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Assessee by Shri Akshay M. Modi, A.R. Department by Shri Ashok B. Koli, CIT-DR Date of Institution of Appeal 10/04/2023 Date of hearing 10/07/2023 Date of pronouncement 10/07/2023 Order under Section 254(1) of Income Tax Act . PER: PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by the assessee is directed against the order of learned Principal Commissioner of Income Tax-1, Surat [in short the ld. Pr.CIT] dated 02/03/2022 passed under Section 263 of the Income Tax Act, 1961 (in short, the Act) for the Assessment Year (AY) 2018-19. The assessee has raised following grounds of appeal: “1 On the facts and in the circumstances of the case as well in law, the learned Pr. CIT, Surat-1, Surat erred in having assumed jurisdiction u/s 263 of the Act in order to substitute his subjective view in place of judicious view taken by the AO on the same set of facts and materials on records, for the deduction claimed u/s 80P(2)(d) of the Act (subject to the availability of gross total income), by holding that the order passed u/s 143(3) r.w. -143(3A) & 143(3B) of the Act dtd. 27-01-2021 was erroneous in so far as it is prejudicial to the interest of the revenue Shree Madhi Vibhag Khand Udyog Sahakari Mandli Ltd. Vs Pr.CIT and being unsustainable in law, is liable to be nullified or annulled in toto.
2. On the facts and in the circumstances of the case as well in law, the learned Pr. CIT, Surat-1, Surat erred in having assumed jurisdiction u/s 263 of the Act directing the AO to deny the deduction claimed u/s 80P(2)(d) of the Act, as allowed in the assessment order u/s 143(3) r.w. 143(3 A) & 143(3B) of the Act passed, after due inquiry and in-" depth verification of the relevant assessment records and therefore, the order u/s 263 of the Act passed by the Pr. CIT, Surat-1, Surat arbitrarily, prejudicially and subjectively on incorrect and inappropriate facts and figures, being without jurisdiction, bad in law, void ab initio, illegal and hence, is liable to struck down.
On the facts and in the circumstances of the case as well in law, the learned Pr. CIT has wrongly invoked the revision proceedings under Explanation 2(a)/(b) below Section 263 of the Act, solely on the basis of revenue audit objections, without examination of the "records" of the proceedings under the Act and hence, the order passed u/s 263 of the Act being influenced by the revenue audit objections and without application of unbiased and independent mind by the Pr.CIT, being patently in contravention to the provisions of law and the law laid down by the Apex Court in Sirpur Paper Mill Ltd. Vs. CWT (1970) 77 ITR 6 (SC) is without jurisdiction, bad in law and hence, liable to be struck down.
4. On the facts and in the circumstances of the case as well in law, the learned Pr. CIT has grievously failed to appreciate in the right, lawful and proper perspectives, the explanations substantiated with the cogent, credible and authentic evidences, documents, accounts, materials, etc. offered during the course of assessment proceedings and moreso, placed on the assessment records, for the claim of deduction u/s 80P(2)(d) of the Act, while arbitrarily and subjectively relied upon the distinguished judgments, without appreciating the fact that the order u/s 143(3) r.w. 143(3A) & 143(3B) of the Act passed by the AO was neither prejudicial to the interest of the revenue nor an erroneous and hence, the order u/s 263 of the Act is liable to be struck down.
Without any prejudice to the above, on the facts and in the circumstances of the case as well in law, the order of the learned Pr. CIT u/s 263 of the Act suffers from serious illegalities in as much as, according to the settled position in law and in consideration of the same set of facts in existence consistently allowing the deduction claimed u/s 80P(2)(d) of the Act by the AO and/or the appellate authorities (as explained during the assessment/revisionary proceedings) and Shree Madhi Vibhag Khand Udyog Sahakari Mandli Ltd. Vs Pr.CIT therefore, the order passed u/s 263 of the Act invoking Clause (a)/(b) of the Explanation 2 of Section 263 of the Act patently in violation of "rule of consistency" is bad in law, without jurisdiction, arbitrary, invalid and hence, liable to be quashed.
Your appellant further reserves its rights to add, alter, amend or modify any of the aforesaid grounds before or at the time of hearing of an appeal.”
At the outset of hearing, the learned Authorised Representative (ld. AR) of the assessee submits that the grounds of appeal
raised by assessee is covered by various decisions of Surat Tribunal in Bardoli Vibhag Gram Vikas Co-op Credit Society Ltd. Vs PCIT (2021) 127 taxmann.com 334 (Surat-Trib) and the decision of Hon'ble Gujarat High Court in Surat Vankar Sahakari Sangh Ltd. Vs ACIT (2016) 72 taxmann.com 169 (Guj).
3. The ld. AR of the assessee submits that the assessee is a co-operative society and in the computation of income, the assessee claimed deduction under Section 80P(2)(d) of the Act of interest and dividend income earned from Surat District co-operative bank. The issue was extensively examined by the Assessing Officer during the assessment proceedings by issuing specific show cause notice under Section 142(1) dated 18/12/2020. In the said notice the Assessing Officer asked the assessee to furnish the details of interest and dividend income earned from other co-operative society about claim of deduction of Rs. 2.35 crores under Section 80P of the Act. The assessee furnished its reply dated 05/01/2021 giving complete details and explained that the assessee has earned interest income of Rs. 2.01 Crore from Surat District Co-operative Bank.
Shree Madhi Vibhag Khand Udyog Sahakari Mandli Ltd. Vs Pr.CIT The assessee also explained before the Assessing Officer that similar deduction was allowed in A.Y. 2015-16 and 2016-17, though return was processed under Section 143(1) of the Act for both the assessment years. In A.Y. 2017-18, similar deduction was disallowed, appeal of which is pending before the ld. CIT(A). The assessee also furnished copy of decision of Hon'ble Gujarat High Court in PCIT Vs Sabarkantha District Co-Op Milk Producers Union Ltd. in Tax Appeal No. 473 of 2014 wherein similar relief was allowed by the Tribunal to that assessee and subsequent appeal of revenue, before High Court was dismissed. The ld. AR of the assessee further submits that in Bardoli Vibhag Gram Vikas Co-op Credit Society Ltd. Vs PCIT (supra), similar objections of revenue/ issues identified by PCIT was considered by this Bench while allowing appeal of said assessee. Thus, the assessment order passed by assessing officer is neither erroneous nor prejudicial to the interest of revenue. The assessment order passed by assessing officer in accepting the plea of deduction of interest income earned from Co-operative bank is not erroneous.
The ld. AR of the assessee submits that during revision proceedings, the assessee sought adjournment vide application dated 01/03/2023, however, the adjournment request was rejected and the ld. Pr. CIT passed the order under Section 263 in setting aside the assessment order on the issue of deduction of interest of Rs. 2.01 crore under Section Shree Madhi Vibhag Khand Udyog Sahakari Mandli Ltd. Vs Pr.CIT 80P(2)(d) of the Act. The ld. AR of the assessee submits that the grounds of appeal
in fact are squarely covered in favour of assessee by the various decisions including the decision relied by him. The ld AR for the assessee prayed to allow the appeal of assessee.
5. On the other hand, the learned Commissioner of Income Tax- Departmental Representative (ld. CIT-DR) for the revenue submits that the case was selected for scrutiny for examining the deduction under Chapter VI-A. The Assessing Officer while issuing show cause notice has issued notice as to why the interest income and dividend income of Rs. 2.35 crores earned from should not be treated as income from “other sources”. No addition was made by the Assessing Officer on such issue. The assessee has not earned such interest income in its business activities, thus such income was to be taxed under the head “other sources”. The assessment order is silent about taxing of such income under the head “other sources”. The ld. CIT-DR for the revenue submits that as per the language of Section 80P(2)(d), the assessee is eligible for deduction of interest earned from other cooperative society, the word “Co-operative bank” is missing. The banks are governed by the Reserve Bank of India’s Regulation and Cooperative Societies are governed by the Cooperative Societies Act of the State Government, thus both the entities are quite different. The ld. CIT(A) while setting aside the assessment order has given clear finding that the assessment order is erroneous in so Shree Madhi Vibhag Khand Udyog Sahakari Mandli Ltd. Vs Pr.CIT far as prejudicial to the interests of revenue as the assessment order is completely silent on the issue. To support his submissions, the ld CIT-DR for the revenue relied on the decision of Hon’ble Supreme Court in Totagars Co-operative Sales Society Vs ITO (2010) 322 ITR 283 SC/ 188 Taxman 282.
6. In short rejoinder, the ld. AR of the assessee submits that in Bardoli Vibhag Gram Vikas Co-op Credit Society Ltd. Vs PCIT (supra), this Bench has considered all such similar submissions of ld. CIT-DR. The ld. AR of the assessee submits that the Hon'ble High Court in Surat Vankar Cooperative (supra) it was held that cooperative banks are primary a cooperative society and interest income earned on such cooperative banks are eligible for deduction under Section 80P(2)(d) of the Act.
We have considered the rival submissions of both the parties and also perused the orders of lower authorities carefully. We have also deliberated on the various case laws relied by ld representatives. The assessee before us, is a cooperative society registered under the provisions of Gujarat Co-operative Societies Act-1961. The assessee filed its return of income for AY 2018-19 on 16.10.2018. Initially return of income was processed under section 143(1) on 16.05.2019. later on It was selected for scrutiny by issuing notice under section 143(2) on 23.09.2019. The case was selected for scrutiny for examination of deduction of Chapter-VIA. We find that during the assessment order the Shree Madhi Vibhag Khand Udyog Sahakari Mandli Ltd. Vs Pr.CIT assessing officer issued specific show cause notice for examination of deduction under Chapter VIA. The assessee filed its reply and explained the admissibility of deduction under section 80P, specifically about the deduction of Rs. 2.01 Crore claimed under section 80P(2)(d). No doubt, there is no reference about the examination of such issue, however, admittedly the issue was examined by the assessing officer. We further find that the ld PCIT revised the assessment order on the issue of deduction under section 80P(2)(d). On carful considerations of grounds of appeal
and the facts of the case, we find that on similar grounds of appeal on similar set of facts, this combination has this Tribunal allowed similar relief to that assessee, thus in our view, the grounds of appeal raised by the assessee are square covered in favour of assessee and against the revenue. For completeness of order, the relevant part of decision in Bardoli Vibhag Gram Vikas Co-op Credit Society Ltd. Vs PCIT (supra) is extracted below:
11. We have considered the rival submission of both the parties. We have also deliberated on the written submission filed by learned AR of the assessee and various case laws relied by him during his submission. We have also gone through the various documentary evidences filed in the form of paper book (PB) by learned AR of the assessee. We have noted that during the assessment the Assessing Officer vide notice under section 143(2)/142(1) of the Act dated 31.08.2015 and 13.04.2016. The assessee filed its reply through its CA (AR) and furnished required details and after examining the issue allowed the deductions under section Shree Madhi Vibhag Khand Udyog Sahakari Mandli Ltd. Vs Pr.CIT 80P(2)(d) as discussed in para 4 of the assessment order. The Assessing Officer passed assessment order on 18.10.2016.
The ld. PCIT before passing under section 263 of the Act, identified the issue regarding the claim of deduction under section 80P(2)(d) in its show cause notice dated 06.03.2019. The assessee in its reply dated 7.03.2019 clearly explained that the issue was examined by Assessing Officer and that the assessment order is not erroneous. The assessee also explained that similar disallowances /issues was subject matter in the appeal filed by the revenue before Tribunal in A.Y. 2009-10, 2010-11 and 2012-13 and the assessee was allowed similar deductions.
The Hon'ble Jurisdictional High Court in Aryan Arcade Ltd., vs PCIT (2019) 412 ITR 277 (Gujarat) held that merely because Commissioner held a different belief that would not permit him to take the order in revision, it if further held that when Assessing Officer made full enquiry, he made up his mind, the notice of revision is not valid. (emphasis added by us). Further, Hon'ble Madras High Court in CIT Vs Mepco Industries Ltd., (2007) 207 CTR 462 (Madras) held that when two views are possible on an issue and it is not the case of the Commissioner that the view taken by Assessing Officer is not permissible in law, Commissioner cannot invoke his jurisdiction under section 263 of the Act. (emphasis added by us) 14. As we have noted above the assessing officer has made enquiries on the allowability of deduction under section 80(P)(2)(d) and passed the assessment order, thus, the Assessing Officer has taken a reasonable and possible view which cannot be held as erroneous.
The Hon'ble Karnataka High Court in PCIT Vs. Totagars Co-operative Sales Society [2017] 78 taxman.com 169 (Karnataka) held that for the purpose of section 80P(2)(d) a Co-operative Bank should be considered by a Co-operative Society and interest earned by Co-operative Society from Co-operative Bank would necessarily be deductible under section 80P(1) of the Act. Further, the Hon'ble Jurisdictional High Court in Surat Shree Madhi Vibhag Khand Udyog Sahakari Mandli Ltd. Vs Pr.CIT Vankar Sahakari Sangh Ltd., vs. ACIT [2016] 72 taxmann.com 169 (Guj) held that assessee co-operative society is eligible for deduction under section 80P(2)(d) in respect of gross interest received from co-operative bank without adjusting interest paid to said bank.
The Co-ordinate Bench of Rajkot Tribunal in Surendarnagar District Co- operative Milk Producer Union Ltd., vs. DCIT [2019] 111 taxmann.com 69 (Rajkot Tribunal) also held the assessee co-operative society could not claim benefit under section 80P(2)(d) in respect of interest earned by it from deposits made with nationalized/private banks, however, the said benefit was available in respect of interest earned and on deposits made with co-operative bank. Thus, in view of the aforesaid legal discussion we are of the considered view that order passed by Assessing Officer is not erroneous, though it may be prejudicial to the interest of the Revenue. Therefore, the twin conditions that orders is erroneous and so far as prejudicial to the interest of revenue, as prescribed under section 263 is not fulfilled in the present case.
Moreover, we have seen that in assessee’s own case for A.Y. 2009-10, 2010-11 and 2012-13, the similar disallowance under section 80P(2)(d) was made by the assessing officer while passing assessment order under section 143(3), however, on appeal before Ld. CIT(A) , the disallowances were deleted and the order of the Ld. CIT(A) in all years were confirmed.
The ld. DR for the revenue relied on the case law in PCIT Vs. Totagars Co- operative Sales Society (second case)/(supra), wherein the Hon'ble Karnataka High Court held that interest earned by a Co-operative Society from surplus deposits kept with Co-operative bank, is not eligible for deduction under section 80P(2)(d). Considering the legal position that when there are conflicting decisions of non-jurisdictional High Courts, on similar issue, the decision of Jurisdictional High Court is having binding precedent. Thus, keeping in view of the decision Hon'ble Jurisdictional High Court in Surat Vankar Sahakari Sangh Ltd., vs. ACIT (supra) wherein the assessee-co-operative society is held eligible for deduction under Shree Madhi Vibhag Khand Udyog Sahakari Mandli Ltd. Vs Pr.CIT section 80P(2)(d) in respect of gross interest received from co-operative bank without adjusting interest paid to said bank, we conclude that the order passed by assessing officer is not erroneous. Hence, the grounds of appeal
raised by assessee are allowed.”
8. Considering the afforesaid decision of this combination on similar set of facts, on similar grounds of appeal, wherein this combination has already considered all the objection as raised by ld CIT-DR for the revenue, thus, the grounds of appeal raised by the assessee are allowed in favour of the assessee and against the revenue. Thus, we hold that the order of ld PCIT dated 02/03/2023, passed under section 263 is not justified, and the same is set aside/ quashed. In the result, the grounds of appeal raised by the assessee are allowed.
9. In the result, this appeal of assessee is allowed. Order pronounced on 10/07/2023 in open court.