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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI DUVVURU RL REDDY, HON’BLE & SHRI S BALAKRISHNAN, HON’BLE
Per Shri Duvvuru RL Reddy, Judicial Member :
This appeal is filed by the assessee against the order of the Principal Commissioner of Income Tax [in short, [PCIT], Visakhapatnam-1 in DIN & Order No.ITBA/REV/F/REV5/2021-22/1040343411(1) dated 04.03.2022 for the Assessment Year (A.Y.) 2017-18. 2. Brief facts of the case are that the assessee is a Primary Farmers Service Co-operative Society, filed it’s return of income in the status of AOP, for the A.Y.2017-18 on 31.03.2018, declaring NIL taxable income, after claiming deduction of entire income u/s 80P of the Income Tax Act, 1961
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(in short ‘Act’). The case was selected for limited scrutiny under CASS, to verify deduction under Chapter VIA. The assessment was completed u/s 143(3) of the Income Tax Act, 1961 (in short ‘Act’) on 10.12.2019, by accepting the income returned by the assessee. Under the powers vested with the Ld.PCIT, as per the provisions of section 263 of the Act, assessment records in the assessee’s case for the A.Y.2017-18 were called for and examined. On perusal of the records, the Ld.PCIT observed that the assessee in the return of income had claimed TDS of Rs.1,08,312/- deducted by the State Bank of India, ADB, Visakhapatnam and the State Bank of India, Chittivalasa Branch, in which the assessee had invested in fixed deposits and earned interest income, as evident from the schedule of investments annexed to balance sheet as on 31.03.2017 during the previous year, relevant to the A.Y.2017-18. However, the Ld.PCIT noticed that the assessee had claimed deduction of it’s entire income of Rs.31,72,670/- u/s 80P of the Act, which includes the interest income earned on the fixed deposits made with the State Bank of India. However, as per section 80P(2)(d) of the Act, deduction is allowable only in respect of any income by way of interest or dividends derived by the cooperative society from its investments with any other co-operative society. Hence, the Ld.PCIT held that the assessee is not eligible for deduction in respect of 3 ITA No.95/Viz/2022, A.Y.2017-18 Polepalli Farmers Service Co-operative Society Ltd., Vizianagaram
income earned on the fixed deposits made with the State Bank of India and the same ought to have been disallowed by the AO while verifying the issue of claim of deduction under Chapter VI A. The Ld.PCIT also held that the assessment order passed u/s 143(3) of the Act on 10.12.2019 is prima facie erroneous in law and prejudicial to the interest of the revenue, therefore, proposed for revision u/s 263 of the Act by issue of show cause notice dated 19.01.2022, as to why the assessment should not be revised. There was no compliance from the assessee for the show cause notice issued followed by another letter dated 11.02.2022 through ITBA module, explaining the assessee of the consequences for non-compliance to the letter. However, the assessee did not comply with the letter also. Hence, the Ld.PCIT passed the revisional order based the material available on record and held that in view of Explanation-2 to section 263 of the Act inserted by the Finance Act, 2015 w.e.f. 01.06.2015, the assessment order passed by the AO is deemed to be erroneous and prejudicial to the interest of the revenue and hence, directed the AO to disallow the claim of deduction u/s 80P of the Act to the extent of 10,.83,130/- being the interest income accrued / received on the fixed deposits with the State Bank of India and pass necessary consequential order.
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On being aggrieved, the assessee preferred an appeal before the Tribunal and raised the following grounds : 1) The impugned order passed dated 04.03.2022 u/w 263 of the I.T.Act by the Principal Commissioner of Income Tax, Viakhapatnam-1 is unjust and uncalled for. 2) The Learned Principal Commissioner of Income Tax ought to have appreciated the fact that the Explanation 2 to Sec.263 of the I.T.Act was not at all applicable to the appellant society’s case, as the impugned issue of deduction u/s 80P of the I.T.Act has been thoroughly examined and passed order by the then learned assessing officer u/s 143(3) of the I.T.Act by accepting the income earned by appellant society for the Asst.Year 2017-18. 3) The Learned Principal Commissioner of Income Tax ought to have appreciated the fact that the interest income of Rs.10,83,130/- earned by the appellant society on the fixed deposits during the previous year 2016-17 relevant to the Asst.Year 2017-18 was clearly incidental to the business of the appellant society and hence it was eligible for deduction u/s 80P of the Income Tax Act. 4) The Learned Principal Commissioner of Income Tax ought to have appreciated the fact that the appellant society invested fixed deposits only as stopgap arrangement to earn some income on the then surplus funds and hence it was clearly incidental income and eligible for deduction u/s 80P of the I.T.Act. 5) The Learned Principal Commissioner of Income Tax ought not have narrowly interpreted to provisions of Sec.80P(2)(d) of the I.T.Act and ought to have liberally interpreted the provisions of Sec.80P of the I.T.Act and ought to have considered the provisions of Sec.80P(2)(a)(i) of the I.T.Act judiciously and ought to have treated the impugned interest income of Rs.10,83,130/- as business income of the appellant society for the Asst.Year 2017-18 in the interests of justice. 6) The Learned Principal Commissioner of Income Tax ought to have appreciated the fact that the initiation of proceedings u/s 263 of the I.T.Act itself was ill founded, as the concerned assessment order was 5 ITA No.95/Viz/2022, A.Y.2017-18 Polepalli Farmers Service Co-operative Society Ltd., Vizianagaram
passed by the then learned assessing officer after thoroughly examining the case and after having satisfied with the correctness of the claim of deduction u/s 80P of the I.T.Act for the Asst.Year 2017-18. 7) The Learned Principal Commissioner of Income Tax ought to have appreciated the fact that the appellant society’s case for the Asst.Year 2017-18 was selected for limited scrutiny only with the reason to verify deduction under Chapter VIA of the I.T.Act and such verification was done by the then learned assessing officer in the scrutiny assessment proceedings and passed order dated 10.12.2019 u/s 143(3) of the I.T.Act by accepting the claim of deduction u/s 80P of the I.T.Act and by accepting the income returned by the appellant society.
All the grounds of appeal are related to disallowance of claim of deduction u/s 80P of the Act with respect to interest income accrued / received on the fixed deposits made with State Bank of India. The Ld.AR submitted that the assessee society invested in fixed deposits with State Bank of India only as stopgap arrangement to earn some income on the then surplus funds and it was clearly incidental income, eligible for deduction u/s 80P of the Act. Hence, argued that the Ld.PCIT is not justified in disallowing the claim of deduction u/s 80P of the Act, as the impugned issue of deduction u/s 80P has been thoroughly examined and the AO passed order u/s 143(3) of the Act by accepting the income earned by the assessee society for the A.Y.2017-18. The Ld.AR, therefore, pleaded to set aside the order passed by the Ld.PCIT and pleaded for one more opportunity of being heard before the Ld.PCIT in the interest of justice.
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On the other hand, the Ld.DR relied on the order of the Ld.PCIT and submitted that the assessment order passed by the AO is not only erroneous and also prejudicial to the interest of revenue. Hence, the Ld.PCIT is justified in rejecting the claim of deduction u/s 80P of the Act. Therefore, pleaded to uphold the order passed by the Ld.PCIT and dismiss the appeal of the assessee on these grounds.
We have heard both the parties and perused the material placed on record. It is an undisputed fact that the assessee society’s case for the Asst.Year 2017-18 was selected for limited scrutiny only with the reason to verify deduction under Chapter VIA of the I.T.Act and such verification was done by the then learned assessing officer in the scrutiny assessment proceedings and assessment order dated 10.12.2019 u/s 143(3) of the I.T.Act was passed by accepting the claim of deduction u/s 80P of the I.T.Act and by accepting the income returned by the assessee society. The Ld.AR contended that the assessee society invested in fixed deposits with State Bank of India only as stopgap arrangement to earn some income on the then surplus funds and it was clearly incidental income, eligible for deduction u/s 80P of the Act. The Ld.AR pleaded that one more opportunity may be given to the assessee to furnish it’s explanation before the Ld.PCIT for which the Ld.DR has not raised any objection. Considering the facts and 7 ITA No.95/Viz/2022, A.Y.2017-18 Polepalli Farmers Service Co-operative Society Ltd., Vizianagaram
circumstances of the case and in order to meet the principles of natural justice, we are of the view that it is a fit case to grant one more opportunity of being heard to the assessee. Hence, we direct the Ld.PCIT to pass order after giving opportunity of being heard to the assessee and the assessee is also directed to cooperate with the Ld.PCIT and furnish all the details asked by the Ld.PCIT. Therefore, we set aside the order passed by the Ld.PCIT and remit the matter back to the file of the Ld.PCIT. Accordingly, the appeal of the assessee is allowed for statistical purpose.
In the result, the appeal of the assessee is allowed for statistical purpose.
Order pronounced in the open court on 16th December, 2022. (एस बालाकृष्णन) (दुव्वूरु आर.एल रेड्डी) (S.BALAKRISHNAN) (DUVVURU RL REDDY) लेखा सदस्य/ACCOUNTANT MEMBER न्याधयकसदस्य/JUDICIAL MEMBER Dated : 16.12.2022 L.Rama, SPS
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आदेश की प्रतितिति अग्रेतिि/Copy of the order forwarded to:- 1. ननधधाऩरती/ The Assessee– The Polepalli Farmers Service Co-operative Society Ltd., B1612, Polepalli Village, Vizianagaram 2. रधजस्व/The Revenue – Income Tax Officer, Ward-1, Vizianagaram 3. प्रधान आयकर आयुक्त /The Principal Commissioner of Income Tax, Visakhapatnam-1 4. नवभधगीय प्रनतनननध, आयकर अपीलीय अनधकरण, नवशधखधपटणम/ DR,ITAT, Visakhapatnam 5.गधर्ा फ़धईल / Guard file आदेशधनुसधर / BY ORDER
Sr. Private Secretary ITAT, Visakhapatnam