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

आदेश/ORDER

PER A.D.JAIN, VICE PRESIDENT ITA 515/CHD/2017

"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.

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.”

2. At the outset, the learned Counsel for the assessee has stated at the bar that he does not wish to press Ground Number 1. Rejected as not pressed.

3. Apropos Ground Numbers 2 to 4, the learned Principle 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 ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 4 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.

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 6 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.

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 8 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

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 9 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,

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 10 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 ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 11 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

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 12 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.

6. Challenging the impugned order, the learned Counsel for the 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.

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 14 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: "

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."

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

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 16 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.

"... 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 ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 19 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 ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 20

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..."

" 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."

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 23 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.

18. In 'CIT Versus Hindustan Marketing and Advertising Cor. Ltd.', 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,

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 25 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.

19. In 'CIT versus Late Shri Vijay Kumar Koganti', 195 DTR 428 (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.

20. In 'Shri Varinder Kumar Gupta Versus ITO', vide Order dated 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

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 26 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.

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.

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22. Further, as rightly contended, as held by the jurisdictional High 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.

23. In ‘Ganpati International Vs PCIT’, (2023) 105 ITR-TRIB (Trib) 266 (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.

24. Regarding the merits of the issue of deduction claimed under 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'.

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26. It has been contended that the learned PCIT has gone wrong in 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.

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.

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.

"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."

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"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".

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.

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.

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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.

It was thereupon that the claim was allowed. Therefore, invocation of revisionary power was uncalled for.

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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.

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.

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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.

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

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

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 55 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 ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 56 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.

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.

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 ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 63 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.

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.

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.

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.

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.

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 77 order dated 12.01.2024, passed in 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.

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.

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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.

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ITA 569/CHD/2018

1. That the Ld. Commissioner of Income Tax has erred 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, unjustified which merits annulment.

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.

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.

ITA 515/CHD/2017 ITA 569/CHD/2018 & ITA 645/CHD/2019 85 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.

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Order pronounced on 16.05.2024.