NITYANAND BAUG CO OPERATIVE SOCIETY LIMITED,MUMBAI vs. PRINCIPAL COMMISSIONER OF INCOME TAX , MUMBAI

The Ld. PCIT was of the opinion that for the allowance of this amount as deduction u/s 80P(2)(d) of “the Act”, the interest or dividend must have been earned from a cooperative society and not from the cooperative bank and has relied upon the judgment of the Hon’ble Supreme Court in the case of Kerala State Cooperative Agricultural and Rural Development bank Ltd. (KSCARDB) vs. The Assessing Officer, Trivandrum & Ors., in Civil Appeal Nos. 10069 of 2016 dated 14.09.2023, stating that the Hon’ble Supreme Court has held that the cooperative bank is not a cooperative society and as such interest earned on investment made in the cooperative bank is not an income from other society and not eligible for deduction u/s. 80P(2)(d) of “the Act”. It was therefore held that the Ld. AO has failed to properly examine the issue and the assessment order was erroneous and prejudicial to the interest of revenue. Page | 3 Nityanand Baug Co-operative Housing Society Ltd; A.Y. 2018-19 5. Aggrieved by this order of the Ld. PCIT, the assessee is in appeal before us and has challenged the order of the Ld. PCIT on the following summarized grounds: a. The order passed u/s. 263 of “the Act” is without jurisdiction because the Ld. PCIT has not considered the written submissions and various latest case laws of Mumbai Income Tax Tribunal and without appreciating the facts of the case of Hon’ble Supreme Court i.e., K.S.C.O. Agricultural and Rural Development Bank Ltd V/s The AO Trivandrum Civil Appeal No. 5005 to 5007 of 2019; that the said case is not applicable to the facts and circumstances of the case of the assessee. b. The order of the Ld. AO is neither erroneous nor prejudicial to the interest of the revenue because the Ld. AO has taken one of the possible views on this matter after considering the various judicial pronouncements and has allowed the deduction u/s. 80P(2)(d) lawfully. c. The legal position is settled by various pronouncements that the interest received in the hand of cooperative society is exempt u/s. 80P(2)(d) of “the Act” and the Ld. PCIT has passed the order u/s. 263 of “the Act” in haste without proper application of mind and on account of misinterpretation of law laid down by the Hon’ble Supreme Court in case of KSCARDB (supra). 6. We have heard the Ld. AR on behalf of the assessee and Ld. DR on behalf of the revenue. The Ld. AR has also filed written submissions and has argued that the order of the Ld. AO cannot be treated as prejudicial to the interests of the Revenue. When an Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an Nityanand Baug Co-operative Housing Society Ltd; A.Y. 2018-19 erroneous order prejudicial to the interest of the Revenue unless the view taken by the Income Tax Officer is unsustainable in law (P)83. In support of his argument, he relied upon various cases as follows: a. Malabar Industrial Co. Ltd. v/s CIT(2000)243 ITR 83/109 Taxman 66(SC) b. CIT v/s Arvind Jeweller 259 ITR 502 c. CIT v/s Power Finance Corporation (2015)/378 ITR 619 (Delhi) d. Bongoigaon Refinery & Petrochemicals Ltd. v/s Union of India (Gauhati HC) 287 ITR 120 e. CIT v/s Pathy Cine Enterprises 292 ITR 495 f. CIT v/s Mepсо Industries Ltd 294 ITR 121(Section 159) 7. Secondly, it is argued that as per various judgements if one Co-operative Society invests funds in/with other Co-operative Society including Co- operative Bank, the Assessee is entitled to deduction u/s 80P(2)(d). The Ld. AR simply relied upon the following citations: a. Pathare Prabhu Co. H. S. Ltd. v/s ITO 22(2)(1) (2023)202ITD 464 b. ITO v/s Casa Grande Co-op. H. S. Ltd. c. Laxmi Co-op. Н. S. Ltd. v/s ITO 22(2)(3) ITA/1745/M/2023 d. Principal CIT v/s Totagers Co- operative Sales Society e. Karnataka State Co-operative Federation v/s Assistant CIT (2021)186 ITD 750 Nityanand Baug Co-operative Housing Society Ltd; A.Y. 2018-19 f. Bank of Baroda v/s H. C. Shrivastva (2002)122 Taxman 330 Bombay HН.С.

The Ld. AR on behalf of the assessee has therefore argued that the order of the Ld. PCIT is not legally sustainable as it amounts to improper and unlawful usurpation of the jurisdiction by the Ld. PCIT u/s. 263 of "the Act" and prayed for setting aside of the same.

The Hon'ble High Court of Bombay in Commissioner to Income Tax Vs. Gabriel India Ltd. [1993] 71 Taxman 585 (Bombay) dated 15.04.1993 had the occasion to interpret Section 263(1) and elaborated the meaning of word erroneous and prejudicial to the interest of revenue. Para 13 of the said case is relevant and reproduced as under:-

Para 6 of the Ld. PCIT’s order concludes as to how the Ld. AO’s order was erroneous and prejudicial to the interest of revenue and the said para reads as under:-

Now it is to be seen whether the above order of the Ld. AO is suffering from the lack of enquiry or the examination of the issue as per law before reaching to the conclusions of giving benefit to the assessee. The Hon'ble High Court of Delhi recently in PCIT -2 Delhi Vs. M/s. Clix Finance India Pvt. Ltd., order dated 01.03.2024 while relying on the case of Malabar Industrial Co. Ltd referred (supra) has held that "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 Income Tax Officer adopted one of the Page | 9 Nityanand Baug Co-operative Housing Society Ltd; A.Y. 2018-19 courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income Tax Officer 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 Income Tax Officer is unsustainable in law."

The Hon'ble High Court of Delhi was further pleased to hold in para no. 27 of the same judgment that “inadequacy of enquiry by the AO with respect to certain claims would not in itself be a reason to invoke the powers enshrined in Section 263 of "the Act".

On perusal of the Ld. AO’s order, it is to be noticed that the Ld. AO while giving the benefit u/s. 80P(2)(d) to the assessee has concluded that “in response to the above show cause the assessee has uploaded his reply on e-filling portal. The reply has been examined and deduction claimed under chapter VIA by the assessee U/s 80P(2)(d) of Rs.14,24,038/- has been considered”. These observations of the Ld. AO shows that he has examined the reply of the assessee which was uploaded on the e-filing portal. These facts shows that the Ld. AO has passed the assessment order after diligently carrying out the assessment and there is no reason to assail the same on the ground of non-application of mind. Thus, it is not a case Page | 10 Nityanand Baug Co-operative Housing Society Ltd; A.Y. 2018-19 of lack of enquiry and even if the enquiry would have been inadequate, that would not by itself give occasion to the Ld. Principal Commissioner to pass the order u/s. 263 of "the Act" reliance can be safely placed upon the judgment of Commissioner of Income Tax Vs. Sunbeam Auto Ltd. (2009) SCC Online Delhi 4237, dated 11.09.2009 and also Hon’ble High Court of Delhi in (supra).

In view of the above facts, we are of the considered opinion that the Ld. PCIT was not justified in invoking revision power u/s. 263 of the Act on the ground that the Ld. AO has failed to properly examined the issue before allowing benefit u/s. 80P(2)(d) to the assessee.

Now we proceed further examine the issue to find out if the benefit of Section 80P(2)(d) allowed by the Ld. AO was legally sustainable and has been done lawfully by the Ld. AO. The Ld. PCIT in the impugned order was of the opinion that the Ld. AO has failed to follow the decision of the Hon'ble Supreme Court in KSCARDB case referred (supra). The issue whether the interest earned by a cooperative society from the investment in a cooperative bank would be entitled to the exemption u/s. 80P(2)(d) or not has arisen before the Coordinate Bench recently in the case of ITAT Pune Bench “SMC”, titled Shree Parashar Vividh Kary Kari Sahakari Page | 11 Nityanand Baug Co-operative Housing Society Ltd; A.Y. 2018-19 Vikas Sanstha Maryadit Vs. Income Tax Officer Ward -1, Maharashtra, [2024] 206 ITD 663/161 taxmann.com 208 (Pune-Trib.), dated 20.03.2024. The Ld. Coordinate Bench has duly considered all the aspects of the issue and the relevant portion of the finding is reproduced as under:

In so far the judicial pronouncements that have been relied upon by the ld. A.R are concerned, we find that the issue that a co-operative society would be entitled for claim of deduction under Sec. 80P(2)(d) on the interest income derived from its investments held with a co- operative bank is covered in favour of the assessee in the following cases: (i) M/s Solitaire CHS Ltd. v. Pr. CIT, dated 29.11.2019 (ITAT "G" Bench, Mumbai); (ii) Majalgaon Sahakari Sakhar Karkhana Ltd. v. ACIT, Circle- 3, Aurangabad, ITA No, 308/Pun/2018 (ITAT Pune) Page | 12 Nityanand Baug Co-operative Housing Society Ltd; A.Y. 2018-19 (iii) Kaliandas Udyog Bhavan Pemises Co-op. Society Ltd. v. ITO , 21(2)(1), Mumbai We further find that the Hon'ble High Court of Karnataka in the case of Pr. Commissioner of Income Tax and Anr. v. Totagars Cooperative Sale Society [2017] 78 taxmann.com 169/392 ITR 74 (Karnataka) and Hon'ble High Court of Gujarat in the case of State Bank Of India v. CIT [2016] 72 taxmann.com 64/290 CTR 129/389 ITR 578/241 Taxman 163 (Gujarat), had held, that the interest income earned by the assessee on its investments with a co-operative bank would be eligible for claim of deduction under Sec. 80P(2)(d) of the Act. Still further, we find that the CBDT Circular No. 14, dated 28.12.2006 also makes it clear beyond any scope of doubt that the purpose behind enactment of sub-section (4) of Sec. 80P was that the co-operative banks which were functioning at par with other banks would no more be entitled for claim of deduction under Sec. 80P(4) of the Act. Although, in all fairness, we may herein observe that the Hon'ble High Court of Karnataka in the case of Pr. CIT v. Totagars co-operative Sale Society [2017] 83 taxmann.com 140/297 CTR 158/395 ITR 611 (Karnataka), as had been relied upon by the ld. D.R before us, had held, that a co-operative society would not be entitled to claim deduction under Sec. 80P(2)(d); but then, the Hon'ble High Court in the case of Pr. Commissioner of Income Tax and Anr. v. Totagars Cooperative Sale Society [2017] 78 taxmann.com 169/392 ITR 74 (Karnataka) and Hon'ble High Court of Gujarat in the case of State Bank Of India v. CIT [2016] 72 taxmann.com 64/290 CTR 129/389 ITR 578/241 Taxman 163 (Gujarat), had observed, that the interest income earned by a co-operative society on its investments held with a co-operative bank would be eligible for claim of deduction under Sec.80P(2) (d) of the Act. Backed by the aforesaid conflicting judicial pronouncements, we may herein observe, that as held by the Hon'ble High Court of Bombay in the case of K. Subramanian and Anr. v. Siemens India Ltd. and Anr [1983] 36 CTR 197/[1985] 156 ITR 11/[1983] 15 Taxman 594 (Bombay), where there is a conflict between the decisions of non-jurisdictional High Court's, then a view which is in favour of the assessee is to be preferred as against that taken against him. Accordingly, taking support from the aforesaid judicial pronouncement of Page | 13 Nityanand Baug Co-operative Housing Society Ltd; A.Y. 2018-19 the Hon'ble High Court of jurisdiction, we respectfully follow the view taken by the Hon'ble High Court of Karnataka in the case of Pr. Commissioner of Income Tax and Anr. v. Totagars Cooperative Sale Society [2017] 78 taxmann.com 169/392 ITR 74 (Karnataka) and that of the Hon'ble High Court of Gujarat in the case of State Bank Of India v. CIT [2016] 72 taxmann.com 64/290 CTR 129/389 ITR 578/241 Taxman 163 (Gujarat), wherein it was observed that the interest income earned by a co-operative society on its investments held with a cooperative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act.

Be that as it may, in our considered view, as the A.O while framing the assessment had taken a possible view, and allowed the assessee's claim for deduction under Sec. 80P(2)(d) on the interest income earned on its investments/deposits with co-operative banks, therefore, the Pr. CIT was in error in exercising his revisional jurisdiction u/s 263 of the Act for dislodging the same. Accordingly, finding no justification on the part of the Pr. CIT, who in exercise of his powers under Sec. 263 of the Act, had dislodged the view that was taken by the A.O as regards the eligibility of the assessee towards claim of deduction under Sec. 80P(2)(d), we set-aside his order and restore the order passed by the A.O under Sec. 143(3), dated 07.03.2016."

In our considered view, the finding of the Ld. Coordinate Bench is mutatis mutandis applicable to the facts and circumstances of the case in hand before us. With due respect to their Lordships the facts and circumstances of the case of the Hon'ble Supreme Court i.e., Kerala State Cooperative Agricultural and Rural Development bank Ltd. (KSCARDB) vs. The Assessing Officer, Trivandrum & Ors., in Civil Appeal Nos. 10069 of 2016 dated 14.09.2023relied by the Ld. CIT are distinguishable from the facts Nityanand Baug Co-operative Housing Society Ltd; A.Y. 2018-19 in issue before us and therefore the reliance by the Ld. CIT on the said judgment seems to be misplaced.

Ld. DR also submitted that the revenue has filed SLP against the Karnataka High Court judgment i.e., Principal Commissioner of Income Tax & Ors. Vs. Totagars Cooperative Sale Society [2017] 78 taxmann.com 169/392 ITR 74 (Karnataka) and Hon'ble High Court of Gujarat in the case of State Bank of India v. CIT [2016] 72 taxmann.com 64/290 CTR 129/389 ITR 578/241 Taxman 163 (Gujarat), therefore, the AO should not have allowed the benefit to the assessee u/s. 80P(2)(d) because the issue of entitlement of benefits of the interest earned from the investment in cooperative bank has not yet attained finality. We have considered the said submissions of Ld. DR and in our considered view advancing of such arguments is contrary to the judicial discipline. The principle of law laid down by the High Court is a binding precedent upon the jurisdictional subordinate courts/Tribunal and has legally persuasive value for the other courts/Tribunals of the country unless and until the said law is set aside by the Hon’ble Supreme Court. We understand the anxiety and zeal of the Ld. DR’s arguments, but his anxious canvassing need not disturb the calmness of our thought process which is duly guided by the settled principle of law, we are bound to follow. For the above reasons, the arguments of Ld. DR that the Page | 15 Nityanand Baug Co-operative Housing Society Ltd; A.Y. 2018-19 judgment of Hon’ble Karnataka High Court and Gujrat High Court (supra) which favours the assessee need not be followed by Ld. AO is a fallacious argument and is liable to be rejected outrightly. Our view is fortified by the decision of the Hon'ble Allahabad High Court, K. N. Agarwal Vs. Commissioner of Income Tax, order dated 11.01.1991, [1991] 189 ITR 769B (ALL) which says, “Indeed, the orders of the Tribunal and the High Court are binding upon the Assessing Officer and since he acts in a quasi-judicial capacity, the discipline of such functioning demands that he should follow the decision of the Tribunal or the High Court, as the case may be. He cannot ignore it merely on the ground that the Tribunal's order is the subject-matter of revision in the High Court or that the High Court's decision is under appeal before the Supreme Court. Permitting him to take such a view would introduce judicial indiscipline, which is not called for even in such cases.”

For the above discussions, we are of the considered opinion that the order of the Ld. AO was neither erroneous nor prejudicial to the interest of revenue and the Ld. PCIT has erred in exercising power u/s. 263 of "the Act". We therefore find the order of the Ld. PCIT apparently perverse and the same is, accordingly set aside.

In the result, appeal is allowed in the above terms.