SHREE VIKAS SHARAFI SAHKARI MANDLI LIMITED,RAJKOT vs. PCIT-1 RAJKOT, RAJKOT

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.

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..."