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Facts
The assessee, a cooperative society, filed a return declaring NIL income after claiming deductions under Section 80P(2)(a)(i) and 80P(2)(f) of the Income Tax Act, 1961. The Principal Commissioner of Income Tax (PCIT) initiated proceedings under Section 263, stating that the Assessing Officer (AO) failed to make adequate inquiry before allowing the deduction. The PCIT concluded that the assessment order was erroneous and prejudicial to the interest of revenue.
Held
The Tribunal noted that the assessee had submitted a registration certificate and evidence of income earned from interest on loans to members, as well as interest from bank accounts and dividend income. The Tribunal referred to decisions of the Gujarat High Court regarding deductions for cooperative societies. The Tribunal found merit in the assessee's arguments and concluded that the order passed by the PCIT was not sustainable.
Key Issues
Whether the PCIT's order u/s 263 was justified in setting aside the assessment order for lack of inquiry regarding the assessee's eligibility for deduction u/s 80P.
Sections Cited
147, 144B, 1961, 263, 80P(2)(a)(i), 80P(2)(f), 2(19), 80P(2)(d)
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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: DR. ARJUN LAL SAINI & SHRI DINESH MOHAN SINHA
आदीश/ O R D E R PER DINESH MOHAN SINHA, JM:
Captioned appeal filed by the assessee, pertaining to Assessment Year (AY)-2020-21, is directed against the order passed by the Principle Commissioner of Income Tax [(in short “Ld. PCIT”] vide order dated 27.03.2025, which in turn assessment order passed by Income Tax Department/Assessing Officer under section 147 r.w.s. 144B of the Income Tax Act, 1961 (in short “the Act”), vide order dated 02.09.2022. 2. Grounds of appeal raised by the assessee are as follows:
1. The Id. PCIT erred in law as well on fact in assuming jurisdiction u/s.263 of the Act and in holding assessment order has erroneous and prejudicial to the interest of revenue.”
Brief facts of the case are that the assessee has filed its revised return of income on 03/11/2020 for AY 2020-21 declaring NIL income. The assessee has claimed to be engaged in the business as credit society providing credit facilities to its members out of deposits received from members and loans from RDC Bank and thereby claiming deduction available u/s 80P. The case was selected for scrutiny through CASS for the following reasons:
High value cash deposits reported in SFT(Business cases).
Low income (including exempt income and agricultural income) in comparison to high loans/ advances/ Investment in shares appearing in balance sheet.
High liabilities as compared to low income/receipts. 4. Chapter VI A deduction.
A notice issued by the AO, in compliance the assessee filed a reply to the notice and returned income accepted.
The Ld.PCIT has started verification of record of proceedings maintained by the assessing officer and observed that AO failed to make any enquiry /verification to examine and ascertain whether the assessee qualifies the deduction u/s 80P(2)(f) of the Act. The Ld.PCIT noticed that the assessee has claimed deduction of Rs. 1,85,31,645 u/s Sec. 80P(2)(a)(i) (Banking/Credit Facilities to its members) and the assessee has also claimed deduction of Rs. 4,75,276 u/s Sec. 80P(2)(f). Total deduction claimed of Rs. 1,90,06,921 in its ROI. The first step is to verify whether the assessee is a cooperative society. As per section 2(19) of the I.T. Act, "Co-operative society" means a co- operative society registered under the Co- Operative Societies' Act, 1912(2 of 1912) or under any other law for the time being in force in any state for the registration Page 2 of 5 of co-operative societies. And to ascertain the claim of deduction u/s 80P(2)(f) of the Act. Ld. PCIT has issued a notice u/s. 263 to the assessee.
In reply, the assessee has submitted a copy of the registration certificate issued under the Gujarat Cooperative Society Act, 1962 vide Registration number 32861/01 granting registration with effect from 02.11.2011 records shows that the assessee has earned income from interest on various kinds of loans given to its members. The total revenue earned by such interest is Rs. 1,85,82,630/-. As the assessee is engaged in the business of providing credit facilities to its members, the profits arrived by taking such interest into account is eligible for deduction under section 80P(2)(a)(i). Apart from this, the assessee has also earned Rs. 2,38,237/- as interest on saving bank account with Rajkot district cooperative bank, interest of Rs. 1,69,704/- on fixed deposits and Rs. 16,350/- is dividend income. As the income have been earned from cooperative bank, they would be eligible for deduction under section 80P(2)(d) in terms of the decision of the jurisdictional Hon'ble High Court of Gujarat in the cases of PCIT v. Ashwinkumar Arban Co Operative Society Ltd. [2024] 168 taxmann.com 314 (Gujarat) and PCIT v. Shree Madhi Vighag Khand Udyog Sahakari Mandli Ltd [2025] 171 taxmann.com 22 (Gujarat). In view of this, the assesse prayed that kindly drop the proceedigs.
After Considering the reply of the assesse, the Ld.PCIT of the view that the assessing officer has failed to make enquiry or verification to examine whether the assessee qualifies for deduction and the u/s 80(2)(f) of the Act, hence, the assessment order is erroneous and prejudicial to the interest of revenue and relied on the judgement of Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT 243 ITR 83 (SC) has held that, "An incorrect assumption of facts or an incorrect application of law will satisfy the Page 3 of 5 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..."
Accordingly, the impugned. assessment order passed by the assessing officer u/s. 143(3) r.w.s. 144B of the Act on 02.09.2022as rectified by order u/s 154 passed on 04.12.2024 is set aside for fresh assessment by order dated 27.03.2025 only to the extent of the issues discussed and the Assessing Officer is directed to pass a fresh assessment order after applying the correct provisions of law.
That the assessee filed an appeal against the impugned order dated 27.03.2025 passed by the Ld. PCIT before this Tribunal. 9.1. During the course of hearing, the Ld. AR submitted that the total income of Rs. 52,62,258/- tax exemption on 1,90,06,921/-. deduction u/s. 80P(2)(a)(i) of Rs. 1,85,31,645/-. Section 80P(2)(f) of Rs. 4,75,276/-, and There was no claim. Since the impace on the income and computation income not claimed. 9.2. On the contrary, the Ld. Sr. DR for the revenue relied on the order of the Ld.PCIT.
We have heard both the parties carefully and gone through the submission put forth on record. We note that the assessee filed the Return, whereby the profit earned was obvious of Rs. 52,62,258/-, however, deduction u/s. 60A and u/s. 80P income of the Co-operative society is amounting Rs. 1,90,06,921/-. Hence, the total taxable income is NIL. We note that the assessee has claimed the deduction u/s. 80P of Rs.1,85,31,645/-. And the second deduction u/s. 80P(2)(f) of Rs. 4,75,276/-. That during the course of agreement, they are Page 4 of 5 submitted that deduction u/s. 80P(2)(a)(i) is more than profit earned by the society, hence, no claim is required u/s. 80P(2)(f) of Rs. 4,75,276/-. However, the Ld.AR further clarified that there was no reflect of revenue. The Ld. DR for the revenue submitted that in the return of the assessee claim deduction of Rs. 4,75,276/-, after considering the facts and circumstances of the case, deduction u/s. 80P(2)(f) was not claimed by assessee. There is no loss to the revenue. According to the order of the Ld.PCIT the claim of Rs. 4,75,276/- is not allowable under the legal provisions has led to the assessment order is erroneous and prejudicial to the interest of revenue. We follow the decision of the jurisdictional Hon’ble High Court of Gujarat in the cases of PCIT v. Ashwinkumar Arban Co. Operative Society Ltd. [2024] 168 taxmann.com 314 (Gujarat) and, PCIT v. Shree Madhi Vigbhag Khand Udyog Sahakari Mandali Ltd. [2025] 171 taxmann.com 22 (Gujarat). We find that merit in this assessee case, and argument advanced by Ld. Counsel for the assessee, hence, the order passed by the Ld.PCIT on 27.03.2025 is hereby quashed.
In the result, the appeal of the assessee is allowed. Order is pronounced in the open court on 08/12/2025