THE MULLANPUR GARIBDAS CO-OP MULTIPURPOSE SOCIETY,MOHALI vs. PR. CIT-II, CHANDIGARH

आदेश/ORDER

PER A.D.JAIN, VICE PRESIDENT

ITA 515/CHD/2017

This is assessee's appeal for the assessment year 2012-13 against

the order dated 28.2.2017, passed by the learned PCIT-2, Chandigarh,

under section 263 of the Income Tax Act. The following Grounds have

been raised:

"1. That the learned Principle Commissioner of Income Tax has heard in law in issuing notice and thereafter passing the order under section 263 only on the basis of an audit objection which is not permissible and as such the order passed is illegal, arbitrary and unjustified, which merits annulment. 2. Without prejudice to the above, the learned Principle Commissioner of Income Tax has wrongly assumed jurisdiction under section 263 of the Act to set aside the assessment order dated 31.1.2015 passed by the Assessing Officer in as much as the order is neither erroneous nor prejudicial to the interests of the Revenue and as such, the assumption of jurisdiction under section 263 of the Act is beyond his competence. That the order of revision has been passed by the Principle Commissioner of Income Tax ignoring the settled law on the deductions under section 80P(2)(d) of the Income Tax Act. 3. That the assessment order having been passed by the Assessing Officer after due application of mind and taking into consideration the various replies and material on

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record, the action resorted to by the Principle Commissioner of Income Tax is unwarranted and uncalled for. 4. That the reasons mentioned in the notice issued by the Principle Commissioner of Income Tax for initiation of proceedings under section 263 are based on suspicion, conjectures and surmises with no material whatsoever on record to substantiate the action so initiated which, in any case, has been duly countered during the course of proceedings before him, clearly establishing that the order sought to be revised is neither erroneous nor prejudicial to the interests of the Revenue.”

the bar that he does not wish to press Ground Number 1. Rejected as not

pressed.

Commissioner of Income Tax issued show Cause Notice dated

10.02.2017, a copy whereof has been placed at APB 8 to 9, to the

assessee, stating that the profit and loss account of the assessee showed

that the assessee had reflected interest income of Rs. 82,13,316/- earned

on long term fixed deposits with banks and had claimed deduction under

section 80P on the said interest income. It was stated that interest

earned on funds not required immediately for business purpose is

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taxable under Section 56, under the head 'income from other sources'

and is not eligible for deduction under section 80P. It was stated that the

assessment order showed that the AO had not disallowed deduction

under section 80P on the interest income earned from the FDs

maintained in the banks. It was stated that however, the assessee was

not eligible for deduction under section 80P on this interest income. It

was stated that the issue had not been examined by the AO, nor the

assessee had offered any detail regarding claiming deduction of such

income during the assessment proceedings.

thereof has been placed at APB 10 to 13. The assessee stated that the

deduction under section 80P was rightly claimed and allowed by the AO,

that the AO had called for the details of the FDRs held by the assessee,

that the same were submitted to the AO vide reply to the Questionnaire,

that a copy of the reply was being enclosed, that the deduction had been

claimed under section 80P(2)(d), under the main head of section 80P,

that the sum specified in section 80P(2)(d) is any income by way of

interest or dividends derived by the cooperative society from its

investments with any other cooperative society, the whole of which

income is exempt, that the assessee is a cooperative society, which fact is

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 5

clearly mentioned in the assessment order dated 31.01.2015, that the

balance sheet of the assessee, a copy of which was being enclosed,

showed that the society had invested an amount of Rs. 72 lacs as FDR

with CCB Mullanpur and Rs. 9,35,92,380/- with CCB Parol, that 'CCB'

stood for SAS 'Central Cooperative Bank', that copies of the bank

certificates regarding holding of the FDRs in these banks were also being

appended, that according to the Reserve Bank of India Act, 1934, as

amended by the Banking Laws (Applicable to Cooperative Societies) Act,

1965, 'Central Cooperative Bank' means the principle cooperative society

in a district in a state, the primary object of which is the financing of

other cooperative societies in that district, that there is no dispute to the

fact that the assessee is a cooperative society and had deposited the

amount with cooperative banks, that the only dispute was as to whether

the cooperative banks qualify to be cooperative societies, that the

expression 'cooperative society' is an expression with bigger connotations

and 'cooperative bank' refers to a cooperative society doing a special kind

of business only, that further, all cooperative banks are registered under

the Cooperative Societies Act, 1912, or under any other law for the time

being in force in any state for the registration of cooperative societies,

that in short, the provisions of various Acts governing cooperative

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societies are applicable to cooperative banks, since these banks are also

cooperative societies within the meaning of these various Acts governing

cooperative societies, that cooperative banks fall within the definition of

the term 'cooperative society', that thus, interest received by the

cooperative society form a cooperative bank is nothing but interest

received from a cooperative society, and that even the Banking

Regulation Act, in section 56(i)(ccv) defines 'primary cooperative society

bank' as a cooperative society. Reliance was placed on the decision of the

Hon'ble Karnataka High Court in the case of 'Pr. CIT Vs. Totagars

Cooperative Sale Society', 392 ITR 74 (Karn). It was stated that therefore,

the condition that the Assessment Order is prejudicial to the interests of

the Revenue, was not fulfilled, as the interest on FDRs with cooperative

banks qualified for exemption under section 80P(2)(d) of the Income Tax

Act. The learned PCIT was, as such, requested to drop the proceedings

under section 263 of the Income Tax Act.

the Assessment Order. It was observed that the interest earned on FDRs

from banks and dividend had been earned on funds collected by the

society from its members over and above the requirement for the

common goal of the members, that the excess amount collected and

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remaining unutilized year after year had been deposited in different bank

accounts, that this was just like a deposit made by any person with a

bank, as once the sum received from the members of the society was

placed in the bank, the mutuality between the society and its members

was broken, since the interest income was earned from a third party,

which was not a member of the society. It was held that in the case of

'Bangalore club Versus CIT', vide order dated 14.01.2013, the Hon'ble

Supreme Court had held interest earned on a fixed deposit even with a

member Bank to be a taxable receipt. It was held that failure to make

proper enquiry to arrive at the correct and complete facts and to apply

the correct law makes the Assessment Order erroneous and prejudicial

to the interests of the Revenue. In this regard, reliance was placed on

various case laws. Reference was also made to explanation 2(a) of section

263, inserted with effect from 01.06.2015. It was observed that the

assessee is a cooperative society and the function of the society, since its

inception, is to provide short and medium term loans to its members for

agricultural production, dairy farming, poultry and piggery, and to

provide agricultural inputs like fertilizers and insecticides to its members

on a no profit no loss basis. It was observed that during the year under

consideration, the society had shown income from business, rent,

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dividend and interest from FDRs with banks. It was observed that the

society had claimed exemption under section 80P(2)(a)(i) under Chapter

VIA of the Income Tax Act, as the activities of the society were to provide

short term loans to its members for agricultural production, dairy

farming, poultry and piggery, and to provide agricultural inputs like

fertilizers and insecticides to the members on a no profit no loss basis,

that the society was for the mutual benefit of the members and the

profits, if any, were to be distributed amongst the members only, and

that the functioning of the society was covered under the provisions of

section 80P(2)(a)(i) of the Income Tax Act. It was held that the funds

collected for the objective of the society had not been advanced to any

one or more of the members without interest, or on a concessional

interest, or at a commercial rate, or above the commercial rates available,

but had been placed at the disposal of a non-member, that is, the Banks,

which was a purely commercial activity of the non-member Bank having

nothing to do with the mutual benefit of the members of the society, or

the society as such. It was observed that as per the assessment record

and the replies submitted by the society before the AO during the

assessment proceedings in response to the AO's Questionnaire dated

31.07.2014/4.8.2014 (Question Number 13), the society had itself

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submitted that it had claimed exemption under section 80P(2)(a)(i), under

Chapter VIA of the Income Tax Act, as the activity of the society was to

provide short and medium term loans to its members for agricultural

production, dairy farming, poultry and piggery, and to provide

agricultural inputs like fertilizers and insecticides to its members on a no

profit no loss basis. It was observed that the function of the society was,

therefore, covered under the provisions of section 80P(2)(a)(i) of the

Income Tax Act, deduction under which is available in the case of a

cooperative society engaged in carrying on the business of banking or

providing credit facilities to its members. It was observed that the facts in

the case of 'M/s Totagars Cooperative Sale Society', rendered by the

Honorable Karnataka High Court, were clearly distinguishable and the

said judgement was not applicable for allowing any claim of deduction

under section 80P(2)(a)(i). It was observed that rather, the decision of the

Honorable Supreme Court in the case of 'M/s Totagars Cooperative Sale

Society Limited Vs. Income Tax Officer', 322 ITR 283 (SC) was in favour

of the Department, as in that case, it had been held that to say that the

source of income is not relevant for deciding the applicability of section

80P of the Act would not be correct, because the words 'the whole of the

amount of profits and gains of business' need to be given weightage,

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attributable to one of the activities specified in section 80P(2)(a), that it

had been held that these words emphasize that the income in respect of

which deduction is sought must constitute the operational income and

not the other income which accrues to the society. It was held that

therefore, the interest income earned by the society on investment with

banks was not eligible for deduction under section 80P(2)(a)(i) and it was

to be charged to tax as income under section 56 of the Act. It was

observed that it had been submitted on behalf of the assessee during the

proceedings under section 263 of the Act, that deduction had been

claimed under section 80P(2)(d), that by citing the provisions and

terminology of various other Acts, it had been tried to be established that

SAS Central Cooperative Bank is a cooperative society and hence, the

income earned by the society is eligible for deduction under section

80P(2)(d), that this contention of the society was totally opposite to the

plea taken during the assessment proceedings, where the society had

claimed deduction under section 80P(2)(a)(i), and not under section

80P(2)(d). It was observed that further, without prejudice, even if the

contention of the society was to be considered, the fact remained that a

cooperative bank other than a primary agricultural credit society, or a

primary cooperative agricultural and rural development bank have been

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excluded from the scope of section 80P(4) of the Act, as per which, the

provisions of this section shall not apply in relation to any cooperative

bank other than a primary agricultural credit society or a primary

cooperative agricultural and rural development bank. It was observed

that further, perusal of the assessment record clearly showed that the

society, during the year under consideration, had invested in fixed

deposits of a cooperative bank and not with a cooperative society, and

that hence also, it was not eligible for deduction under section 80P(2)(d).

It was observed that it was thus evident that the income earned by the

society was not by way of advancing any credit facility to one or more of

its members from out of collections made from its members, but the

money had been advanced or placed at the disposal of a commercial

bank which had no concern with the welfare or activity of any member or

the society as a whole. It was observed that the income earned was,

therefore, not the surplus generated from mutual activities of the

members or of the society. It was observed that funds had travelled

beyond the privity of the mutuality. It was observed that therefore, the

principle of mutuality was not applicable on this interest income. It was

observed that the interest income earned from banks is not exempt

under the principle of mutuality, as held by the Honorable Supreme

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Court in the case of 'CIT versus Bangalore Club'. It was held that in that

case, the Honorable Supreme Court had even not found the interest

income earned from banks in respect of a person who was a member of a

club, as exempt income in the hands of the club. It was observed that in

the present case, the issue was also not of the Assessing Officer adopting

a possible view out of more than one views possible, but in the present

case, the Assessing Officer had failed to form a view and had passively

accepted the contention put forward by the society, as was evident from

the assessment record and from the fact that the Assessing Officer had

even not considered the applicability of the judgement of the Honorable

Supreme Court in the 'Bangalore Club' case. It was observed that the

Assessing Officer had also not considered the applicability of the decision

of the Honorable Supreme Court in the case of 'M/s Totagars Cooperative

Sale Society Limited Versus ITO', 322 ITR 283 (SC). It was held that

therefore, the Assessing Officer had failed to gather the complete facts of

the case and to correctly apply the law while making the assessment,

which had resulted in the framing of an erroneous order which was also

prejudicial to the interests of the Revenue.

assessee has contended that the learned PCIT has wrongly assumed

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 13

jurisdiction under section 263 of the Income Tax Act to set aside the

Assessment Order, whereas the Order is neither erroneous, nor

prejudicial to the interests of the Revenue and as such, the assumption

of jurisdiction under section 263 is beyond his competence. It has been

contended that the Order of revision has been passed ignoring the settled

law with regard to deductions under section 80P(2)(d) of the Income Tax

Act. It has been contended that the Assessment Order was passed by the

Assessing Officer after due application of mind and taking into

consideration the various replies and material on record. It is submitted

that therefore, the action resorted to by the learned PCIT is unwarranted

and uncalled for. It has been submitted that the reasons mentioned in

the notice issued by the PCIT for initiation of proceedings under section

263 are based on suspicion and conjectures and surmises, with no

material whatsoever on record to substantiate the action so initiated.

the impugned order.

record. It is seen that in the assessment proceedings, the Assessing

Officer, through Questionnaire dated 31.07.2014/04.08.2014, vide

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Question Number 13, specifically asked the assessee society about the

deduction claimed to the tune of Rs. 36,41,848/-. A copy of the said

Questionnaire has been filed at APB 1-3. Question Number 13 reads as

follows: "

the tune of Rs.36,41,848/- under Chapter VIA. Kindly state the

specific provisions/section vide which the said deduction has been

claimed. Also provide a detailed note elaborating as to how the

conditions specified in the Act which entitled you to claim deduction

under Chapter VIA are satisfied/met."

In response, the assessee society stated that ; it had claimed exemption

under section 80P(2)(a)(i) under Chapter VIA of the Income Tax Act, as the

activity of the society is to provide short and medium term loans to its

members for agricultural production, dairy farming, poultry and piggery,

and to provide agricultural inputs like fertilizers and insecticides to its

members on a no profit no loss basis. A copy of the reply filed by the

assessee society is at APB 4-6. The answer to Question Number 13 states

that:

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 15

"The assessee society has claimed exemption under section

80P(2)(a)(i) under Chapter VIA of the Income Tax Act, as the activity

of the society is to provide short and medium term loans to its

members for agricultural production, dairy farming, poultry and

piggery and to provide agricultural inputs like fertilizers and

insecticides to its members on a no profit no loss basis. The society is

for the mutual benefit of the members and the profits if any are to be

distributed amongst the members only. The functioning of the society

is covered under the provisions of section 80P(2)(a)(i) of the Income

Tax Act. Reliance is placed on the cases of 'Messrs Yashwant Credit

Cooperative Society Limited Bengaluru Versus Department of Income

Tax', reported as ITA Number 737/bang/2011 and 'ITO Versus

Punjab State Cooperative Bank', reported as 300 ITR 24 (P&H). The

income of the society, being for mutual benefits of its members, is

also exempt from tax. Your kind attention is invited to the case of

'Bankipur Club Limited', 140 CTR 102 (SC) and 'Canara Bank Golden

Jubilee Staff Welfare Fund Versus DCIT', 308 ITR 202 (Kerala) and

'Chemsford Club Limited', reported as 243 ITR 89."

By way of Question Number 5, the Assessing Officer asked the assessee

society to give complete details of all bank accounts, including FD

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accounts, maintained by the society, giving the name of the bank and

branch with completed address, account number and type of account,

that is, whether current account, OD, loan, FDR, term, etc. The assessee

society was also asked to provide its monthly bank reconciliation

statement. In response, the assessee society filed complete details of the

bank accounts, as well as the FDRs maintained.

society was accepted after discussion with the Counsel of the assessee

from time to time and examination of details and books of account.

was stated that the assessee society had reflected interest income of Rs.

82,13,316/- earned on FDRs maintained with Banks, which was not

eligible for deduction under section 80P of the Act. A copy of this notice

is at APB 8-9.

10-13. The assessee society stated that deduction was claimed under

section 80P(2)(d). It was stated that the society is a cooperative society

and it had invested an amount of Rs.72 lakh with the Central

Cooperative Bank Mullanpur and an amount of Rs. 9,35,92,380/- with

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the Central Cooperative Bank Parol. It was stated that according to the

Reserve Bank of India Act, 1934, as amended by the Banking Laws

(Applicable to Cooperative Societies) Act, 1965, 'Central Cooperative

Bank' means the principle cooperative society in a district in a state, the

primary object of which is the financing of other cooperative societies in

the district. It was stated that ;

"... It may be mentioned that the deduction under section 80P was rightly claimed and allowed by the ld. AO while assessing the case. The AO had called for the details of the FDRs held by the assessee. The same was submitted to the AO vide his reply to the questionnaire. Copy of the reply filed is enclosed herewith. It may be mentioned that the deduction under section 80P under the limb 80P(2)(d) had been claimed. It was claimed under the main head section 80P. Section 80P(2)(d) reads as under:–

Section 80P(2)(d) in the Income Tax Act, 1995

(d) in respect of any income by way of interest or dividends derived by the cooperative society from its investments with any other cooperative society, the whole of such income; Since the assessee is a cooperative society and this fact is clearly mentioned in the assessment order dated 31.01. 2015, passed by the worthy AO. It is eligible for deduction under sub clause (d) of section 80P(2) of the Income Tax Act. Please find enclosed herewith copy of the Balance Sheet which depicts that the assessee society

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 18

had invested the amount of Rs. 72,00,000/- as FDR with CCB Mullanpur and Rs. 935,92,380/- with CCB Parol. Here the CCB stands for SAS Central Cooperative Bank. The copy of the Balance Sheet and copies of the bank certificates regarding holding of the FDRs in these banks are appended herewith. According to Reserve Bank of India 1934 as amended by Banking Laws (Applicable to Co- Operative Societies) Act, 1965 'Central Cooperative Bank' means the principle cooperative society in a district in a State, the primary object of which is the financing of other cooperative societies in that district.

There is no dispute as to the fact that the assessee is a cooperative society and had deposited the amount with Cooperative Bank. The only point to be seen is as to whether the Cooperative Banks qualify to be Cooperative society. It may be mentioned that the word Cooperative society is a word with bigger connotation and the Cooperative Bank refers to the cooperative society doing special kind of business only. Further, all the cooperative banks are registered under Cooperative Societies Act, 1912 or under any other law for the time being in force in any state for the registration for cooperative societies. In short, the provisions of various Acts governing cooperative societies are applicable to co-operative banks since these banks are also cooperative societies within the meaning of these various Acts, governing cooperative societies. It will be observed that the cooperative bank fall within the definition of the term cooperative society. Thus, interest received by cooperative society from

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cooperative bank is nothing but interest received from cooperative society.

Even under the Banking Regulation Act according to Section 56(i)(ccv) defines a primary cooperative society bank as a cooperative society. Therefore the Cooperative Society Bank would be included in the definition of the cooperative society. Section 56(i)(ccv) Banking Regulation Act reads as under:–

Section 56 (ccv) in Banking Regulation Act, 1949

(ccv) 'primary co-operative bank' means a cooperative society other than a primary agricultural credit society, (1) the primary object or principal business of which is the transaction of banking business; (2) the paid-up share capital and reserves of which are not less than one lakh of rupees; and (3) the bye-laws of which do not permit admission of any other cooperative society as a member: Provided that this sub-clause shall not apply to the admission of a cooperative bank as a member by reason of such cooperative bank subscribing to the share capital of such cooperative society out of funds provided by the State Government for the purpose; In a latest judgement the Hon'ble High Court of Karnataka in the case of Pr. CIT versus Totagar Cooperative Sale Society decided exactly the same issue as to whether the interest earned from FDR with Cooperative Bank would qualify for the deduction under section 80P(2)(d) of the Income Tax Act or not. It was decided in favour of the assessee that the cooperative society earning interest from FDR with

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Cooperative Bank would get the deduction under section 80P(2)(d) of the Income Tax Act. It may be mentioned that the revenue had gone in appeal before the High Court in view of the earlier judgement by the Honorable Supreme Court of India in the earlier year of the same assessee, where the deduction under section 80P(2)(i) was disallowed as the FDR was not with the cooperative bank. It was categorically held by the Hon'ble High Court of Karnataka that since the deposits in the current year are with the cooperative bank the deduction claimed is rightly claimed and allowed under section 80P(2)(d) of the Income Tax Act. Copies of both High Court and Supreme Court judgement are appended herewith.

In view of the above submissions it is submitted that the condition that the order is prejudicial to the interest of the revenue is not fulfilled as the interest on FDRs with Cooperative Bank are qualified for exemption under section 80P(2)(d) of the Income Tax Act. You are requested to drop the proceedings under section 263 of the Income Tax Act and oblige..."

in Para 2 of the Order under appeal.

totally opposite to the plea taken during the assessment proceedings

where the assessee had claimed deduction under section 80P(2)(a)(i) and

not under section 80P(2)(d); that any cooperative bank other than a

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primary agricultural credit society or a primary cooperative agricultural

and rural development bank have been excluded from the scope as per

section 80P(4) of the Act; and that the assessee had invested with a

cooperative bank and not with a cooperative society and hence, it was

not eligible for deduction under section 80P(2)(d). To reject the claim of

the assessee society, the PCIT has placed reliance on the decision in

'Bangalore Club', 350 ITR 509 (SC) and that in 'M/s Totagars Cooperative

Sale Society Limited', 322 ITR 283 (SC).

reliance on 'PCIT Versus Totagars Cooperative Sale Society', 392 ITR 74

(Karnataka) and 'Doaba Co-operative Sugar Mills Limited', 322 ITR 283

(P&H).

" The assessee filed its return of income on 30.03.2013 declaring a gross taxable income of Rs. NIL by claiming the benefit of exemption under section 80P(2). The return was processed under section 143(1) and subsequently, the case was selected for scrutiny. Statutory notice under section 143(2) was issued and was duly served upon the assessee on 27.09.2013. Subsequently, notices under sections 143(2) and 142(1) along with detailed questionnaire were issued on 04. 08.2014 and were duly served upon the assessee.

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In response, Shri DS Sandhu, Advocate, attended the assessment proceedings from time to time and furnished the requisite details and documents which were examined.

The assessee is a cooperative society. The main function of the society is to provide short and medium term loans to its members for agricultural production, dairy farming, poultry and piggery and to provide agricultural inputs like fertilizers, insecticides, etc.

The society was registered on 14.11.1957 by the Assistant Register, Cooperative Societies, Ambala.

During the assessment proceedings, the books of account were examined and no adverse inference has been drawn and exemption claimed by the assessee under section 80P is allowed."

passing the Assessment Order, the AO has applied his mind, as rightly

contended. It contains recitals of statutory notices alongwith detailed

questionnaire having been issued to and served on the assessee. The

case is stated to have been attended by the assessee's Advocate in the

assessment proceedings from time to time. He has been stated to have

furnished the requisite details and documents. These details and

documents have been stated to have been examined by the AO. It has

been categorically stated that during the assessment proceedings, the

books of account were examined and no adverse inference was drawn,

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and that the exemption claimed by the assessee under section 80P was

being allowed. As such, it has correctly been submitted on behalf of the

assessee, that everything stands examined by the Assessing Officer in

the assessment proceedings and that there is no new issue pointed out

by the PCIT, due to which, the revision proceedings are unsustainable.

(Delhi), it was held that it was apparent that the Tribunal had arrived at

a conclusive finding that though the Assessment Order did not patently

indicate that the issue in question had been considered by the AO, the

record showed that the AO had applied his mind; that once application of

mind by the AO was discernible from the record, the proceedings under

section 263 would fall into the area of the Commissioner having a

different opinion; that their Lordships were of the view that the findings

of fact arrived at by the Tribunal did not warrant any interference; that

that being the position, the case would not be one of lack of enquiry and,

even if the enquiry was termed as inadequate, following the decision in

'M/s Sunbeam Auto Limited', that would not, by itself, give occasion to

the Commissioner to pass orders under section 263 of the Act merely

because he has a different opinion in the matter. It was held that no

substantial question of law arose for their Lordships' consideration. The

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Appeal was dismissed. In the case at hand, as observed hereinbefore, the

AO's application of mind is clearly evincible from the Assessment Order

itself. Further, such application of mind is also discernible from the

record, i.e., the Questionnaire issued to the assessee by the AO, in

response to which, the assessee furnished the complete information

sought for by the AO. It was only on the basis thereof, that having

examined the same and having become satisfied with it, the AO passed

the Assessment Order, accepting the returned income of the assessee

society. Therefore, there was no occasion for the revisionary provisions to

have been invoked by the ld. PCIT.

341 ITR 180 (Del), it was held that the Tribunal had rightly held that the

case was not a case where the enquiries were not made by the AOs or the

relevant material was not collected before framing the Assessment

Orders; that the observation of the Commissioner that the Income Tax

Officers did not make sufficient enquiry was totally subjective; that it was

not a case of lack of enquiry; that the Commissioner judged the

sufficiency of the enquiry by subjective standards; that it appeared that

according to the Commissioner, more enquiries should have been made;

and that the observations of the Commissioner were general in nature,

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namely, that there was lack of proper enquiry or investigation or

cosmetic treatment was given by the ITOs. In the present case also, as

observed, we find that it was not a case of no enquiry and the learned

PCIT has gone wrong in holding it to be so.

(Madras), it has been held that both the issues which were the basis of

exercise of power under section 263 were, in fact, the issues which were

considered by the AO in the limited scrutiny, culminating in the order of

assessment and that the assessee had given proper explanation, which

was taken note of by the AO while completing the assessment under

section 143(3) and that therefore, revision by the CIT was not

sustainable. In the present case also, the assessee has given proper

explanation on pertinent questions asked by the AO. Therefore,

invocation of the provisions of section 263 was not proper.

06.05.2020, in ITA Number 754/CHD/2018, the Chandigarh Bench of

the Tribunal has held that the PCIT did not even consider the reply and

details furnished by the assessee and did not call for any enquiry; that

the PCIT just repeated the contents of the show cause notice and set

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aside the assessment order on the ground that the AO should have made

more enquiries; that he directed the AO to make further fishing and

roving enquiries which were even not germain to the facts and issues

involved; that the Supreme Court, in the case of 'CIT Versus GM Mittal

Stainless Steel (P) Limited', (2003) 263 ITR 255 (SC), has observed that

the satisfaction by the Commissioner must be one objectively justifiable

and based on material either legal or factual, when available, it cannot

be the mere ipse dixit of the Commissioner; that therefore, the Order of

the Commissioner exercising jurisdiction under section 263 of the Act

could not be held to be sustainable in law. In the present case also, as

seen, jurisdiction under section 263 of the Act has been exercised

wrongly despite due enquiry by the AO.

the Chandigarh Bench of the Tribunal has held that where the Assessing

Officer allowed discount paid to sub-dealer after making due enquiry and

verification, invocation of the provisions of section 263 was not justified.

In the case before us, it was after due enquiry, that the AO accepted the

returned income of the assessee society and allowed the claim. Therefore,

the revisionary power was wrongly exercised.

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 27

Court in 'Hari Iron Trading Company Versus CIT', 263 ITR 437 (P&H),

the assessee has no control over the way the assessment order is drafted.

For arriving at the conclusion as to whether the AO has examined any

issue or not, the entire record needs to be examined. Generally, issues

which are accepted do not find mention in the Assessment Order and

only such points are taken note of, on which, the assessee's explanations

are rejected and additions or disallowances are made. The present case is

a case in point, wherein, the claim of the assessee has been allowed by

the AO after enquiry by way of a succinct order.

(CHD), (authored by one of us, the V.P.), as per the Pr. Commissioner of

Income Tax, the AO, on the issue of unsecured loan received by the

assessee, did not look into it, thereby completely failing to look into the

three mandatory parameters of identity, credit worthiness and

genuineness of the transaction. It was held that clearly, the assessee

had not discharged its onus of establishing the genuineness of the

transactions and the AO did not make even very basic enquiry on it. The

Tribunal observed that the AO had specifically noted the requisite

information/documents, as called for vide questionnaire and ordersheet,

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 28

had been produced, which were gone through and that after going

through all the facts and documents available on file, the case was

discussed with the counsel of the assessee and after discussion, the

returned income of the assessee was accepted; that the assessee filed

evidence before the AO and also before the Pr. CIT, which proved the

identity of the creditors and genuineness of the transactions, alongwith

sources. It was in these circumstances, that the Tribunal held that the

order passed by the AO could not be said to have been passed without

application of mind; that the Pr. CIT had tried to substitute the plausible

view taken by the AO, with his own view; that this course of action is not

permissible under the revisionary provisions u/s 263 of the Act; and that

hence, the revisionary proceedings initiated u/s 263 were vitiated in law.

While holding so, the decisions in ‘CIT Vs Chandan Magrag Parmar’,

(2022) 445 ITR 674 (Bom), ‘A.G.Mannesmann Demag Vs Dy. CIT’ (1995)

53 ITD 533 (Del); and ‘CIT Vs Sohana Woollen Mills’ (2008) 296 ITR 238

(P&H) were relied on.

23.1 Further still, in 'Sh. Narain Singla Versus Principal Commissioner

of Income Tax (Central) Ludhiana', 62 taxman.com 255, the Chandigarh

Bench of the Tribunal has held that if there was an enquiry, even

inadequate, that would not, by itself, give occasion to the Commissioner

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 29

to pass an order under section 263 of the Act, merely because he has a

different opinion in the matter.

section 80P, the ld. Counsel for the assessee has contended that the

assessee is entitled to exemption under section 80P(2)(a)(i) as well as

section 80P(2)(d); that section 80P(2)(a)(i) deals with deduction in respect

of profits and gains of business in the case of a cooperative society

carrying on the business of banking or providing credit facilities to its

members, if the said income is assessable as income from business,

whereas section 80P(2)(d) provides for deduction in respect of income by

way of interest or dividend derived by the assessee from its investments

with any other cooperative society; that the assessee is a cooperative

society and had invested an amount of Rs.72 lacs with Central

Cooperative Bank, Mullanpur and Rs.9,35,92,380/- with Central

Cooperative Bank, Parol, both being members of SAS Central Cooperative

Bank; that according to the Reserve Bank of India Act, 1934, as amended

by the Banking Laws (Applicable to Cooperative Societies) Act, 1965,

'Central Cooperative Bank' means the principal cooperative society in a

district in a state, the primary object of which is the financing of other

cooperative societies in the district; that the PCIT has applied the

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 30

decision of the Honorable Supreme Court in the case of 'Totagars

Cooperative Sale Society Limited', 322 ITR 283 (SC), which is not

applicable to the facts of the assessee's case; that in the case before the

Honorable Supreme Court, the issue pertained to claiming of deduction

under section 80P(2)(a)(i) in respect of interest income and not under

section 80P(2)(d) being amount not invested with a cooperative bank;

that as such, the facts are distinguishable; that in the case of 'PCIT

Versus Totagars Cooperative Sale Society', 392 ITR 74 (Karnataka), it has

been held that for the purposes of section 80P(2)(d), a cooperative bank

should be considered as a cooperative society; that while holding so, the

Hon'ble High Court has considered and distinguished the decision of the

Honorable Supreme Court in the case of 'Totagars Cooperative Sale

Society'.

decision of the jurisdictional High Court in the case of 'CIT Versus Doaba

Cooperative Sugar Mills Limited', 230 ITR 774 (P&H). It has been stated

that this decision has been followed by the Honorable Gujarat High

Court in the case of 'Surat Vanker Sahakari Sangh Limited', 421 ITR 134

(Gujarat).

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 31

applying the provisions of Section 80P(4) of the Act, though the same are

not applicable to the case; that this is so, because the assessee is not a

cooperative bank licenced by the Reserve Bank of India to carry on

banking business and so, Section 80P(4) is not at all applicable. In this

regard, reliance has been sought to be placed on the following decisions:

i 'Mavilayi Cooperative Bank Limited and Others Versus Commissioner of Income tax and Another', 431 ITR 1 (SC) ii 'Borivali Jankalyan Sahkari Patpedhi Limited Versus ITO', Order dated 3.3.2021, passed by the Mumbai Bench of the Tribunal, in ITA Number 5230/MUM/2019, for AY 2015-16 iii 'Vavveru Cooperative Rural Bank Limited', 396 ITR 371 (Telangana and Andhra Pradesh) iv 'Kaliandas Udyog Bhawan Premises Cooperative Society Limited Versus ITO', 94 taxmann.com 15 (Mumbai-Trib.) v. 'Rena Sahakari Sakhar Karkhana Limited Versus PCIT', 138 taxmann.com 532 (Pune-Trib.) vi. 'Gramin Sewa Sahakari Samiti Maryadit Versus ITO', 138 taxmann.com 476 (Raipur-Trib.) vii. 'Lokmangal Nagri Sahakari Path Sanstha Maryadit Versus PCIT–4, Pune', ITA Number 231/Pune/2022 viii. 'Vibhag Gram Vikas Cooperative Credit Society Limited Versus PCIT', 189 ITD 601 (Surat) ix. 'Lands End Cooperative Housing Society Limited Versus ITO', Order dated 15.1.2016, passed by the Mumbai Bench of the Tribunal in ITA Number 3566/MUM/2014, for AY 2009-10

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 32

x. 'ITO Versus Shree Keshorai Patan Sahakari Sugar Mill', Order dated 31.1.2018, passed by the Jaipur Bench of the Tribunal in ITA Numbers 418 and 419/JP/2017 and CO Numbers 23 and 24/JP/2017, for a AYs 2013-14 and 2014-15 xi. 'Shiksha Vibhag Karmacharigan Sahakari Samiti Limited Versus ITO', Order dated 17.6.2019, passed by the Jaipur Bench of the Tribunal in ITA Numbers 281 and 282/JP/2017 xii. 'Shahpura Gram Seva Sahakari Samiti Limited Versus ITO', Order dated 15.10.2020, passed by the Jaipur SMC Bench of the Tribunal in ITA Number 767/JP/2019, for AY 2015-16. 27. The learned DR, on the other hand, has placed strong reliance on

the impugned order. It has been stated that as correctly observed by the

learned PCIT, the assessee society is a cooperative society and its

function, since its inception, is to provide short and medium term loans

to its members for agricultural production, dairy farming, poultry and

piggery, and to provide agricultural inputs, like fertilizers and

insecticides to its members, on a no profit no loss basis; that during the

year under consideration, the society had shown income from business,

rent, dividend and interest from FDR with banks; that the society

claimed exemption under section 80P(2)(a)(i) under Chapter VIA of the

Income Tax Act because of its activities; that the society is for the mutual

benefit of the members and the profits, if any, are to be distributed

amongst the members only; that the functioning of the society is under

the provisions of section 80P(2)(a)(i) of the Act; that the funds collected

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 33

for the objective of the society have not been advanced to any one or

more of the members without interest, or on a concessional interest, or

at a commercial rate, or above the commercial rates available, but have

been placed at the disposal of non-members, that is, banks, for a purely

commercial activity of the non-member Banks, having nothing to do with

the mutual benefit of the members of the society, or the society as such;

that in its reply to the AO's Questionnaire, the assessee had itself

submitted in Para 13, that it had claimed exemption under section

80P(2)(a)(i) of the Act; that the function of the society is, therefore,

covered under the provisions of section 80P(2)(a)(i) of the Act; that the

decision of the Karnataka High Court in the case of 'Totagars Cooperative

Sale Society' is distinguishable; that the said decision is not applicable

for allowing any claim of deduction under section 80P(2)(a)(i); that rather,

the decision of the Honorable Supreme Court in the case of 'Totagars

Cooperative Sale Society Limited Versus Income Tax Officer', 322 ITR 283

(SC) is in favour of the Department; that in that case, the Honorable

Supreme Court has held that to say that the source of income is not

relevant for deciding the applicability of section 80P of the Act would not

be correct, because the words 'the whole of the amount of profits and

gains of business' are required to be given weightage to, as these words

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 34

emphasize that the income, in respect of which deduction is sought,

must constitute the operational income, and not the other income which

accrues to the society; that in view of this decision of the Hon'ble

Supreme Court, the interest income earned by the society on investment

with banks is not eligible for deduction under section 80P(2)(a)(i) and it is

to be taxed under Section 56 of the Act; that in such facts, the society is

wrong in contending that SAS Central Cooperative Bank is a cooperative

society and that hence, the income earned by the Mullanpur Garibdas

Cooperative Multipurpose Society is eligible for deduction under section

80P(2)(d); that this contention is totally opposite to the plea taken during

the assessment proceedings, where the society had claimed deduction

under section 80P(2)(a)(i), and not under section 80P(2)(d); that otherwise

also, even if such contention is considered, the fact remains that any

cooperative bank other than a primary agricultural credit society or a

primary cooperative agricultural and rural development bank have been

excluded from the scope of section 80P(4) of the Act; that as per the

provisions of section 80P(4), the provisions of section 80P shall not apply

in relation to any cooperative bank other than a primary agricultural

credit society and rural development bank; that from the assessment

record, during the year under consideration, the assessee had invested in

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 35

fixed deposit of a cooperative bank and not in a cooperative society, and

therefore also, it is not eligible for deduction under section 80P(2)(d) of

the Act; that therefore, evidently, the income earned by the society is not

by way of advancing any credit facility to one or more members from out

of collections made by the society from its members, but the money has

been advanced or placed at the disposal of commercial banks, which

have no concern with the welfare or activity of any member, or the

society as a whole; that therefore, the income earned is not the surplus

generated from mutual activities of the members or of the society; that

funds have travelled beyond the privity of the mutuality; that therefore,

the principle of mutuality is not applicable on this interest income; that

therefore, the interest income earned from a bank is not exempt under

the principle of mutuality, as held by the Honorable Supreme Court in

the case of 'CIT Versus Bangalore Club'; that in that case, interest

income earned from Bank in respect of a person who was also a member

of a club, was not found to be exempt income in the hands of the club;

that in the present case, the issue is also not of adopting a possible view

out of more than one possible views; that in fact, in the present case, the

AO had failed to form a view and had merely passively accepted the

contention of the assessee society, even not taking into consideration the

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 36

applicability of the Supreme Court judgement in the case of 'Bangalore

Club'; that the AO has also not considered the applicability of the

judgement of the Honorable Supreme Court in the case of 'The Totgars

Cooperative Sale Society Limited Versus Income Tax Officer, Karnataka',

322 ITR 283 (SC); and that the AO failed to gather the complete facts of

the case and to correctly apply the law while framing the assessment,

resulting in the framing of an erroneous order which was also prejudicial

to the interests of the Revenue and which was rightly set aside by the

PCIT.

and the material placed on record, we find that it has been mentioned in

the Assessment Order that after the issuance and service of the notice

under section 143(2) of the Act, notices under sections 143(2) and

142(1), along with detailed Questionnaire were served on the assessee, in

response to which, the proceedings were attended from time to time by

the Advocate of the assessee and the requisite details and documents

were furnished, which were examined. It has been stated that the

assessee is a cooperative society; that the main function of the society is

to provide short and medium term loans to its members for agricultural

production, dairy farming, poultry and piggery, and to provide

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 37

agricultural inputs like fertilizers and insecticides, et cetera; that the

society was registered on 14.11.1957 by the Assistant Registrar,

Cooperative Societies, Ambala; that during the assessment proceedings,

the books of account of the society were examined and no adverse

inference had been drawn; and that the exemption claimed by the society

under section 80P was being allowed.

has been held by the jurisdictional High Court that the entire record has

to be examined before arriving at the conclusion as to whether the AO

has examined any issue or not; that generally, the issues which are

accepted do not find mention in the assessment order and only such

points are taken note of, as on which the assessee's explanations are

rejected and additions or disallowances are made.

(APB 1-3) issued by the AO, the following Question Number 13 was

asked:

"13. A perusal of records reveals that you have claimed deduction to the tune of Rs. 36,41,848/- under Chapter VIA. Kindly state the specific provisions/section vide which the said deduction has been claimed. Also provide a detailed note elaborating as to how the conditions specified in the Act which entitled you to claim deduction under chapter VIA are satisfied/met."

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 38

"13. The assessee society has claimed exemption under section 80P(2)(a)(i) under Chapter VIA of the Income Tax Act, as the activity of the society is to provide short and medium term loans to its members for agricultural production, dairy farming, poultry and piggery, and to provide agricultural inputs like fertilizers and insecticides to its members on a no profit no loss basis. The society is for the mutual benefit of the members and the profits if any are to be distributed amongst the members only. The functioning of the assassee society is covered under the provisions of section 80P(2)(a)(i) of the Income Tax Act. Reliance is placed on the cases of 'M/s Yashwant Credit Coop Society Limited Bengaluru Versus Department of Income Tax', reported as ITA Number 737/Bang/2011 and 'ITO Versus Punjab State Coop Bank', reported as 300 ITR 24 (P&H).

The income of the society being for mutual benefits of its members, is also exempt from tax. Your kind attention is invited to the case of 'Bankipur Club Limited', 140 CTR 102 (SC) and 'Canara Bank Golden Jubilee Staff Welfare Fund Versus DCIT', 308 ITR 202 (Kerala) and 'Chemsford Club Limited', reported as 243 ITR 89".

indeed, as rightly stated by the society, the AO has examined the issue

of its claim of deduction under section 80P of the Act. In Para 2 of the

Assessment Order, the AO has recorded that the requisite details and

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 39

documents were furnished from time to time and the same were

examined. In Para 5, it has been stated that during the assessment

proceedings, the books of account were examined and no adverse

inference was drawn and the exemption claimed under section 80P was

allowed.

been accepted, the same was not discussed elaborately in the

assessment order, as is generally the case. Moreover, again, as observed

in 'Hari Iron Trading Co.' (supra), the assessee had no control over as to

how the assessment order was drafted or framed.

been observed that the Tribunal arrived at a conclusive finding that

though the assessment order did not patently indicate that the issue in

question had been considered by the AO, the record showed that the AO

had applied his mind; that once such application of mind is discernible

from the record, the proceedings under section 263 would fall into the

area of the Commissioner having a different opinion; that the case would

not be one of lack of enquiry and even if the enquiry was termed as

inadequate, following the decision in 'M/s Sunbeam Auto Limited' that

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 40

would not, by itself, give occasion to the Commissioner to pass orders

under section 263 of the Act, merely because he has a different opinion

in the matter. Similar is the position in the case at hand, as discussed.

The application of mind by the AO is discernible from the record and the

power under section 263 of the Act was exercised on the basis of a mere

difference in opinion with the AO, rendering such exercise of revisionary

power to be invalid.

341 ITR 180 (Delhi), it was held that the Tribunal had rightly held that

the case was not a case where enquiries were not made by the AO, or the

relevant material was not collected before framing the Assessment

Orders; that the observation of the Commissioner that the Income Tax

Officers did not make sufficient enquiry was totally subjective; that it was

not a case of lack of enquiry; that the Commissioner judged the

sufficiency of enquiry by subjective standards; that it appeared that

according to the Commissioner, more enquiries should have been made;

and that the observations of the Commissioner were general in nature,

namely, that there was lack of proper enquiry, or investigation, or

cosmetic treatment was given by the ITOs. Likewise, here also, it is not a

case where enquiries were not made by the AO, or the relevant material

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 41

was not collected before framing the Assessment Order. The relevant

material was collected by enquiry through Questionnaire. The material

submitted i7jn response to the same was examined and it was only

thereafter, that the Assessment Order was framed, allowing the claim

made. The conclusion that the AO did not make enquiry was a subjective

conclusion, rendering the invocation of the revisionary power to be

unsustainable in law.

(Madras HC), it was held that both the issues which were the basis of the

exercise of power under section 263 were, in fact, the issues which were

considered by the AO in the limited scrutiny, culminating in the order of

assessment under section 143(3); that the assessee had given proper

explanation which was taken note of by the AO; and that therefore,

revision by the CIT was not sustainable. In the present case too, the

issue which was the basis of exercise of revisionary power was, in fact,

the issue considered by the AO in the scrutiny assessment proceedings,

culminating in the Assessment Order passed under section 143(3) of the

Act. The assessee had given proper explanation, which was taken due

note of by the AO while framing the Assessment Order. Therefore, the

revisionary proceedings are unsustainable.

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 42

Bench of the Tribunal, vide Order dated 6.5.2020, passed in ITA Number

754/CHD/2018, has held that the learned PCIT did not even bother to

consider the reply and details furnished by the assessee, what to talk of

calling for any enquiry, etc.; that he just repeated the contents of the

show cause notice and set aside the Assessment Order on the ground

that the AO should have made more enquiries; that he had directed the

AO to make further fishing and roving enquiries, which were not

germane to the facts and issues involved; that the Supreme Court, in the

case of 'CIT Versus GM Mittal Stainless Steel (P) Limited', 263 ITR 255

(SC), has observed that the satisfaction by the Commissioner must be

one objectively justifiable and based on material, legal or factual, when

available, and it cannot be the mere ipse dixit of the Commissioner; and

that so, the order of the Commissioner exercising jurisdiction under

section 263 of the Act could not be held to be sustainable in law.

Similarly, here also, the satisfaction of the Commissioner is not based on

any material available. Rather, it is against the material available on

record, that is, the Questionnaire issued by the AO and the reply file

thereto by the society alongwith all the requisite details and information,

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 43

which were duly examined by the AO before passing the Assessment

Order.

under similar circumstances, it was held that where the AO had allowed

discount paid to sub-dealer after making due enquiry and verification,

invocation of the provisions of section 263 was not justified.

the Tribunal had found that the AO had given a categorical finding that

the assessee was engaged in the process of manufacturing of products

and, accordingly, he had granted concession under section 80-IB; that

the claim of the assessee had been found to be genuine; that the AO had

also examined the various workers of the assessee and had then

recorded the finding; that the AO was justified in granting the special

deduction under section 80-IB; and that the order of revision disallowing

the special deduction was not valid. In the present case, the AO had

examined the material placed on record by the society in response to the

Questionnaire issued. The claim of the society was found to be justified.

It was thereupon that the claim was allowed. Therefore, invocation of

revisionary power was uncalled for.

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 44

Tax (Central), Ludhiana', 62 taxmann.com 255, the Chandigarh Bench of

the Tribunal has held that if there was an enquiry, even inadequate, that

would not, by itself, give occasion to the Commissioner to pass order

under section 263 of the Act merely because he has a different opinion in

the matter. In the present case, as seen, there has been an enquiry

conducted by the AO. As such, there was no occasion for power under

section 263 of the Act to be invoked.

our notice.

contending that as available from the record, the AO had duly applied his

mind to the issue of the assessee's claim of deduction under section 80P

of the Income Tax Act and he had only thereafter allowed it while passing

the Assessment Order; and that therefore, the learned PCIT has erred in

invoking powers under section 263 of the Act and setting aside the

Assessment Order. This grievance of the assessee society is accepted.

section 80P(2)(d) of the Income Tax Act, the learned PCIT has held that

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 45

the AO had failed to consider the applicability of the decision of the

Hon'ble Supreme Court in the case of 'The Totgar's Cooperative Sale

Society Limited Versus Income Tax Officer', 322 ITR 283 (SC), in which,

the Supreme Court held that the words 'the whole of the amount of

profits and gains of business' emphasize that the income, in respect of

which deduction is sought, must constitute the operational income and

not the other income which accrues to the society; that interest income

earned on funds not required for business purposes at the given point of

time falls in the category of 'other income', which is taxable under section

56 of the Act. It has been held that any cooperative bank other than a

primary agricultural credit society, or a primary cooperative agricultural

and rural development bank, have been excluded from the scope of

section 80P(4) of the Act. It has been observed that during the year under

consideration, the society invested in fixed deposits of cooperative banks

and not with a cooperative society, and that so, it is not eligible for

deduction under section 80P(2)(d). It has been held that evidently, the

income earned by the society is not by way of advancing any credit

facility to one or more members from out of collections made from its

members, but the money has been advanced to, or placed at the disposal

of, commercial banks, which have no concern with the welfare of any

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 46

member, or the society as a whole. It was held that therefore, the income

earned is not the surplus generated from mutual activities of the

members, or of the society; that funds have travelled beyond the privity

of the mutuality; that therefore, the principle of mutuality is not

applicable on this interest income; that the interest income earned from

a bank is, as such, not exempt under the principle of mutuality, as held

by the Honorable Supreme Court in the case of 'Bangalore Club'.

of income by way of interest or dividend derived by the assessee from its

investments with any other cooperative society. The assessee is a

cooperative society. It had invested amounts with the Central

Cooperative Bank, Mullanpur and the Central Cooperative Bank, Parol.

Both these Banks are members of the SAS Central Cooperative Bank. It

remains undisputed that as per the Reserve Bank of India Act, 1934, as

amended by the Banking Laws (Applicable to Cooperative Societies) Act,

1965, 'Central Cooperative Bank' means the principle cooperative society

in a district in a state, the primary object of which is the financing of

other cooperative societies in the district. This being so, the investment

made by the assessee society is nothing other than investment with

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 47

another cooperative society and, therefore, interest earned thereon is

entitled to deduction under section 80P(2)(d) of the Act.

Court in the case of 'The Totgar's Cooperative Sale Society Limited', 322

ITR 283 (SC), the said decision is undisputedly not applicable so far as

regards the claim of exemption under section 80P(2)(d).In that case, the

assessee was a cooperative credit society. During the relevant

assessment years it had surplus funds which it invested in short term

deposits with banks and in government securities. On such investments,

interest accrued to the assessee. The assessee provided credit facilities to

its members and also marketed the agricultural produce of its members.

The substantial question of law which arose was as to whether such

interest income would qualify for deduction as business income under

section 80P(2)(a)(i) of the Income Tax Act.

Court in 'The Totgars Cooperative Sale Society Limited Versus Income

Tax Officer, Karnataka ' (supra) is not applicable to the facts of the

present case, as rightly contended on behalf of the assessee society.

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 48

Totagars Cooperative Sale Society', 392 ITR 74 (Karnataka), the issue

involved was deductibility or otherwise, under section 80P(2)(d), of

interest earned from deposits in a cooperative bank, as is the case

herein. It was observed that the word 'cooperative society' is a word of a

large extent and it denotes a genus, whereas the word 'cooperative bank'

is a word of limited extent which merely demarcates and identifies a

particular species of the genus 'cooperative societies'; that cooperative

society can be of different nature and can be involved in different

activities; that cooperative society or bank is merely a variety of

cooperative societies; that therefore, cooperative bank, which is a species

of the genus, would necessarily be covered by the word 'cooperative

society'; that furthermore, section 56(i)(ccv) of the Banking Regulations

Act, 1949 defines primary cooperative society or bank as the meaning of

'cooperative society'; and that therefore, under section 80P(2)(d) of the

Income Tax Act, 1961, the amount of interest earned from a cooperative

society or bank would be deductible. It was held that the decision of the

Honorable Supreme Court in the case of 'The Totgar's Cooperative Sale

Society Limited Versus Income Tax Officer, Karnataka', 322 ITR 283 (SC)

was not applicable, since that case dealt with the interpretation and the

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 49

deduction which would be applicable under section 80P(2)(a)(i) of the

Income Tax Act, whereas in the case before the Honorable High Court,

the interpretation required was of section 80P(2)(d) of the Income Tax Act

and not of section 80P(2)(a)(i) of the Income Tax Act. It was held that

therefore, neither the substantial question of law, as to whether the

Tribunal was justified in deleting the additions made by the assessing

authority, being the disallowed deduction claimed under section

80P(2)(d) of the Income Tax Act, and in the light of the decision of the

Supreme Court with regard to the same exact assesse, namely, the

Totgar's Cooperative Sale Society Limited, in Civil Appeal Numbers 1622

to 1629 of 2010, decided by the Apex Court on 8.2.2010, reported as 322

ITR 283 (SC), nor the substantial question of law as to whether the

Tribunal was justified in not following the said decision rendered by the

Honorable Supreme Court, wherein, the Apex Court had held that the

words used in section 80P, 'the whole of the amount of profits and gains

of business' emphasize that the income in respect of which deduction is

sought, must constitute the operational income and not the other income

which accrues to the society and such interest earned on funds which

are not required for business purposes falls under the category of 'other

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 50

income' taxable under the Income Tax Act, even arose in the case before

the Honorable High Court.

learned PCIT while passing the order under appeal.

Limited' 230 ITR 774 (P&H), it has been held by the jurisdictional High

Court, that interest received by a cooperative society on any investment

in another cooperative society qualifies for deduction under section

80P(2)(d). While holding so, it was observed that section 80P(2)(d) allows

whole deduction of an income by way of interest or dividend derived by

the cooperative society from its investment with any other cooperative

society; and that this provision does not make any distinction in regard

to the source of the investment because this section envisages deduction

in respect of any income derived by the cooperative society from any

investment with a cooperative society.

'Surat Vankar Sahakari Sangh Limited Versus Assistant Commissioner

of Income Tax', 421 ITR 134 (Gujarat).

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 51

80P(4). This has been challenged before us. It is seen that section 80P(4)

states that the provisions of section 80P shall not apply in relation to any

cooperative bank other than a primary agricultural credit society or a

primary cooperative agricultural and rural development bank, both

defined in the Explanation to section 80P(4). Section 80P deals with

deduction in respect of income of cooperative societies. So, the exclusion

in section 80P(4) is obviously with regard to the income earned by a

cooperative bank. The assessee, on the other hand, is not a cooperative

bank, it is a cooperative society. The income earned by it is interest

income from cooperative banks and it is this income for which deduction

is being sought under the section. Therefore, section 80P(4) is not

applicable to the income of the society. The learned PCIT, hence, has

wrongly applied it to the present case.

Cooperative Bank Limited and Others Versus Commissioner of Income

Tax and Another', 431 ITR 1 (SC), has held that the limited object of

section 80P(4) is to exclude cooperative banks that function at par with

other commercial banks, that is, which lend money to members of the

public.

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 52

(supra), the Mumbai Bench of the Tribunal held that the bone of

contention therein was the interest income earned from investment of

surplus funds with cooperative banks, as to whether such income was

not eligible for deduction under section 80P(2)(d) or 80P(2)(a)(i) of the

Income Tax Act. It was observed that in 'CIT Versus Kalpadi Cooperative

Township Limited', (2016) 74 taxmann.com 226 (Madras), the Honorable

Madras High Court had held that a cooperative credit society providing

credit facilities to its members alone and not to the general public at

large, not receiving money by way of deposits on the general public,

would not be treated as a cooperative bank, it would be entitled to

deduction under section 80P. It was observed that in 'CIT Versus Nilgiris

Cooperative Marketing Societies Limited', 77 taxmann.com 23 (Madras),

again, the Hon'ble Madras High Court had held that where the assessee

cooperative credit society was providing credit facilities to its members

alone and not to the general public at large and it also did not receive

monies deposited on the general public, it would not be termed as a

cooperative bank. It was observed that further, the Honorable Karnataka

High Court, in 'PCIT and Another Versus Totagars Cooperative Sale

Society', 392 ITR 74 (Karnataka), it was held that the issue whether a

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 53

cooperative bank is considered to be a cooperative society is no longer res

integra, for the said issue has been decided by the ITAT itself in different

cases; that moreover, the words 'cooperative society' are the words of a

large extent and denote a genus, whereas the words 'cooperative bank'

are words of a limited extent which merely demarcate and identify a

particular species of the genus 'cooperative society'; that cooperative

society can be of different nature and can be involved in different

activities, whereas 'cooperative bank' is merely a variety of cooperative

societies; and that thus, 'cooperative bank', which is a species of the

genus, would necessarily be covered by the words 'cooperative society';

that furthermore, even under section 56 (i)(ccv) of the Banking

Regulations Act, 1949, 'primary cooperative society bank' has been

defined as the meaning of 'cooperative society'; that therefore,

'cooperative society bank' would be included in the words 'cooperative

society'; that admittedly, the interest which the assessee had earned was

from a cooperative society bank; that therefore, according to section

80P(2)(d) of the Income Tax Act, the said amount of interest earned from

a cooperative society bank would be deductible from the gross income of

the cooperative society in order to assess its total income; and that

therefore, the AO was not justified in denying the said deduction. It was

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observed that therefore, the Honorable Karnataka High Court had held

that for the purposes of section 80P(2)(d), a cooperative bank should be

considered as a cooperative society. It was observed that in 'Mavilayi

Service Cooperative Bank Limited Versus CIT', (2021) 123 taxmann.com

161 (SC), it has been held that the material would clearly indicate that

the limited object of Section 80P(4) is to exclude cooperative banks that

function at par with other commercial banks, that is, which lend money

to members of the public; that therefore, if the Banking Regulation Act,

1949 is to be seen, what is clear from section 3 read with section 56 is

that a primary cooperative bank cannot be a primary agricultural credit

society, as such a cooperative bank must be engaged in the business of

banking as defined by Section 5(b) of the Banking Regulation Act, 1949,

which means the accepting, for the purpose of lending or investment, of

deposits of money from the public; that likewise, under section 22(1)(b) of

the Banking Regulation Act, 1949 as applicable to cooperative societies,

no cooperative society shall carry on banking business in India unless it

is a cooperative bank and holds a licence issued in that behalf by the

RBI; that as opposed to this, a primary agricultural credit society is a

cooperative society, the primary object of which is to provide financial

accommodation to its members for agricultural purposes, or for purposes

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connected with agricultural activities; that therefore, the ratio decidendi

of 'Citizen Cooperative Society Limited', 397 ITR 1 (SC) must be given

effect to; that section 80P of the Income Tax Act, being a benevolent

provision enacted by the parliament to encourage and promote the credit

of the cooperative sector in general, must be read liberally and

reasonably and if there is ambiguity, in favour of the assessee; that a

deduction that is given without any reference to any restriction or

limitation, cannot be restricted or limited by implication, as was sought

to be done by the Revenue in that case by adding the word 'agriculture'

in section 80P(2)(a)(i), when it was not there; that further, section 80P(4)

is to be read as a proviso, which proviso now specifically excludes

cooperative banks which are cooperative societies engaged in the banking

business, that is, engaged in lending money to members of the public,

which have a licence in this behalf from the RBI; that judged by this

touchstone, it was clear that the impugned Full Bench judgement was

wholly incorrect in its reading of 'Citizen Cooperative Society Limited';

that clearly, therefore, once section 80P(4) was out of harm's way, all the

assessees in that case were entitled to the benefit of the deduction

contained in section 80P(2)(a)(i), notwithstanding that they may also be

giving loans to their members, which were not related to agriculture; and

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that also, in case it was found that there were instances of loans being

given to non-members, profits attributable to such loans obviously could

not be deducted. It was held that to summarise, it could be said that the

limited object of section 80P(4) is to exclude cooperative banks that

function at par with commercial banks, that is, which lend money to

members of the public.

Andhra Pradesh), it was held that if there is a cooperative society which

is carrying on several activities including those activities listed in sub

clauses (i) to (vii) of section 80P(2)(a) of the Income Tax Act, 1961, the

benefit under clause (a) will be limited only to the profits and gains of

business attributable to any one or more of such activities; that but, if

the same cooperative society has an income not attributable to any one

or more of the activities listed in sub-clauses (i) to (vii) of clause (a), it

may go out of the purview of clause (a), but still, the cooperative society

may claim the benefit of clause (d) or (e) of section 80P(2) of the Act,

either by investing the income in another cooperative society, or investing

the income in the construction of a godown or warehouse and letting it

out; that the assessee was an agricultural cooperative credit society

engaged in the sale of fertilizers to its members; that a portion of the

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 57

income derived therefrom was deposited in nationalized banks; that the

income derived by way of interest on fixed deposits made by the assessee

with banks was treated by the assessee as income attributable to the

profits and gains of business eligible for deduction under section

80P(2)(a) of the Act; that the Assessing Officer had treated the income as

income from other sources not eligible for deduction; that the investment

made by the assessee in fixed deposits in nationalised banks was of its

own monies; that if the assessee had invested those amounts in fixed

deposits in other cooperative societies, or in the construction of godowns

and warehouses, the Department would have granted the benefit of

deduction under clause (d) or (e) of section 80P(2) of the Act; that the

original source of the investment made by the assessee in nationalised

banks was admittedly the income that the assessee derived from the

activities listed in sub-clauses (i) to (vii) of clause (a) of section 80P(2);

that the character of such income might not be lost, especially when the

statute uses the expression 'attributable to' and not 'derived from' or

'directly attributable to'; and that thus, the assessee was entitled to

deduction under section 80P(2)(a) of the Act.

Limited Versus ITO', 94 taxmann.com 15 (Mumbai), it was held that the

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issue that a cooperative society would be entitled for claim of deduction

under section 80P(2)(d) for the interest income derived from its

investments held with a cooperative bank is covered in favour of the

assessee in the decisions in 'Land End Cooperative Housing Society

Limited', 'Sea Green Cooperative Housing Society Limited' and

'Marwanjee Park Cooperative Housing Society Limited'; that the Hon'ble

High Court of Karnataka, in the case of 'Totagars Cooperative Sale

Society' and the Hon'ble High Court of Gujarat, in the case of 'State Bank

of India', had also held that the interest income earned by the assessee

on its investments held with a cooperative bank would be eligible for

deduction under section 80P(2)(d) of the Act; that still further, CBDT

Circular Number 14 dated 28.12.2006 also makes it clear beyond any

scope of doubt that the purpose behind the enactment of subsection 4 of

section 80P was to provide that the cooperative banks which are

functioning at par with other banks would no more be entitled for the

claim of deduction under Section 80P(4) of the Act; that the decision of

the Honorable Supreme Court in the case of 'Totagars Cooperative Sale

Society Limited' was distinguishable on facts; that the said decision was

in the context of section 80P(2)(a)(i), and not on the entitlement of a

cooperative society towards deduction under section 80P(2)(d), on the

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interest income on the investment with a cooperative bank; that the

decision of the Mumbai Tribunal in the case of 'Vaibhav Cooperative

Credit Society' was also distinguishable on facts; that the order in that

case was in the context of adjudication of the entitlement of the assessee

cooperative bank towards claim of deduction under section 80P(2)(a)(i) of

the Act; that it was in the background of the said facts that the Tribunal,

after carrying out a conjoint reading of section 80P(2)(a)(i) and Section

80P(4), had decided the issue before them; that still further, the order of

the Mumbai Bench of the Tribunal in the case of 'Sri Sai Datta

Cooperative Credit Society Limited' was also not of any help, since in that

case, the Tribunal had set aside the issue to the file of the AO for fresh

examination; that in the case of 'Totagars Cooperative Sale Society', the

Honorable Karnataka High Court had concluded that a cooperative

society would not be entitled to the claim of deduction under section

80P(2)(d); that however, as held by the Honorable Bombay High Court in

the case of 'K Subramanian Versus Siemens India Limited', (1985) 156

ITR 11 Bombay, where there is a conflict between decisions of non-

jurisdiction High Courts, the view which is in favour of the assessee is to

be preferred as against that taken against them; that therefore, the view

taken by the Honorable Karnataka High Court in the case of 'Totagars

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 60

Cooperative Sale Society' and that of the Honorable High Court of

Gujarat in the case of 'State Bank of India', in which, it was observed

that the interest income earned by a cooperative society on its

investments held with a cooperative bank would be eligible for the claim

of deduction under section 80P(2)(d) of the Act; that therefore, it could

not be held that the assessee would not be entitled for claim of deduction

under section 80P(2)(d) in respect of the interest income on the

investments made with the cooperative bank; and that therefore, the

interest income earned by the assessee on the investments held with the

cooperative bank would be entitled for the claim of deduction under

section 80P(2)(d) of the Income Tax Act.

taxmann.com 532 (Pune-Trib.), it was held that in that case indulgence

had been sought for adjudicating as to whether or not the claim of the

assessee for deduction under section 80P(2)(d) in respect of interest

income earned from the investments or deposits made with the

cooperative banks was in order; that the issue involved hinged around

the adjudication of the scope and gamut of subsection 4 of section 80P

as made available on the statute vide the Finance Act, 2006, with effect

from 1.4.2007; that the PCIT, while passing order under section 263 of

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the Act, was of the view that pursuant to the insertion of subsection 4 of

section 80P, the assessee would no more be entitled for the claim of

deduction under section 80P(2)(d) in respect of the interest income

earned on the amounts which were parked as investments or deposits

with a Cooperative Bank, other than a primary agricultural credit society

or a primary cooperative agricultural and rural development bank; that

observing that the cooperative banks from where the assessee was in

receipt of interest income were not cooperative societies, the PCIT was of

the view that the interest income earned on such investments or deposits

would not be eligible for deduction under section 80P(2)(d) of the Act;

that on a perusal of section 80P(2)(d), it could safely be gathered that

interest income derived by an assessee cooperative society from its

investments held with any other cooperative society shall be deducted in

computing its total income; that what is relevant for a claim of deduction

under section 80P(2)(d) is that the interest income should have been

derived from the investments made by the assessee cooperative society

with any other cooperative society; that the PCIT was correct in holding

that with the insertion of subsection 4 in section 80P of the Act, vide the

Finance Act, 2006, with effect from 1. 4.2007, the provisions of section

80P would no more be applicable in relation to any cooperative bank

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 62

other than a primary agricultural credit society or a primary cooperative

agricultural and rural development bank; that however, at the same

time, the PCIT was not correct in holding that the aforesaid amendment

would jeopardize the claim of deduction of a cooperative society under

section 80P(2)(d) in respect of its interest income on investments or

deposits parked with a cooperative bank; that as long as it is proved that

the interest income is being derived by a cooperative society from its

investments made with any other cooperative society, the claim of

deduction under section 80P(2)(d) would be duly available; that has per

section 290 of the Act, 'Cooperative Society' means a cooperative society

registered under the Cooperative Societies Act, 1912, or under any other

law for the time being in force in any state for the registration of

cooperative societies; that though cooperative banks, pursuant to the

insertion of subsection 4 in section 80P, would no more be entitled for

claim of deduction under section 80P of the Act, as a cooperative bank

continues to be a cooperative society registered under the Cooperative

Societies Act, 1912, or under any other law for the time being in force in

any state for the registration of cooperative societies, the interest income

derived by a cooperative society from its investments held with a

cooperative bank would be entitled for the claim of deduction under

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section 80P(2)(d) of the Act; that the issue that a cooperative society

would be entitled for the claim of deduction under section 80P(2)(d) on

the interest income derived from its investments held with a cooperative

bank, is covered in favour of the assessee in 'Solitaire CHS Limited',

'Majalgaon Sahakari Sakhar Karkhana Limited' and 'Kaliandas Udyog

Bhavan Premises Cooperative Society Limited'; that the Honorable High

Court of Karnataka, in the case of 'Principle CIT Versus Totagars

Cooperative Sale Society', (2017) 392 ITR 74 (Karnataka) and the

Honorable High Court of Gujarat, in 'State Bank of India Versus CIT',

(2016) 389 ITR 578 (Gujarat), had held that the interest income earned

by the assessee on its investments with a cooperative bank would be

eligible for the claim of deduction under section 80P(2)(d) of the Act; that

still further, CBDT Circular Number 14, dated 28.12.2006 also makes it

clear beyond any scope of doubt, that the purpose behind the enactment

of subsection 4 of section 80P was that the cooperative banks which were

functioning at par with other banks would no more be entitled for the

claim of deduction under Section 80P(4) of the Act; that although, in all

fairness, the Honorable High Court of Karnataka in the case of 'Principle

CIT Versus Totagars Cooperative Sale Society', (2017) 395 ITR 611

(Karnataka) had held that a cooperative society would not be entitled to

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 64

claim deduction under section 80P(2)(d), the Honorable High Court of

Karnataka, in that case, and the Honorable High Court of Gujarat, in

'State Bank of India' head observed that the interest income earned by a

cooperative society on its investments held with a cooperative bank

would be eligible for claim of deduction under section 80P(2)(d) of the

Act; that as held by the Honorable High Court of Bombay in the case of

'K Subramanian Versus Siemens India Limited' (1983) 156 ITR 11

(Bombay), where there is a conflict between the decisions of non

jurisdictional High Courts, the view in favour of the assessee is to be

preferred as against that taken against them; that accordingly, following

the view taken by the Honorable High Court of Karnataka in the case of

'Totagars Cooperative Sale Society' and that of the Honorable High Court

of Gujarat in the case of 'State Bank of India', wherein, it was observed

that the interest income earned by a cooperative society on its

investments held with a cooperative bank would be eligible for the claim

of deduction under 80P(2)(d) of the Act; and that be that as it may, as the

Assessing Officer, while framing the assessment, had taken a possible

view and had allowed the assessee's claim for deduction under section

80P(2)(d) on the interest income earned on its investments or deposits

with cooperative banks, the Principle CIT was in error in exercising

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 65

revisional jurisdiction under section 263 of the Act for dislodging the

same.

taxmann.com 476 (Raipur), it was held that adverting to the claim that

the CIT (Appeals) had erred in conforming the rejection of the assessee's

claim for deduction under section 80P(2)(d) of the Act, that is, deduction

of the dividend income received on the shares of a cooperative bank,

namely, Jila Sahakari Kendriya Bank, Raipur, perusal of the Assessment

Order showed that the Assessing Officer, holding a conviction that as the

said Bank was not a cooperative society, held that the dividend income

received by the assessee on the shares of the said Bank was not eligible

for deduction under section 80P(2)(d) of the Act; that in order to fortify

his said conviction, the Assessing Officer had drawn support from

subsection 4 of section 80P of the Act, as per which, the entitlement to

deduction under section 80P of the Act is available to cooperative banks

with effect from AY 2007-08; that on such observation, the Assessing

Officer had declined the assessee's claim for deduction under section

80P(2)(d) of the Act; that the view taken by the lower authorities could

not be concurred with, since a cooperative bank falls within the realm of

the definition of 'cooperative society' as contemplated in section 2(19) of

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the Act, the view that dividend income received by the assessee from the

said bank, which was a cooperative bank, would not be eligible for

deduction under section 80P(2)(d) of the Act could not be sustained; that

this view was fortified by the order of the Mumbai Bench of the Tribunal

in the case of 'Solitaire CGHS Limited', wherein, on an elaborate

discussion, after considering various decisions, it had been held that the

interest income derived by the assessee cooperative society from its

investments held with the Cooperative Bank would be entitled for claim

of deduction under section 80P(2)(d) of the Act.

PCIT-4, Pune', vide Order dated 29.11.2022, passed by the Pune Bench

of the Tribunal, in ITA Number 231/Pune/2022, for AY 2017-18, it was

held that 'cooperative bank is also a specie of 'cooperative society' and

therefore, the interest income earned by the cooperative society from the

cooperative bank qualifies for deduction under section 80P(2)(d) of the

Act; that such interest also qualifies for exemption under section

80P(2)(a)(i), as held by the Pune Bench of the Tribunal in the case of

'Nashik Road Nagari Sahakari Pat Sanstha Limited', Order dated

27.12.2021 passed in ITA Number 1700/Pune/2017, observing that

admittedly, the assessee was a cooperative society formed under the

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 67

provisions of the Maharashtra Cooperative Societies Act, 1960 with the

objective of accepting deposits and lending money to its members; that

the money which was not immediately required for the purpose of

lending to the members, was deposited with the Bank of Baroda in the

form of fixed deposit; that the question was as to whether the interest so

earned qualified for exemption under section 80P(2)(a)(i) of the Act; that

the AO, as well as the CIT(A) were of the opinion that the interest earned

from third parties or non-members did not qualify for exemption under

section 80P; that it was an admitted position that the interest so earned

should be taxed as income from other sources; that there was a cleavage

of judicial opinion amongst several High Courts on the issue of eligibility

of this kind of income for exemption under section 80P(2)(a)(i) of the Act;

that the Honorable Punjab and Haryana High Court, in the case of 'CIT

Versus Punjab State Cooperative Federation of House Building Societies

Limited', 11 taxmann.com 448 (P&H), the Honorable Gujarat High Court,

in the case of 'State Bank of India Versus CIT', 389 ITR 28 (Gujarat), the

Honorable Delhi High Court in the case of 'Mantola Cooperative Thrift

and Credit Society Limited versus CIT', 50 taxmann.com 278 (Delhi), the

Honorable Punjab and Haryana High Court, in the case of 'CIT Versus

Punjab State Cooperative Agricultural Development Bank Limited', 389

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 68

ITR 68 PH and the Honorable Kolkata High Court, in the case of

'Southern Eastern Employees Cooperative Credit Society Limited', 390

ITR 524 (Kolkata), took a view that the income arising on the surplus

invested in short term deposits and securities cannot be attributed to the

activities of the society and, therefore, it was not eligible for exemption

under section 80P of the Act; that however, the Honorable Karnataka

High Court, in the case of 'Tumkur Merchants Soharda Credit

Cooperative Limited Versus ITO', (2015) 230 taxmann 309 (Karnataka)

and the Honorable Telangana and Andhra Pradesh High Court, in the

case of 'Vaveru Cooperative Rural Bank Limited Versus CIT', (2017) 396

ITR, took a view that such interest income is attributable to the activities

of the society and, therefore, it is eligible for exemption under section

80P(2)(a)(i) of the Act; that the coordinate Pune Bench of the Tribunal, in

the case of 'M/s Ratnatray Gramin Bigar Sheti Sahakari Pat Sanstha

Maryadit Versus ITO', vide order dated 11.12.2018, passed in ITA

Numbers 559 and 560/Pune/2018, had taken a view in favour of the

assessee, following the judgement of the Honorable Karnataka High

Court in 'Tumkur Merchants Souharda Credit Cooperative Limited', and

that following the same, it was being held that the interest income

earned on the investment of surplus money with banks was also eligible

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 69

for exemption under section 80P(2)(a)(i) of the Act. It was held that

therefore, the issue which was the subject matter of the revision was

covered in favour of the assessee by the said judicial presidents; that

therefore, it could not be said that the Assessment Order was erroneous

or prejudicial to the interests of the Revenue; and that therefore, the

order of revision passed under section 263 of the Act could not be

sustained in the eye of the law.

Versus Principal Commissioner of Income Tax-2, Surat', (2021) 189 ITD

601 (Surat-Trib.), it was held that where the assessee was a cooperative

society in the business of providing credit facility to its members by

accepting deposits from them and lending money to them too, and it

claimed deduction under section 80P of the Act, and where the Assessing

Officer noted that the assessee derived interest income from savings

bank accounts with HDFC Bank and UTI Bank, and held that since as

per section 80P(2)(a)(d), interest earned out of investments or deposits

with cooperative societies or cooperative banks are only eligible for

deduction, interest income earned from other banks was not eligible for

deduction under section 80P and the Commissioner opined that the

interest income did not fall within the meaning of the exemption under

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 70

section 80P(2)(d) and, therefore, he revised the AO's order as being

erroneous, since the assessee cooperative society was eligible for

deduction under section 80P(2)(d) in respect of the gross interest received

from the Cooperative Bank and the Assessing Officer had made enquiries

on the allowability of the deduction under Section 80P(2)(d) and had

passed the Assessment Order taking, therefore, a reasonable and

possible view, such Order of the Assessing Officer was not erroneous

and, so, the revision was unjustified.

by virtue of order dated 15.1.2016, passed in ITA Number

3566/Mumbai/2014, for AY 2009-10, the Mumbai Bench of the Tribunal

has held that the CIT(A) enhanced the income of the assessee by

rejecting the deduction claimed under section 80P(2)(d) of the Act, being

interest on investment with other cooperative banks, by following the

decision in the case of 'Bandra Samruddhi Cooperative Housing Society

Limited', which was passed on the basis of the decision of the Honorable

Supreme Court in the case of 'Totgars Cooperative Sale Society Limited';

that in the case of 'Totagars Cooperative Sale Society Limited' while

interpreting provisions of the section 80P(2)(a)(i) of the Act, the Honorable

Supreme Court held that surplus funds not immediately required in the

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 71

business and invested in the short term deposit would be accessible

under the head of 'income from other sources' where the cooperative

society is engaged in carrying on the business of banking or providing

credit facilities to its members and, consequently, no deduction is

available under section 80P(2)(a)(i) of the Act; that but, in the case before

the Bench, the issue was whether a cooperative society, which has

derived income on investment with cooperative banks, is entitled to

deduction under section 80P(2)(d); that the provisions of section 80P(2)(d)

of the Act provide for deduction in respect of income by way of interest or

dividend on investments made with other cooperative societies; that from

a close perusal of the provisions of section 80P(2)(a(i) and section

80P(2)(d), it was clear that the former deals with deduction in respect of

profits and gains of business in the case of a cooperative society carrying

on the business of banking or providing credit facilities to its members, if

the said income is accessible as income from business, whereas the later

provides for deduction in respect of income by way of interest or dividend

derived by the assessee from its investments with any other cooperative

society; that therefore, it was amply clear that a cooperative society can

only avail deduction under section 80P(2)(a)(i) in respect of its income

accessible as business income, and not as income from other sources, if

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it carries on the business of banking or providing credit facility to its

members and has income assessable under the head of business,

whereas for claiming deduction under section 80P(2)(d), it must have

income of interest or dividend on investments with any other cooperative

society which may or may not be engaged in the business of banking or

providing credit facilities to its members, and the head under which the

income is assessable is not material for the claim of deduction under this

section; that the Honorable Supreme Court, in the case of 'Totagars

Cooperative Sale Society Limited', held that if a society has surplus funds

which are invested in short term deposits where the society is engaged in

the business of banking or providing credit facilities to its members, the

said income from short term deposits shall be treated and assessed as

income from other sources and deduction under section 80P(2)(a)(i)

would not be available, meaning thereby, that deduction under section

80P(2)(a)(i) is available only in respect of income which is assessable as

business income, and not as income from other sources and in

distinction to this, the provisions of section 80P(2)(d) provide for

deduction in respect of income of a cooperative society by way of interest

or dividend from its investments with any other cooperative society, if

such income is included in the gross total income of such cooperative

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 73

society; that in this view of the matter, the assessee was entitled to the

deduction in respect of interest received or derived by it on deposits

made with cooperative banks.

Sahakari Sugar Mill', order dated 31.1.2018, passed in ITA Numbers 418

and 419/JP/2017 and CO Numbers 23 and 24/JP/2017, for AYs 2013-

14 and 2014-15, by the Jaipur bench of the Tribunal, it was observed

that the entire income of the assessee for the year under consideration

was only from interest on deposits made with bank as well as cooperative

banks; that in its computation of income, the assessee had given the

details of the interest income, which comprised, inter alia, interest

earned on deposits made with cooperative banks. The assessee had

claimed deduction under section 80P(2)(d) in respect of the interest

earned from cooperative banks; that the Assessing Officer disallowed the

claim on the ground that the assessee was not in the business of

banking or of providing credit facilities to its members. The CIT(A)

allowed the claim by following various High Court and Tribunal orders.

The Tribunal held that where any income by way of interest or dividend

is derived by a cooperative society from its investment with any other

cooperative society, the whole of such income is allowable for deduction

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 74

under section 80P(1); that therefore, there is no condition for the

assessee society to be engaged either in the business of banking, or in

the activity of providing credits to its members, for availing the deduction

under section 80P(2)(d) read with section 80P(1); that so far as regards

the proposition that a cooperative bank shall be treated as a cooperative

society for the purpose of the interest income on investment in such

cooperative bank, under section 80P(2)(d), the Mumbai Bench of the

Tribunal, in the case of 'Lands End Cooperative Housing Society Limited

Versus ITO', after considering the decision of the Honorable Supreme

Court in the case of 'Totagars Cooperative Sale Society Limited Versus

ITO', had held that the provisions of section 80P(2)(d) provide for

deduction in respect of income by way of interest or dividend on

investments made with any other cooperative society, if such income is

included in the gross total income of such cooperative society; that

therefore, the assessee was entitled to deduction in respect of interest

received or derived by it on deposits with cooperative banks.

Sahakari Kray Vikray Sangh Limited', the Honorable jurisdictional

Rajasthan High Court, vide order dated 1.9.2016, passed in DB ITA

Numbers 139 of 2002, 20 of 2004 24 of 2004 and 27 of 2004, following

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 75

the decision of the Honorable Gujarat High Court in the case of 'Surat

Vankar Sahakari Sangh Limited Versus ACIT', 72 taxmann.com 169

(Gujarat), has held that the decisions cited for the assessee shall be

applicable.

Limited', the Punjab and Haryana High Court has held that section

80P(2)(d) of the Act allows whole deduction of an income by way of

interest or dividends derived by the cooperative society from its

investment with another cooperative society.

of 'PCIT and Another Versus Totagars Cooperative Sale Society', 392 ITR

74 (Karnataka), has held that a cooperative bank is considered to be a

cooperative society for the purposes of Section 80P(2)(d), and that so, the

CIT(A) had correctly allowed the claim of the assessee under section

80P(2)(d) in respect of interest income from deposits or FDRs with the

cooperative banks.

Versus The Income Tax Officer, Ward-2(3), Kota vide Order dated

17.6.2019, the Jaipur Bench of the Tribunal, in ITA Numbers 281 and

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 76

282/JP/2017 and 87/JP/2018, for Assessment Years 2012-13, 2013-14

and 2014-15, following the decision of the Jaipur Bench of the Tribunal

in the case of 'Shree Keshorai Patan Sahakari Sugar Mill, Bundi (supra),

decided the issue in favour of the assessee and allowed the deduction

under section 80P/80P(2)(d) in respect of interest earned on deposits

made with the banks/cooperative banks.

Versus The Income Tax Officer, Ward-4(1), Jaipur, vide Order dated

15.10.2020, passed in ITA Number 767/JP/2019, for Assessment Year

2015-16, the Jaipur SMC bench of the Tribunal held that in 'ITO Versus

Shri Keshorai Patan Sahakari Sugar Mill, Bundi' (supra), the Jaipur

Tribunal had held that a cooperative bank would be considered as a

cooperative society for the purposes of Section 80P(2)(d) of the Act; and

that accordingly, in view of the fact that the Jaipur Central Cooperative

Bank is a cooperative society registered under the Cooperative Societies

Act, interest received by the assessee from the said Cooperative Bank is

eligible for deduction under section 80P(2)(d) of the Act.

Ltd. Vs the Pr. CIT, Panchkula’ (co-authored by one of us, the V.P.), vide

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 77

order dated 12.01.2024, passed in ITA No.210/CHD/2023, for the

assessment year 2018-19, the issue was as to whether the ld. PCIT had

failed to appreciate that the issue in respect of deduction claimed u/s

80P of the Income Tax Act, on interest income, had been discussed

threadbare by the AO, at the time of assessment proceedings, or not, and

as such, assumption of jurisdiction u/s 263 of the Act, whereby the ld.

PCIT had only allegedly substituted her opinion over the plausible

opinion taken by the AO, was uncalled for.

68.1 It was held as follows :

“16. As per the provisions of section 80P(1) of the Act, the income referred to in sub-section (2) to section 80P shall be allowed as a deduction to an assessee being a Co-operative Society. Further, Section 80P(2)(d) of the Act provides for deduction in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society. Thus, for the purpose of Section 80P(2)(d) of the Act, there are only two conditions which are required to be cumulatively satisfied, i.e, the income should be by way of interest or dividend earned by a Co-operative Society from its investments, and secondly, such investments should be with any other Co-operative Society. Besides these two conditions, there are no other condition(s) which has been provided in the statue as apparent from the plain reading of the provisions of Section 80P(2)(d) of the Act. 17. The term “co-operative society” as defined under section 2(19) of the Act (19) means a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies. 18. As per the ld PCIT own findings, as per Section 80P(2)(d), interest income derived by a co-operative society from its investments held with any other co- operative society shall be deducted in computing its total income. Further, she has referred to the amendment by way of insertion of sub-section (4) of sec. 80P, vide the Finance Act, 2006 with effect from 1-4-2007 where the provisions of sec. 80P

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 78

are no more applicable in the case of a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. As per the ld PCIT, the aforesaid amendment does not jeopardise the claim of deduction of a co-operative society under Section 80P(2)(d) in respect of its interest income on investments/deposits parked with a cooperative bank.

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 79

the Tribunal did not have the advantage of the said judgment and the matter was decided in favour of the Revenue. We therefore find that the Hon’ble Punjab and Haryana High Court following the decision of the Hon’ble Supreme Court which was also rendered in the context of section 80P(2)(a)(i) held that interest income from commercial banks was not eligible for claim of deduction under section 80P(2)(a)(i) of the Act. Therefore, the said decision rendered in the context of section 80P(2)(a)(i) is distinguishable and doesn’t support the case of the Revenue and has been wrongly referred in support while challenging the assessee’s claim of deduction on interest income under section 80P(2)(d) of the Act in respect of deposits placed with Yamuna Nagar Central Co-op Bank Ltd.

Now, coming to another decision of the Hon’ble Punjab and Haryana 21. High Court in case of CIT Vs. Doaba Co-op Sugar Mills Ltd. (Supra). Briefly the facts of the case were that the assessee, a cooperative society, filed its return of income claiming deduction in respect of interest income received from the cooperative bank. The assessment was completed after making disallowance of the deduction claimed which on appeal has been allowed by the Tribunal and thereafter, the question of law which was proposed by the Revenue for the opinion of the Hon’ble High Court was “whether on the facts and circumstances of the case, the Tribunal is right in law in allowing deduction under section 80P(2)(d) of the Act in respect of interest of Rs. 4,90,919/- on account of interest received from Nawanshahr Central Co-operative Bank without adjusting interest paid to the bank and in that background, the Hon’ble High Court has held as under: “5. The contention of Mr. Gupta, the learned counsel appearing for the revenue, is that the Tribunal was wrong in allowing deduction under section 80P(2)(d) because it is not established that the assessee had derived interest by investing all the amount of surplus funds. It is further contended by Mr. Gupta that the assessee has paid interest to Jalandhar Central Co-operative Bank and has also received interest from the said co-operative bank, thereby showing that the assessee has on the aggregate paid interest to the bank and, therefore, no deduction under section 80P(2)(d) can be allowed. To appreciate this argument, we have to look to the provisions of section 80P(2)(d). For facility of reference, it is reproduced as under:

"(d)in respect of any income by way of interest or dividends derived by the co- operative society from its investments with any other co-operative society, the whole of such income;" So far as the principle of interpretation applicable to a taxing statute is concerned, we can do no better than to quote the by now classic words of Rowlatt, J., in Capce Brandy Syndicate v. IRC [1921] 1 KB 64 : "... In a taxing Act, one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 80

tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used." (p. 71) The principle laid down by Rowlatt, J., has also been time and again approved and applied by the Supreme Court in different cases including the one Hansraj Gordhandas v. H.H. Dave, Assistant Collector of Central Excise & Customs AIR 1970 SC 755 at p. 759. 6. Section 80P(2)(d) allows whole deduction of an income by way of interest or dividends derived by the co-operative society from its investment with any other co-operative society. This provision does not make any distinction in regard to the source of the investment because this section envisages deduction in respect of any income derived by the co-operative society from any investment with a co- operative society. It is immaterial whether any interest paid to the co-operative society exceeds the interest received from the bank on investments. The revenue is not required to look to the nature of investment whether it was from its surplus funds or otherwise. The Act does not speak of any adjustment as sought to be made out by the learned counsel for the revenue. The provision does not indicate any such adjustment in regard to interest derived from the co-operative society from its investment in any other co-operative society. Therefore, we do not agree with the argument advanced by the learned counsel for the revenue. In our opinion, the Tribunal was right in law in allowing deduction under section 80P(2)(d) in respect of interest of Rs. 4,90,919 on account of interest received from Nawanshahr Central Co-operative Bank without adjusting interest paid to the bank. Therefore, the reference is answered against the revenue, i.e., in the affirmative, and in favour of the assessee.”

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 81

Jurisdictional High Court and therefore, the order so passed by the AO cannot be held as erroneous in so far as prejudicial to the interest of Revenue.

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 82

decision of Hon’ble Karnataka High Court. As against that, we find that the AO has referred to the said decision in case of Mavilayi Service Co-operative Bank Ltd. Vs. CIT (Supra) and has thus followed the dicta laid down by the Hon’ble Supreme Court and thus, the order so passed cannot be held as erroneous in so far as prejudicial to the interest of Revenue. 25. In light of aforesaid discussion and in the entirety of facts and circumstances of the case, we find that there is no legal and justifiable basis to invoke the provisions of section 263 by the ld PCIT and therefore, the order so passed u/s 263 is hereby set-aside and that of the AO who has rightly allowed the deduction u/s 80(P)(2)(d) is sustained. 26. In the result, the appeal of the assessee is allowed.”

followed, inter-alia, the decision of the Hon'ble jurisdictional High Court

in ‘CIT Vs Doaba Co-operative Sugar Mills Ltd.’ 230 ITR 774 (P&H).

discussed one by one, are squarely applicable to the facts of the present

case. Therefore, following the said decisions, we hold that the assessee

society, being a cooperative society, is entitled to the exemption claimed

under section 80P(2)(d) of the Income Tax Act, in respect of income by

way of interest derived by it from its investments with the cooperative

banks.

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 83

Commissioner of Income Tax is set aside and cancelled and the

assessment order is revived.

Assessment Year 2012-13 is partly allowed, as indicated.

ITA 569/CHD/2018

against the order dated 23.03.2018, passed by the ld. PCIT-2,

Chandigarh, u/s 263 of the Income Tax Act.

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 84 4. That the order of Commissioner of Income tax is erroneous, arbitrary, opposed to the facts of the case and is unsustainable in law.

are identical to ITA No. 515/CHD/2017, therefore, our findings given in

ITA No. 515/CHD/2017 would apply mutatis-mutandis to ITA

No.569/CHD/2018. Accordingly, the appeal of the assessee in ITA

No.569/CHD/2018 is also partly allowed.

ITA No. 645/CHD/2019

against the order dated 06.02.2019, passed by the ld.CIT(A)-II,

Chandigarh.

i) That the Ld. Commissioner of Income Tax (Appeals) has erred in law as well as on facts in upholding the disallowance of deduction claimed u/s 80P(2)(d Resulting in an addition of Rs.82,13,316/- which is arbitrary and unjustified. ii) That the Ld. Commissioner of Income Tax (Appeals) has further erred in upholding the contention of the Assessing Officer that the interest income is to be taxed as "Income from Other Sources" u/s 50 which is arbitrary and unjustified. iii) That the Ld. Commissioner of Income Tax (Appeals) has further erred in holding that the claim of the assessee as to being covered under the provisions of Section 80P (2)(d) fails in the light of decision of Supreme Court repotted in 322 ITR 283 in as much the said decision is not in the context of Section 80P(2)(d) and as such order passed is arbitrary and unjustified.

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iv) That the Ld. Commissioner of Income Tax (Appeals) has further erred in holding that cooperative banks do not fall within the ambit of co-operative society and as such the assessee was not eligible for deduction u/s 80P of the Act which is arbitrary and unjustified. v) That the Ld. Commissioner of Income Tax(Appeals) has further erred in holding that, the Assessing Officer's actions in denying claims made by the assessee are upheld (even though on additional grounds)which is arbitrary and unjustified. vi) That the Principle of Mutuality as applied by the Assessing Officer is not applicable in the case of the assessee, as the same is in the context of Section 80P(2)(a)(i) and 80P(2)(d) which aspect has not been discussed threadbare by the Commissioner of Income Tax (Appeals), though he dismissed all the grounds taken before him and as such the order passed is arbitrary and unjustified.

Assessing Officer’s order dated 30.11.2017, passed in consequence to the

order dated 28.02.2017 passed u/s 263 of the Act, by the Pr. CIT-2,

Chandigarh. This order dated 28.02.2017 passed u/s 263 is subject

matter of ITA No.515/CHD/2017, which we have dealt with in extenso

herein above, setting aside and reversing the said revisionary order dated

28.02.2017.

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and ITA No.569/CHD/2018 are partly allowed and assessee's appeal in

ITA No.645/CHD/2019 is dismissed as infructuous.

Order pronounced on 16.05.2024.

Sd/- Sd/-

(KRINWANT SAHAY) (A.D.JAIN ) VICE PRESIDENT ACCOUNTANT MEMBER

FIT FOR PUBLICATION

(KRINWANT SAHAY) (A.D.JAIN ) ACCOUNTANT MEMBER VICE PRESIDENT