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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri George George K, JM & Shri Laxmi Prasad Sahu, AM
O R D E R
Per George George K, JM :
This appeal at the instance of the assessee is directed against Principal Commissioner of Income-tax’s (PCIT) order dated 25.02.2020 passed u/s 263 of the I.T.Act. The relevant assessment year is 2015-2016.
The grounds raised read as follows:
“1. The order dated 25-2-2020 passed by the Principal Commissioner of Income Tax, Kochi under section 263 of the Income Tax Act, setting aside the assessment order dated 28- 6-2017 for the AY 2015-16 passed by the Income Tax Office, Ward-2, Thodupuzha is illegal, arbitrary and invalid.
2. The PCIT thoroughly erred in holding that the assessment order passed u/s 143(3) is erroneous and prejudicial to the interest of the revenue.
3. The PCIT thoroughly erred in holding that the interest received by the appellant Co-operative Society from its investment-s with M/s. Idukki Distnct Co-operative Bank Ltd is not eligible for deduction under section 80P of the Act.
. M/s.Nedumattom SCB Limited.
4. The PCIT erred in holding that the deduction under section 80P(2)(d) is available only on the interest received from its investment with any co-operative Society and not with a Co-operative Bank.
The PCIT failed to understand that Idukki District Co- operative Bank Ltd is a Co-operative Society registered under the Kerala Cooperative Societies Act and the deduction under section 80 P(2) (d) is available for interest received from investments made by the appellant society with any Co- operative Society and therefore eligible for deduction under section 80 P of the Income Tax Act.
6. The finding of the PCIT that the appellant has invested in a cooperative Bank which is functioning under the Banking Regulation Act and hence the interest received on such investment is not eligible for deduction u/s 80P of the IT Act. The said finding is totally erroneous and against the provisions of section 80P of the Income Tax Act. The PCIT also failed to understand the definition of a cooperative society as per section 2(19) of the Income Tax Act. Even going by the definition of 'Co-operative society' and 'Co-operative Bank' as per the Banking Regulation Act, the 'Co-operative bank' is a co-operative society. The PCIT thoroughly erred in holding that the appellant is not eligible for deduction under section 80P on the interest received from investment with a Co-operative Bank i.e.Idukki District Co-operative Bank Ltd. Therefore the order passed by the Assessing officer is not erroneous and prejudicial to the interest of the revenue.
7. The PCIT failed to understand that no further enquiry' or examination of activities of the appellant was required in this case as it could be seen that the PCIT also admit to the fact that the claim of deduction under section 80P of the I'I' Act is on the interest received by the appellant from the investments with Idukki District Co-operative Bank Ltd. and also admits to the fact that the interest income from banks and Treasuries are income from business and not income from other sources. That being the admitted case of the PCIT, no further enquiry / examination as to the activities of the appellant was needed for the purpose o[ deciding the eligibility of deduction under section 80P of the Act, as the interest income is received from the Idukki District Co-operative Bank Ltd, which is a Co- operative Society, which unambiguously is eligible for deduction under section 80P of the Income Tax Act.
The PCIT failed to note that the assessing officer had conducted the necessary enquiry and considered the reply/details furnished by the appellant and granted . M/s.Nedumattom SCB Limited. deduction under section 80 P of the Act. The finding of the PCIT that no details were called for by the assessing officer regarding interest is erroneous and factually incorrect" The assessing officer had asked for the details vide section 142(1) notice to which details were furnished by the appellant.
The PCIT failed to follow the judgment of the jurisdictional High Court passed in WP(C) No: 7795 of 2019 & connected cases. The PCIT failed to consider the matter in the right perspective and thoroughly went wrong in invoking its jurisdiction under section 263 of the Income Tax Act. The notice dated 8/1/2020 issued u/s 263 of the Income Tax Act and the consequential order passed by the PCIT is invalid [d and unjustified. For these and other grounds that may be urged at the time of hearing it is most respectfully prayed that this Honourable Tribunal may be pleased to set aside the order dated 25-2- 2020 passed by the Principal Commissioner of Income Tax, Kochi under section 263 of the Income Tax Act for the AY 2015-16 and to allow the appeal.”
The brief facts of the case are as follows: The assessee is a primary agricultural co-operative society. For the assessment year 2015-2016, the return of income was filed declaring total income at `Nil’, after claiming deduction u/s 80P of the I.T.Act amounting to Rs.38,86,151. The assessment was completed u/s 143(3) of the I.T.Act vide order dated 28.06.2016, accepting the returned income. The PCIT issued notice u/s 263 of the I.T.Act dated 08.01.2020 proposing to revise the assessment order for the reason that out of the total interest earned by the assessee-society, a sum of Rs.52,37,702 is interest income on investment with M/s.Idukki District Co-operative Bank Limited. According to the PCIT, as per section 80P(2)(d) of the I.T.Act, interest / dividend received from investment with co-operative societies alone would be entitled to deduction. Since the assessee had . M/s.Nedumattom SCB Limited. made investments with co-operative bank, which is functioning under the Banking Regulation Act and interest on such investment is not eligible for deduction u/s 80P(2)(d) of the I.T.Act. In response to the notice u/s 263 of the I.T.Act, the assessee’s Authorised Representative appeared on 19.02.2020 and filed objections. The objections of the assessee was rejected and the PCIT set aside the assessment order by placing reliance on the Hon’ble Full Bench judgment of the Kerala High Court in the case of The Mavilayi Service Co- operative Bank Ltd. v. CIT [ITA No.97/2016 order dated 19th March, 2019]. The PCIT directed the Assessing Officer to examine the activities of the assessee-society before granting deduction u/s 80P of the I.T.Act on such interest income and redo the assessment.
Aggrieved by the order of the PCIT passed u/s 263 of the I.T.Act, the assessee has filed this present appeal before the Tribunal. The assessee has filed a paper book comprising of 35 pages, enclosing therein, copies of statutory notices issued u/s 142(1) and 263 of the I.T.Act, copy of certificate evidencing that Idukki District Co-operative Bank Limited is registered as a co-operative society, the case laws relied on, etc. The learned AR by placing reliance on the judgment of the Hon’ble Kerala High Court in the case of The Chirayinkeezhu Service Co- operative Bank Limited v. ITO in WP(C) No.7795 of 2019 (judgment dated 03.12.2019) submitted that the interest income received by the assessee from Idukki District Co- operative Bank Limited is entitled to deduction u/s 80P(2)(d) of . M/s.Nedumattom SCB Limited. the I.T.Act, since Idukki District Co-operative Bank Ld. was registered as a co-operative society.
5. The learned Departmental Representative supported the order of the PCIT.
We have heard rival submissions and perused the material on record. The PCIT had primarily issued notice u/s 263 of the I.T.Act for the reason that interest income received from M/s.Idukki District Co-op Bank Ltd. was not entitled to deduction u/s 80P(2)(d) of the I.T.Act. The PCIT had set aside the assessment directing the A.O. to examine the activities of the assessee and grant deduction on such interest u/s 80P of the I.T.Act. The PCIT had followed the judgment of the Hon’ble Full Bench of the Kerala High Court judgment in the case of The Mavilayi Service Co-operative Bank Ltd. v. CIT [ITA No.97/2016 order dated 19th March, 2019]. The said judgment of the Hon’ble Full Bench of the Kerala High Court (supra) has been reversed by the Hon’ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. & Ors. v. CIT & Anr. reported in (2021) 431 ITR 1 (SC).
6.1 As regards the issue on merits, we are of the view that the interest received by a cooperative society from any other co-operative society is exempt from tax without any condition as per the provisions of section 80P(2)(d). Admittedly, the assessee during the relevant assessment years had only interest from M/s.Idukki District Co-operative Bank Ltd. The Hon’ble Kerala High Court in Kallara Service Co-operative
. M/s.Nedumattom SCB Limited. Bank Ltd, Kottayam and others Vs. The CIT (TDS), Cochin (WP (C)9415 of 2019) (judgment dated 18.10.2019) has decided that a district co-operative bank is a co-operative society. In this judgment the petitioners were co-operative Societies who held deposits with Kottayam District Co-Operative Bank Ltd, Kottayam. The writ petition was filed seeking exemption from deduction of tax on the interest earned by the petitioners under s.194A(3)(v) of the I.T.Act on these deposits held by them. The main contention of the petitioners was that payment of interest by Kottayam District Co-Operative Bank Ltd to them was payment by a co-operative Society to another Co- operative Society and hence the tax deduction provisions would not apply being covered u/s 194A(3)(v) of the I.T.Act. The writ petitions were allowed by the Honorable Kerala High Court. Even though the said judgment was on the question of exemption to societies from Tax deduction at source on interest u/s 194A(3)(v) of the I.T.Act, the judgment has clearly laid down the principle that the interest received by a co- operative society from a co-operative bank on deposits held with such co-operative bank is interest received by a co- operative society from another co-operative society and hence would be covered by the exemption provided in section 80P(2)(d) of the I.T.Act. The judgment of the jurisdictional High Court was binding on all authorities subordinate to the High Court, hence, the CIT(A) is not justified in invoking the revisionary jurisdiction u/s 263 of the I.T.Act for setting aside the assessment order. For the aforesaid reasoning and the judgment of the Hon’ble jurisdictional High Court, cited supra,
. M/s.Nedumattom SCB Limited. we hold that the assessee is entitled to deduction u/s 80P(2)(d) of the I.T.Act in respect of interest income received from M/s.Idukki District Co-operative Bank Ltd. for the relevant assessment year. It is ordered accordingly.
In the result, the appeal filed by the assessee is allowed.
Order pronounced on this 28th day of June, 2022.