SHREE UMIYA CREDIT CO-OP. SOCIETY LTD.,RAJKOT vs. THE PR. CIT-1, RAJKOT, RAJKOT

The assessee has raised the following grounds of appeal: 1. The learned Principal Commissioner of Income-tax -Rajkot - 1, Rajkot erred in holding that the assessment order dated 19-12-2019 passed u/s 143(3) of the Act was erroneous and prejudicial to the interest of revenue and thus erred in assuming jurisdiction u/s 263 of the Act, in the light of show cause notice and the order passed u/s 263 of the Act and hence the impugned order is bad in law. 2. The learned Principal Commissioner of Income-tax, Rajkot - 1, Rajkot erred in setting aside the assessment order framed u/s 143(3) of the Act by holding that the A.O. did not conduct any inquiries or verification in respect of eligibility of deduction claimed by the Appellant of interest income u/s 80P(2)(a)(i)/80P(2)(d) of the Act. 3. The learned Principal Commissioner of Income-tax, Rajkot - 1, Rajkot failed to appreciate that the impugned issue was duly examined by the assessing officer by way of specific inquiries/notices and replies thereto, while finalizing assessment proceedings u/s 143(3) of the Act. 4. The appellant craves leave to add, amend, alter and withdraw any ground of appeal anytime up to the hearing of this appeal.

The assessee by way of an application dated 6 May 2022, received by the registry of ITAT Rajkot dated 20 May 2022, has requested to grant the early hearing date so as to avoid the consequential proceedings arising against the order passed by the learned PCIT under section 263 of the Act in the event it succeeds before the Tribunal. There was no objection raised by the learned DR if an early hearing date is granted to the assessee. After hearing both the parties and taking the note of the administrative order dated 14/06/2016 passed by the then Hon’ble President of ITAT for giving priority to the appeals filed against the order passed under section 263 of the Act, we are inclined to grant the early date of hearing in the case on hand.

However, the learned AR further requested that the issue involved in the impugned appeal is covered issue and the same can be disposed of today only subject to the concurrence of the learned DR appearing on behalf of the revenue. There was no objection raised by the learned DR, if the matter is taken up for hearing today only. Upon receiving the concession of the learned DR, we decided to take up the main appeal of the assessee.

The only issue raised by the assessee is that the learned PCIT erred in holding the assessment framed by the AO under section 143(3) of the Act as erroneous insofar prejudicial to the interest of Revenue under the provisions of section 263 of the Act.

The facts in brief are that the assessee in the present case is a co-operative society and engaged in the business of providing credit facilities to its members. The assessee in the year under consideration declared interest income of Rs. 90,45,196/- from fixed deposit made with Co-operative Bank which was claimed as exempted under the provision of section 80P(2)(a)(i) of the Act. The AO in the assessment framed under section 143(3) of the Act accepted the claim of the assessee.

However, the learned PCIT was of the view that assesse being credit society was eligible for deduction under section 80P(2)(i)(a) of the Act for interest income earned from credit facility provided to its members only whereas the interest income from fixed deposit made with Co-operative bank is not allowable deduction under section 80P(2)(a)(i) of the Act. As such, the co-operative bank is not the member of the assessee and such interest income was not derived from its activity of providing credit facility to the member and accepting deposit from its member. Rather, such interest income was arising from investment made by the assessee with the co-operative bank, hence, the same is not eligible for deduction under section 80P(2)(a)(i) of the Act . The learned Pr. CIT in this regard referred the judgment of Hon’ble Supreme court in case of Totaghar’s Co-operative Sales Society Ltd. reported in 188 taxman 282. The learned Pr. CIT further held that though the provision of section 80P(2)(d) of the Act provides that co-operative society deriving income being dividend or interest from investment made with other co-operative society will be eligible for deduction, but the benefit of the provision of section 80P(2)(d) cannot be extended to the interest earned from cooperative bank as the same has been excluded from the co-operative society by insertion of section 80P(4)

Being aggrieved by the order of the learned PCIT, the assessee is in appeal before us.

The learned AR before us inter-alia contended that the Hon’ble Karnataka High Court in the case of PCIT vs. Totaghar’s Co-operative Sales Society Ltd. reported in 78 taxmann.com 169 after distinguishing the facts of the case observed by the Hon’ble Supreme Court cited (supra) has held that interest income from co- operative bank is eligible for deduction under section 80P(2)(d) of the Act.

The learned AR also contended that the Hon’ble High Court of Gujarat in the case of Surat Vankar Sahkari Sangh Ltd. vs. ACIT reported in 72 taxmann.com 169 has also held that interest from the co-operative bank is eligible for deduction under section 80P(2)(d) of the Act. According to the learned AR, the AO has taken one of the possible view and therefore the assessment framed under section 143(3) of the Act cannot be held as erroneous insofar prejudicial to the interest of revenue.

On the contrary, the learned DR vehemently supported the order of the ld. PCIT.

We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that different Hon’ble High Courts have taken different view with respect to the deduction of the interest income earned by the assessee from the co-operative bank. Some of the

In the result, the appeal filed by the assessee is allowed.