
Brief facts of the case are that the assessee an Employee Co-operative Credit Society, filed its return of income for the assessment year under consideration declaring Nil income after claiming deduction u/s 80P of the Act. The AO passed the assessment order u/s 143(3) of the Act accepting the return. Subsequently, it was noticed that the assessee had earned interest of Rs. 15,67,392/- on investments with co-operative Banks and claimed 2 Assessment Year: 2014-15 deduction u/s 80P(2) of the Act. Accordingly, the Ld. Pr. CIT exercising the powers u/s 263 of the Act set aside the assessment order and holding that same is erroneous as well as prejudicial to the interest of the revenue and further directed the AO to frame the assessment de novo. Aggrieved by the said order, the assessee is in appeal before this Tribunal. 3. The assessee has challenged the order of the Ld. Pr. CIT on the following grounds: 1. “Breach of the principles of natural justice 1.1 The learned Principal Commissioner of Income Tax- 29, Mumbai [Ld. CIT), erred in framing the revision order u/s 263 of the Income Tax Act, 1961 [ “ the Act”] by not giving proper, sufficient and effective opportunity of being heard to the Appellant. 1.2 It is submitted that in the facts and the circumstances of the case, and in law, the revision order is required to be held as bad and illegal as the same is passed in breach of the principles of natural justice, as well as with non- application of mind to the fats and the contentions brought on record by the Appellant.
Without prejudice to the above
2. Revision illegal 2.1 The Ld. CIT erred in passing the order u/s 263 of the Act, revising the assessment order passed by the A.O. u/s 143 (3) of the Act. 2.2 It is submitted that in the facts and the circumstances of the case, and in law, the order is bad, illegal and void as necessary pre-conditions for initiating the revision proceeding as well as the completion thereof were not fulfilled. 2.3 Without prejudice to the generality of the above, the CIT failed to appreciate that: (i) The assessment order framed was not “erroneous” within the meaning of section 263 of the Act, and (ii) In any case, the assessment order was not “prejudicial to the interest of the revenue” within the meaning of section 263 of the Act.
3 Assessment Year: 2014-15 2.4 It is submitted that in the facts and the circumstances of the case, and in law, no revision u/s 263 of the Act was called for. Without further prejudice to the above.
On merits 3.1 The CIT erred in observing that the interest income amounting to Rs. 15,67,392/- earned by way of investment in co-operative banks was not eligible for deduction u/s 80P(2)(a)(i) of the Act.”
At the outset, the Ld. counsel for the assessee submitted before us that the issue involved in the present case is covered by the order of the Mumbai Tribunal in the case of Godrej & Boyce Employees Credit Society Ltd. vs. the ITO, for the assessment year 2004-05. Since the assessment order is in consonance with the decision of the Tribunal, the impugned order is liable to be set aside. The Ld. counsel further relied on the Judgment of the Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. vs. Income Tax Officer [2015] 55 taxmann.com 447 (Karnataka), the decisions of the Mumbai Tribunal in the case of ITO vs. M/s Mumbai Sales Tax Staff Co-Op Credit Society Ltd., ITA No. 1820/Mum/2017, AY 2013-14, and S.E., S.E.C. & E. Co. Railways Employees Co-operative Credit Society Ltd. vs. ACIT, ITA No. 1693/Kol/2012, AY 2008-09 to substantiate the claim of the assessee.
On the other hand, the Ld. departmental representative (DR) admitted that the Tribunal has decided the issue in question in favour of the assessee in the case of Godrej & Boyce Employees Credit Society Ltd. vs. the ITO for the assessment year 2004-05, however, supported the order passed by the Ld. Pr. CIT. 6. We have perused the material on record in the light of the contentions of the parties. As pointed out by the Ld. counsel in the case of Godrej & Boyce Employees Credit Society Ltd (supra), the assessee earned dividend and interest income from investments made with UTI and other cooperative Banks. The 4 Assessment Year: 2014-15 assessee claimed exemption u/s 80P of the Act. However, the AO rejecting the claim of the assessee made addition of the said amount to the income of the assessee. In the first appeal, the Ld CIT(A) partly allowed the claim of the assessee, however, rejected the claim of exemption with regard to the interest and dividend received from UTI and Central Bank of India. Still aggrieved, the assessee challenged the order of the Ld. CIT(A) before the Tribunal. The coordinate Bench set aside the findings of the Ld. CIT(A) and allowed the appeal of the assessee holding as under: “6 Having given a thoughtful consideration and rival submissions, we are of the view that the identical issue was examined by the Tribunal in the aforesaid cases in which it has been specifically held that the income earned by the assessee Co-operative society on investment in UTI was entitled to deduction u/s 80P(2)(a)(i) as investment was made by the assessee society in UTI out of circulating banking business. Similar is the position with regard to interest income earned from the bank. It was again held by the Tribunal in the case of Electro Urban Credit Society that the interest on fixed deposited earned by Co-operative society engaged in lending money to its members out of membership funds and deposits collected from such members was an income attributable to business of banking carried on by it and are eligible for deduction u/s 80P(2)(a)(i) of the I.T. Act. Since the particular view has been taken in similar set of fact, we find no reason to take contrary view in this appeal. Accordingly, following the aforesaid order of the Tribunal, we hold that the assessee is entitled for deduction with regard to income earned on investment in UTI and the interest earned on savings balance with the Central Bank of India. Accordingly, the order of the CIT (A) is set aside in this regard and the AO is directed to allow deduction u/s 80P(2)(a)(i) of the Act.”
We further notice that the Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. vs. Income Tax Officer (supra) has held that where a Co-operative society is engaged in the activity of carrying on business of providing credit facilities to its members, the society is 5 Assessment Year: 2014-15 entitled to deduct the interest earned from deposits of excess amount for short term in banks. The observations of the Hon’ble Court are as under:-
“ 10. In the instant case, the amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to the members, as there were no takers. Therefore they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P(I) of the Act. In fact similar view is taken by the Andhra Pradesh High Court in the case of CIT v. Andhra Pradesh State co-operative Bank Ltd. [ 2011] 200 Taxman 220/12 taxmann.com 66. In that view of the matter, the order passed by the appellate authorities denying the benefit of deduction of the aforesaid amount is unsustainable in law. Accordingly, it is hereby set aside. The substantial question of law is answered in favour of the assessee and against the revenue. Hence, we pass the following order: