SHREE TULJABHAVANI NAGARI SAHAKARI PAT SANSTHA MARYADIT,PUNE vs. PRINCIPAL COMMISSIONER OF INCOME TAX -5 , PUNE, PUNE

This appeal filed by the Assessee is directed against the order of ld.Pr.Commissioner of Income-tax-5, Pune’s, order dated 08.01.2019for the Assessment Year 2014-15, involving proceedings under section 263(1) of the Income Tax Act, 1961. The Assessee has raised the following grounds of appeal: “1. Pr.Commissioner of Income Tax has erred in passing the Order which is without jurisdiction and Bad in Law. Same may please be cancelled.

Brief facts of the case are that the assessee is a Co-operative Credit Society registered under Maharashtra Co-operative Societies Act, 1960. The society provides credit facility to its members. The main activity of society is to take deposits from members, disburse loans to its members. For A.Y. 2014-15, the assessee filed Return of Income on 09.09.2014 declaring total income at Rs.Nil. As per the assessment order, the assessee’s gross total income was Rs.36,09,944/- and assessee claimed deduction under section 80P of the Act. The assessee’s case was selected for scrutiny. The Assessing Officer(AO) mentioned in the assessment order that during the course of assessment proceedings, details in respect of assessee’s claim of deduction under section 80P were called-for and verified. The AO observed that assessee had earned interest income from Axis Bank of Rs.7,856/- which AO has disallowed as not eligible for deduction under section 80P of the Act. Accordingly, for A.Y.2014-15 Shree Tuljabhavani Nagari Sahakari Pat Sanstha Maryadit(A) after making disallowance of Rs.7,856/-, the AO passed the assessment order.

The ld.Pr.CIT received proposal from the Addl.Commissioner of Income Tax, that assessee society had earned interest income on investments made with various Co-operative Banks to the tune of Rs.36,37,967/- and the said income is not eligible for deduction under section 80P(2)(a) of the Act. The Addl.Commissioner of Income Tax in the said proposal also stated that assessee is not eligible for deduction under section 80P(2)(d) of the Act. Based on the said proposal, the ld.Pr.CIT issued notice under section 263 of the Act. The ld.Pr.CIT gave opportunity to the assessee. The findings of the ld.Pr.CIT in the order u/s.263 are as under: “05. Adverting to the facts of impugned case, the assessee is a cooperative society engaged in the activity of providing credit facilities to its members. The assertion of the Addl. CIT Range-9, Pune that the interest income of the assessee society out of its “investments” with other co-operative banks is not eligible for deduction either u/s 80P(2)(a)(i) or u/s 80P(2)(d) of the Act is justifiable. The Appeal No. 100069 of 2016 dated 05-01-2017 in the case of Karnataka High Court vs. The Totagars Co-Operative Sale Society, the Hon’ble Court has decided whether for the purpose of Section 80P(2)(d) of the Act, a Co-operative Bank should be considered as a Co-operative Society or not. However, the Appeal No. 100066/2016 & Connected cases dated 16-06- 2017, the Hon'ble Court has discussed the provisions of Section 80P as a whole and held that - it is the character and nature of income which determines its taxability or exemption from taxability and the income which is clearly held to be not exempt and not deductible under Section 80P(2)(a) of the Act by the Hon'ble Supreme Court in the case of respondent assessee, cannot be contrarily held as exempted and deductible merely because the depository bank, with whom the investments were made by the respondent assessee happens to be a co-operative bank. The income by way of interest earned by deposit or investment of idle or surplus for A.Y.2014-15 Shree Tuljabhavani Nagari Sahakari Pat Sanstha Maryadit(A) funds does not change its character irrespective of the fact whether such income of interest is earned from a schedule bank or a co- operative bank and thus, clause (d) of Section 80P(2) of the Act would not apply in the facts and circumstances of the present case. The person or body corporate from which such interest income is received will not change its character, viz. interest income not arising from its business operations, which made it ineligible. I find that the issues are squarely covered by the Hon'ble Supreme Court of India and Hon’ble Karnataka High Court in the case of The Totagars Co-Operative Sale Society. 06. In view of the foregoing discussion, it is clear that the assessee-society was not entitled to claim deduction under chapter VIA of the Act and its claim was allowed by the Assessing Officer. In view of the forgoing wrong claim u/s 80P(2)(a)(i), the assessment completed under section 143(3) of the Income Tax Act, 1961, by the Income Tax Officer, Ward - 9(4), Pune, on 15.07.2016, for Assessment Year 2014-15, is erroneous in so far as it is prejudicial to the interest of the revenue. The disallowance made by the Assessing Office of Rs. 7,856/- in respect of interest income earned from Axis Bank is sustained. Therefore, the assessment made by the Assessing Officer is set aside with a direction to complete the assessment afresh after verifying the details and allowing correct amount of deduction admissible to the assessee society.”

No one appeared on behalf of the assessee. We have heard the ld.Departmental Representative for the Revenue and perused the material available on record and orders of Lower Authorities.

This appeal is against the order of the Pr.CIT passed u/s 263 of the Act. The Pr.CIT can invoke revisional powers if the assessment order is erroneous and prejudicial to the interest of revenue. Thus, the department has to prove that the assessment order was erroneous and it was prejudicial to the interest of revenue. However, in this case, it is observed from the assessment order that the AO had called for details regarding deduction u/s 80P of the Act. After verification of for A.Y.2014-15 Shree Tuljabhavani Nagari Sahakari Pat Sanstha Maryadit(A) the said details, the AO came to the conclusion that the interest earned by the assessee of Rs.7856/- from Axis bank was not eligible for deduction u/s 80P and accordingly he disallowed it. This exercise of the AO of disallowing the interest earned from Axis Bank explains that he had called for the details and applied his mind to decide eligibility of the income for deduction u/s 80P. The Ld.Pr.CIT in the revision order has not pointed out any specific income which the AO has failed to verify. Therefore, on the facts of the case, we are of the opinion that the assessment order is not erroneous. We find support by Hon’ble Bombay High Court’s Decision in the case of CIT vs Chandan Magraj Parmar, 285Taxmann 565 (Bom) order dated 16/11/2021where in the Hon’ble Bombay High Court held as under, Quote,“When it is not disputed that the land concerned would not fall under the definition of capital asset, the question of any capital gains arising also will not arise. Moreover, we also find that the ITAT has come to a factual finding that the AO has raised queries with regard to the claim of capital gain on transfer of land, Respondent vide its reply dated 31-1-2014 furnished the details in respect of distance of agricultural land from municipal limits, record of population as per last census and the AO after considering the reply of Respondent, accepted the claim of Respondent. The ITAT has given a finding that the claim of capital gain was accepted by AO after necessary inquiry and the order under section 143(3) of the Act was passed. It is true that the AO has not passed any written detailed order while accepting the explanation of capital gains of Respondent but the fact is AO had raised queries and Respondent has given detailed reply means the AO has passed this order after making necessary inquiries. We agree with the view of the ITAT that the order of the AO cannot be branded as erroneous merely because the order does not contain the details which Principal Commissioner feels should have been included. The Principal Commissioner cannot decide how elaborate an order of the AO should be. Where the AO, during the scrutiny assessment proceedings, has raised a query which was answered by the Assessee to the satisfaction of the AO but the same for A.Y.2014-15 Shree Tuljabhavani Nagari Sahakari Pat Sanstha Maryadit(A) was not reflected in the AO by him, the Commissioner cannot conclude that no proper inquiry with respect to the issue was made by the AO and enable him to assume jurisdiction under section 263 of the Act. We are supported in this view by the Judgment of this Court in CIT v. Gabriel India Ltd. [1993] 71 Taxman 585/203 ITR 108 where the Court has held as under :— 'The power of suo motu revision under sub-section (1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision under this sub-section, viz., (i) the order is erroneous; (ii) by virtue of the order being erroneous prejudice has been caused to the interests of the Revenue. It has, therefore, to be considered firstly as to when an order can be said to be erroneous. We find that the expressions "erroneous", "erroneous assessment" and "erroneous judgment" have been defined in Black's Law Dictionary. According to the definition, "erroneous" means "involving error; deviating from the law". "Erroneous assessment" refers to an assessment that deviates from the law and is, therefore, invalid, and is a defect that is jurisdictional in its nature, and does not refer to the judgment of the Assessing Officer in fixing the amount of valuation of the property. Similarly, "erroneous judgment" means "one rendered according to course and practice of court, but contrary to law, upon mistaken view of law; or upon erroneous application of legal principles. From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. Cases may be visualised where the Income- tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at for A.Y.2014-15 Shree Tuljabhavani Nagari Sahakari Pat Sanstha Maryadit(A) conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the Revenue. But that by itself will not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, viz., that the order is erroneous, is absent. Similarly, if an order is erroneous but not prejudicial to the interests of the Revenue, then also the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be the subject- matter of revision because the second requirement also must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed.' Many other High Courts have taken the same view and those Judgments have been referred to in the impugned order. 8. In our view, the ITAT has not committed any perversity or applied incorrect principles to the given facts and when the facts and circumstances are properly analysed and correct test is applied to decide the issue at hand, then, we do not think that questions as pressed raise any substantial questions of law.” Unquote. 5.1 It is observed that identical question came up for the consideration of Hon’ble ITAT Pune Bench in the case of Sant Motiram Maharaj Sahakari Pat Sanstha Ltd vs ITO 186 ITD 220 (Pune - Trib.)[23-09-2020], the Ld.Co-ordinate Bench held as under: Quote, “ 4. The short point of view of the ld. Pr.CIT is that interest earned from co-operative banks cannot be covered under clause (d) of sub-clause (2) of section 80P. Section 80P(1) provides that: 'Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in subsection (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee.' Sub-section (2) opening with: 'The sums referred to in subsection (1) shall be the following', has clauses (a) to (f). Clause (d), which has been invoked by the ld. Pr. CIT reads: '(d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other cooperative society, the whole of such income.' It is axiomatic that only interest derived by a for A.Y.2014-15 Shree Tuljabhavani Nagari Sahakari Pat Sanstha Maryadit(A) cooperative society from its investments with any other co- operative society is eligible for8 deduction under clause (d). Conversely, if the payer of the interest is not a co-operative society, its payee, a cooperative society cannot claim deduction thereon under this clause. Admittedly, the assessee received interest from a co-operative bank and not a co-operative society. A fortiori, such an amount is not eligible for deduction u/s 80P(2)(d) of the Act. 5. However, the case of the assessee before the authorities below ab initio has been that it was eligible for deduction on such interest u/s.80P(2)(a)(i) of the Act inasmuch as the assessee was engaged in providing credit facility to its members. At this juncture, it may be apposite to consider the mandate of clause (a) (i) of section 80P(2), which provides that: '(a) in the case of a cooperative society engaged in— (i) carrying on the business of banking or providing credit facilities to its members …., the whole of the amount of profits and gains of business attributable to any one or more of such activities' shall be allowed as deduction. The assessee is admittedly a co-operative society engaged in carrying on the business of providing credit facilities to its members. In such a situation, the whole of the amount of profits and gains of business attributable to providing credit facilities to its members becomes deductible u/s 80P(2) of the Act.

The term "profits and gains of business attributable to" providing credit facilities has a wider connotation. It encompasses not only the income derived strictly from providing credit facilities to its members but also any other income which is attributable to such business. So long as there exists a live link, not necessarily direct, between the income and carrying on of the business of providing credit facilities, the resultant income qualifies for deduction. If a particular amount is received by a cooperative society from its members as deposits and a part of the same has been provided as a credit facility to its members, the unspent amount for the time being not required by the members as loan, if utilised elsewhere, will nonetheless lead to generation of profits and gains of business of providing credit facilities to its members. The thread of link between income and business of providing credit facilities to the members will be broken if despite there being the members wanting to avail credit facilities, the cooperative society chooses to prefer making deposits with banks etc. rather than advancing sums to its members.8 7. Right now we are confronted with a situation in which the assessee co- operative society has made deposits with cooperative banks and earned interest income, which is extantly the bone of contention. The stand of the assessee is that these are short term deposits of the money not required for the time being. The ld. Pr. CIT has not returned any contrary finding. In such a scenario, the entire interest income - not only the one derived from its members by providing credit facilities but also that earned by utilizing the surplus available funds for the time being at some places like investment in FDR etc. - also falls within the ambit of "profits and for A.Y.2014-15 Shree Tuljabhavani Nagari Sahakari Pat Sanstha Maryadit(A) gains of business attributable to" providing credit facilities to its members. 8. At this juncture, it is relevant to note that we are dealing with a case in which the ld. Pr. CIT has invoked his power u/s.263 of the Act. It is trite that the exercise of such a power is ousted in case of a debatable issue. An assessment order can be termed as erroneous and prejudicial to the interest of the Revenue if the AO has taken a view which is not legally sustainable. Per contra, if two views are available on a particular issue and the AO adopts one of such possible views, the case goes outside the purview of revisional power to be exercised by the Pr.CIT u/s.263 of the Act. 9. The Pune Benches of the Tribunal in Sureshdada Jain Nagari SahakariPatsansthaMaryadit v. Pr. CIT [IT Appeal No. 713(PUN) of 2016, dated 9-4-2019] decided the question of availability of deduction u/s 80P on interest income by noticing that the Pune Bench in an earlier case of Shri Laxmi Narayan Nagari Sahakari Pat Sanstha Maryadit v. ITO [IT Appeal No. 604(PN) of 2014, dated 19-8-2015] has allowed similar deduction. In the said case, the Tribunal discussed the contrary views expressed by the Hon'ble Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd. v. ITO [2015] 55 taxmann.com 447/230 Taxman 309 allowing deduction u/s. 80P on interest income and that of the Hon'ble Delhi High Court in Mantola Cooperative Thrift Credit Society Ltd. v. CIT [2014] 50 taxmann.com 278/[2015] 229 Taxman 68 not allowing deduction u/s.80P on interest income earned from banks. Both the Hon'ble High Courts took into consideration the ratio laid down in the case of Totgar's Co- operative Sale Society Ltd. v. ITO [2010] 188 Taxman 282/322 ITR 283 (SC). There being no direct judgment from the Hon'ble jurisdictional High Court on the point, the Tribunal in Shri Laxmi Narayan Nagari Sahakari Pat Sanstha Maryadit (supra) preferred9 to go with the view in favour of the assessee by the Hon'ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra). 10. Insofar as the reliance of the ld. DR on the case of Pr. CIT v. Totagars Cooperative Sales Society [2017] 83 taxmann.com 140/395 ITR 611 (Kar.) is concerned, we find that the issue in that case was the eligibility of deduction u/s.80P(2)(d) of the Act on interest earned by the assessee co- operative society on investments made in co-operative banks. In that case, the assessee was engaged in the activity of marketing agricultural produce by its members; accepting deposits from its members and providing credit facility to its members; running stores, rice mills, live stocks, van section, medical shops, lodging, plying and hiring of goods and carriage etc. It was in that background of the facts that the Hon'ble High Court held that the assessee could not claim deduction u/s.80P(2)(d) of the Act. When we consider the impact of this decision, it turns out that the same is not germane to case under consideration in view of the position that the claim of the instant assessee is directly about the eligibility of deduction u/s.80P(2)(a)(i) of the Act and not u/s.80P(2)(d). for A.Y.2014-15 Shree Tuljabhavani Nagari Sahakari Pat Sanstha Maryadit(A) Moreover, so many decisions relied on by the ld. AR amply go to prove that the view taken by the AO, cannot by any standard, be construed as not a possible view. We, therefore, hold that the ld. Pr. CIT was not justified in exercising the revisional power anent to interest income of Rs.22,34,270/- earned on investments made with co-operative banks.” Unquote. 6. The facts of the present case are identical to the case law mentioned above, the assessee is a Cooperative Credit Society and it claimed deduction u/s 80P which has been allowed by the AO after verification. Hence, respectfully following the Ld.Co-ordinate Bench(supra), it is held that the order u/s.263 is not sustainable. Hence, grounds of appeal raised by assessee are allowed.

In the result, appeal of the Assessee is allowed. Order pronounced in the open Court on 28th July, 2022.