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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: SHRI WASEEM AHMED & SHRI SIDDHARTHA NAUTIYAL
This appeal has been filed by the assessee against the order passed by the Ld. Principal Commissioner of Income Tax(Appeals)-1 (in short “Ld. PCIT”), Rajkot in Order No. ITBA/REV/F/REV-5/2021-22/1038847344(1) vide order dated 18.01.2022 passed for Assessment Year 2017-18.
The assessee has taken the following grounds of appeals:-
“1. The grounds raised in this appeal are without prejudice to one another.
2. Order of the learned PCIT Rajkot 1 (hereinafter called as PCIT) reopening the assessment u/s 263 is totally bad on facts as well as in law. Learned PCIT ought to have considered the fact that the assessee
Rajkot Jilla Sahakari Kharid Vechan Sangh Ltd. vs. PCIT Asst.Year –2017-18 - 2 - is duly scrutinized and all the aspects were discussed in details during the course of assessment proceedings under Section 143(3). So action of the re opening of assessment under Section 263 is not justified.
Learned PCIT has grievously erred in making Disallowance of claim made by the assessee amounting to Rs 30,18,710/ under Section 80P(2)(d) regarding interest income received from Rajkot District Co operative Bank Ltd. Learned PCIT ought to have considered the fact that the Rajkot District Co operative Bank Ltd. is registered under the Bombay Co operative Societies Act 1925 vide certificate No 24940 of 1959. Income earned from the co operative Society is eligible for deduction under Section 80P(2)(d), and not under Section 80P(2)(a)(i).
4. Learned PCIT further erred in not considering the fact that the PF dues for the month of June 2021 amounting to Rs 17734/ was paid on 13.07.2021. So the same was paid within due dated of 15.07.2021.
5. Learned PCIT further erred in not considering the fact that the interest on Income tax refund amounting to Rs 45684/ is credited to interest Income Account in our Balance sheet.
6. In view of the grounds mentioned as above your Appellant requests your Honour to appreciate the fact that re opening of an assessment as above is completely erroneous and disregard with the Act, and Order under Section 263 is required to be quashed.
7. Your Honor’s appellant craves leave to add, amend, alter or withdraw any or more grounds of appeal before hearing of appeal.”
Rajkot Jilla Sahakari Kharid Vechan Sangh Ltd. vs. PCIT Asst.Year –2017-18 - 3 - 3. The brief facts of the case are that the return of income for assessment in 2017-18 was filed on 16-10-2017 disclosing income of rupees Nil. The assessment for Assessment Year 2017-18 was finalised under Section 143(3) of the Act determining total income at Rs. “Nil” in this case. Subsequently, Principal CIT initiated 263 proceedings on the ground that firstly, during the year under consideration, the assessee had received interest income on fixed deposits amounting to ₹30,18,710/- from Rajkot District Cooperative Bank Ltd. The Principal CIT was of the view that various judicial precedents have held that interest income received by the assessee from cooperative Bank has to be assessed as “income from other sources” and assessee is not eligible for deduction under Section 80P(2)(a)(i)/80P(2)(d) of the Act. Accordingly, the Assessing Officer erred in law in not taxing the aforesaid income. Further, Principal CIT observed that the assessee has also not deposited the amount of PF contribution amounting to ₹41,982/- received from employees within the due date into the Government Account. Thirdly, Principal CIT also observed that assessee had received interest on income tax refund amounting to ₹13,964/- for Assessment Year 2014-15 and ₹31,720/- for Assessment Year 2010-11 during the year under consideration. However, the assessee had not disclosed the interest on refund as its income in the return of income. Accordingly, the interest on refund amount of ₹45,684/- is required to be added to the total income of the assessee. However, the Assessing Officer while completing the assessment has not property examined the aforesaid issues. Accordingly, Principal CIT set aside assessment order as being erroneous as well as prejudicial to the interests of the Revenue.
The assessee is in appeal before us against the aforesaid order passed by Ld. PCIT under Section 263 of the Act. Before us, the counsel for the assessee
Rajkot Jilla Sahakari Kharid Vechan Sangh Ltd. vs. PCIT Asst.Year –2017-18 - 4 - submitted the issue regarding interest received from cooperative banks was examined by the Assessing Officer in detail during the course of assessment, and accordingly, after duly taking into account the submissions on this issue filed by the assessee, the Assessing Officer did not make any additions on this account. Further, the counsel for the assessee submitted that the view taken by the Assessing Officer is a legally plausible view since various judicial precedents have decided this issue in favour of the assessee and held that interest received from cooperative banks is eligible for deduction under Section 80P(2) of the Act. Further, regarding the late deposit of provident fund, the counsel for the assessee submitted that the assessee had deposited the PF within the due dates prescribed under the respective laws and he drew our attention to page 250 of the paper book, containing the challan as proof of payment that the PF has been deposited within the due prescribed time. Further, the counsel for the assessee submitted that there was a mistake in the Tax Audit Report (Form 3CD) in which the auditors have incorrectly mentioned that EPF was deposited beyond the due prescribed date. Thirdly, regarding the interest on income tax refund amounting to ₹45,684/-, the counsel for the assessee submitted that the aforesaid amounts have been duly reflected by the assessee in the return of income and have been offered to tax during the impugned year under consideration. Accordingly, the assessment order cannot be held to be prejudicial and erroneous on this count.
In response, the Ld. DR placed reliance on the observations made by Principal CIT in the 263 order.
We have heard the rival contentions and perused the material on record. We observe that the Assessing Officer vide letter dated 20-09-2019 had specifically enquired into this aspect of eligibility for claim of deduction under Rajkot Jilla Sahakari Kharid Vechan Sangh Ltd. vs. PCIT Asst.Year –2017-18 - 5 - Section 80P(2)(d) of the Act. Further, the assessee also filed reply dated 2nd October 2019, in which the assessee had filed a written submission in support of its eligibility for claim of deduction under Section 80P(2) of the Act. Accordingly, evidently this issue has been examined by the Assessing Officer during the course of assessment proceedings, and after taking the submissions of the assessee on record, the Assessing Officer allowed the claim of the assessee. Further, we observe that in the case of Surendranagar District Co- op. Milk Producers Union Ltd. 111 taxmann.com 69 (Rajkot - Trib.), the Rajkot ITAT held that Assessee-co-operative society could not claim benefit of section 80P(2)(d) in respect of interest earned by it from deposits made with nationalized / private banks, however, said benefit was available in respect of interest earned on deposits made with co-operative bank. In the case of Surat Vankar Sahakari Sangh Ltd. 72 taxmann.com 169 (Gujarat), the Hon'ble High Court held that Assessee-co-operative society was 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. In the case of Prime Co Op Bank Ltd. 49 taxmann.com 16 (Gujarat), the High Court held that Interest income received by a co-operative bank on its voluntary reserve in bank, bonds and small scale industrial corporation is eligible for deduction under Section 80P. The Hon’ble Gujarat High Court in the case of State Bank of India Vs. CIT (2016) 389 ITR 578 (Guj), held 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. The Hon’ble Gujarat High Court made the following observations in respect of interest earned from deposits kept with a cooperative bank:-
Rajkot Jilla Sahakari Kharid Vechan Sangh Ltd. vs. PCIT Asst.Year –2017-18 - 6 - “Therefore, it is only the interest derived from the credit provided to its members which is deductible under Section 80P(2)(a)(i) of the Act and the interest derived by depositing surplus funds with the StateBank of India not being attributable to the business carried on by the appellant, cannot be deducted under Section 80P(2)(a) (i) of the Act. If the appellant wants to avail of the benefit of deduction of such interest income, it is always open for it to deposit the surplus funds with a co- operative bank and avail of deduction under Section 80P(2)(d) of the Act.”
Accordingly, in so far as this issue with respect eligibility for deduction under Section 80P(2)(d) is concerned, in our view, the order passed by the Assessing Officer is not erroneous and prejudicial to the interests of the revenue for the reason that firstly, the Assessing Officer had examined this issue during the course of assessment proceedings and secondly, various judicial precedents as highlighted above have also adjudicated on this issue in favour of the assessee including the jurisdictional Gujarat High Court and the jurisdictional Rajkot ITAT.
Now with respect to the balance additions, we observe that the Principal CIT has correctly observed that the Assessing Officer has not enquired into the evident delay in deposit of PF as is visible from the tax audit report. Though, the counsel for the assessee has submitted that this was owing to a mistake on part of the tax auditors, however, the Assessing Officer should have enquired into this apparent mistake which is coming from the tax audit report filed by the assessee, which clearly mentions that there has been a delay in deposit of PF on part of the assessee. Further, regarding the interest on income tax refunds, we observe that the Assessing Officer has not enquired into this aspect
Rajkot Jilla Sahakari Kharid Vechan Sangh Ltd. vs. PCIT Asst.Year –2017-18 - 7 - at all. Though, the counsel for the assessee has submitted that the aforesaid amounts have been offered to tax by the assessee in its return of income, however, in our considered view, the Assessing Officer should have enquired into this aspect during the course of assessment proceedings. In the result, we are of the considered view that Principal CIT has not erred in facts and in law in holding that the assessment order is erroneous and prejudicial to the interests of the Revenue with respect to the issue of late deposit of PF and enquiry into taxability of interest on tax refund. The Assessing Officer, looking into the facts of the instant case, is directed to carry out the necessary enquiries and the assessee may also filed necessary documents in support of its aforesaid claim.
In the result, the appeal of the assessee is partly allowed. This Order pronounced in Open Court on 09/08/2023