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Income Tax Appellate Tribunal, NAGPUR BENCH, NAGPUR
Before: SHRI RAVISH SOOD & SHRI JAMLAPPA D BATTULL
ORDER PER JAMLAPPA D BATTULL, AM; Against the revisionary orders of Principal Commissioner of Income Tax-3, Nagpur [for short “PCIT”] passed u/s 263 of the Income-tax Act, 1961 [for short “the Act”], which in turn sprung out of regular orders of assessments passed u/s 143(3) of the Act, by the Income Tax Officer-Ward-3, Nagpur [for shot “AO”], the appellant assessee filed these appeals before Income Tax Appellate Tribunal [for short “Tribunal”] u/s 253 of the Act.
ITAT-Nagpur Page 1 of 13 M/s Nivedita Mahila Gramin Bigar Sheti Sahakari Pat Sanstha, Maryadit ITA No. : 123/NAG/2018 & 107/NAG/2019 AY : 2013-2014 & 2014-2015 2. The issue in the present controversy is, as to whether the order passed by the assessing officer u/s 143(3) can be said to be erroneous and prejudicial to the interest of the revenue within the preview of section 263 of the Act.
Since the issue urged in both these appeals are identical in nature, they are heard together for being disposed off by a common order, consequently the adjudication in first appeal ITA/123/NAG/2018 as a lead case shall, mutatis mutandis apply to second appeal and for the sake of convenience the information of assessments and the revisionary action is tabulated as under; Date of Order Passed Sr Appeal No Asstt Year U/s 263 U/s 143(3) 1 ITA/123/NAG/2018 2013-2014 19/03/2018 07/12/2015 2 ITA/107/NAG/2019 2014-2015 20/03/2019 21/07/2016
The appellant upstretched both, legal grounds as well grounds of merit in these appeal and it is essential to replicate the grounds challenged by the appellant assessee before we proceed for adjudicate thereon; “1. That the notice and the order of the Learned Pr. Commissioner of Income Tax-3, Nagpur passed u/s. 263 is bad in law and wrong on facts. On the facts and circumstances of the case, the assessment order passed by the AO u/s. 143(3) was neither erroneous nor prejudicial to the interest of the revenue and the notice u/s. 263 and the proceedings are illegal and liable to be quashed.”
2. That the Learned Pr. CIT erred in law and on facts in directing the AO to verify the transaction with nominal members and in respect of interest income from scheduled commercial banks and then allow ITAT-Nagpur Page 2 of 13 M/s Nivedita Mahila Gramin Bigar Sheti Sahakari Pat Sanstha, Maryadit ITA No. : 123/NAG/2018 & 107/NAG/2019 AY : 2013-2014 & 2014-2015 deduction u/s. 80P. On the facts and circumstances of the case, the Pr. Commissioner of Income Tax failed to appreciate that the assessee had correctly computed and claimed the deduction u/s. 80P The action of the AO was correct as per the material available on record and as per the provisions of Act.
3. That the Learned Pr. Commissioner of Income Tax erred in law and on facts in stating that the nominal members are not members in real sense and 80P deduction is not available if society provides credit facilities to non-members. On facts and circumstances of the case, this observation of Pr. Commissioner of Income Tax is misplaced and unjustified.
4. That for any other ground with kind permission of your honour at the time of hearing of appeal
Before citing the facts, it shall be apt to state first that, the first ground of appeal
being a legal ground, if adjudicated in favour of the appellant, the balance grounds would turn academic and infructuous, being heedful to this, the facts as emanating from records of the case succinctly stated as; 5.1 The assessee is a registered Co-operative society formed and registered under the provisions of Maharashtra State Co-Operative Societies Act, 1960 and engaged in the business of providing credit facilities to its members including nominal members, had for the assessment years [for short “AY”] under consideration filed its return which were summarily proceeded u/s 143(1) of the Act, and then subsequently selected for scrutiny under CASS and finally the assessment u/s 143(3) were completed accepting the returned income indifferently as tabulated herein below; ITAT-Nagpur Page 3 of 13. M/s Nivedita Mahila Gramin Bigar Sheti Sahakari Pat Sanstha, Maryadit ITA No. : 123/NAG/2018 & 107/NAG/2019 AY : 2013-2014 & 2014-2015 Income Deduction Date of ITR Sr Asstt Year Claimed u/s Accepted U/s Filed Returned 80P in ROI 143(3) 1 2013-2014 26/11/2013 2,46,520 2,46,520 73,74,449 2 2014-2015 18/11/2014 NIL NIL 96,28,538 5.2 Ad litem, the Ld. PCIT, after culmination of the assessment proceedings, called for the assessment records and upon perusal thereof, not concurring with the action of assessing officer, invoked the revisionary powers vested in him by virtue of section 263(1) and held the orders of assessments as erroneous insofar as it were prejudicial to the interest of the revenue is concerned on two counts viz; (1) The claim of deduction u/s 80P(2)(a)(i) were allowed without inquiry & verifying them as the assessee largely deals with nominal members also, and (2) The claim for deduction u/s 80P(2)(d) were allowed without inquiry & verifying them whether such interest includes from non-qualifying scheduled / commercial banks and institutions etc.
5.3 The submissions of the appellant society in response to SCN issued u/s 263 of the Act, did not find favour with the revisionary authority, consequently in the absence of inquiry into the claims, the Ld. PCIT set aside the 143(3) orders of assessment, holding them as erroneous insofar as prejudicial to the interest of the revenue is concerned and directed the Ld. AO to pass a fresh orders after due inquiry into transactions entered by the appellant society with its members vis-à-vis nominal members and interest received from non-qualifying banks or financial institutions. ITAT-Nagpur Page 4 of 13 M/s Nivedita Mahila Gramin Bigar Sheti Sahakari Pat Sanstha, Maryadit ITA No. : 123/NAG/2018 & 107/NAG/2019 AY : 2013-2014 & 2014-2015 5.4 Pending such direction before the Ld. AO, the appellant co- operative society assailed the revisionary action of Ld. PCIT before under the present appeals, on the premise that, both the issues plunged under revision were duly considered while carrying out the regular assessment in the light of prevailing judicial precedents and hence the action of the Ld. PCIT is alleged as untenable in law.
After hearing to the rival contentions of both the parties; perused material placed on records and duly considered the facts of the case in the light of settled legal position and the case laws relied upon by the appellant assessee as well the respondent revenue.
It is evidently discernible from the records that; 7.1 During the course of regular assessment proceedings, the appellant society on a specific query raised by the Ld. AO, laid a detailed submissions inter alia copies of return filed, statements of income showcasing its entitlement for the claim made u/s 80P of the Act, copies of audit reports obtained u/s 44AB of the Act and the copies of audited financial statements duly accompanied therewith the requisite explanation in reply to the questionnaire raised by the Ld. AO. Insofar as the allowability of claim u/s 80P(2)(a)(i) and 80P(2(d) is concerned, there were specific queries raised by the Ld. AO vis-à-vis replied by the appellant, and considering material placed on records, test checks were carried out, pursuant to which due inquiry into the entitlement were made and after due discussion the Ld. AO allowed the deductions accepting the claims of the assessee, holding categorically that; ITAT-Nagpur Page 5 of 13 M/s Nivedita Mahila Gramin Bigar Sheti Sahakari Pat Sanstha, Maryadit ITA No. : 123/NAG/2018 & 107/NAG/2019 AY : 2013-2014 & 2014-2015 “2. The assessee is an Employee Co-operative Society engaged in the business of accepting and lending loans and deposits from and to its members. During the course of assessment proceedings, the authorised representative (A.R) produced Books of accounts, selected ledgers and other documents in support of various deductions and expenses claimed which were test checked. After discussion the returned income of the assessee is accepted.” (Emphasis Supplied)
7.2 As far as the revisionary proceeding is concerned, it transpires from the show cause notices [for short “SCN”] issued u/s 263 of the Act that, alleging the absence of inquiry into allowability two pellet claims, trigged the revisionary jurisdiction viz; (1) Allowance of interest claim u/s 80P(2)(a)(i) without verifying as to whether or not such interest income was also earned from nominal members of the appellant society (2) Allowance of interest claim u/s 80P(2)(d) without verifying as to whether or not such investment interest earned from non-qualifying banks or financial institutions.
7.3 On the basis of aforesaid observation, the Ld. PCIT by issue “SCN” called upon the appellant society to explain as to why the assessments framed in its case should not be revised u/s 263 of the Act. In reply thereof, the assessee society primarily assailed the validity of 263 jurisdiction claiming that, considering its submissions made during the course of assessment proceeding, Ld. AO after a necessary inquiry into the claims and due deliberation had framed the assessments and therefore the exercise of revisionary jurisdiction is exiled. And on the merits of the case, it was averred before the revisionary authority that, in relation to its claim of interest income u/s 80P(2)(a)(i), a detailed written submissions were made before the ITAT-Nagpur Page 6 of 13 M/s Nivedita Mahila Gramin Bigar Sheti Sahakari Pat Sanstha, Maryadit ITA No. : 123/NAG/2018 & 107/NAG/2019 AY : 2013-2014 & 2014-2015 Ld. AO showcasing and explaining the transaction undertaken with members vis-à-vis nominal members of the society, and insofar as the interest income claimed u/s 80P(2)(d) is concerned, the interest earned on investment with other co-operative institutions were duly brought to the notice of Ld. AO and there was absolutely no withholding of information.
7.4 As regards to first claim, the Ld. PCIT considering the assessment records inter alia, the By-Laws of the appellant society, made a categorical observation that, by virtue of provisions of its bye-laws, the assessee society carries a right to admit nominal members in addition to regular members and consequently the interest earned (if any) from such nominal members on loans extended to them were ineligible for claim u/s 80P(2)(a)(i) of the Act, as these nominal member do not participate in the surplus of the society and in his opinion such transactions were remained to be inquired into & verified during the course of assessment proceedings. In holding such a view, Ld. PCIT placed reliance on Hon’ble Apex Court decisions laid in the case “Citizen Co-operative Society Ltd Vs ACIT” reported at 84 taxmann.com 114 (SC). And as regards to second claim, the Ld. PCIT illuminating the interest income derived from scheduled commercial banks & nationalised banks / financial institution etc., and placing reliance on the judgement of Hon’ble Supreme Court in the case of “Totgar Co-Operative Sale Society Ltd Vs ITO” reported at 322 ITR 283(SC), disagreed with the action of Ld. AO in allowing the 80P(2)(d) deduction. In the light of aforesaid two contention and further placing reliance on Hon’ble Apex Court’s decision in “Deniel Merchants Pvt Ltd Vs ITO” Ld. PCIT drawn a conclusion that, the order of the assessing ITAT-Nagpur Page 7 of 13 M/s Nivedita Mahila Gramin Bigar Sheti Sahakari Pat Sanstha, Maryadit ITA No. : 123/NAG/2018 & 107/NAG/2019 AY : 2013-2014 & 2014-2015 officer, in the absence of inquiry into the eligibility of claim are erroneous insofar it is prejudicial to the interest of the revenue in terms of clause (a) and clause (b) to explanation (2) of section 263 of the Act.
During the course of hearing before the bench, the counsel for the appellant [for short “AR”] adverting to the submission made during the course of original assessment proceedings submitted that, Ld. PCIT did not agree with the conclusion reached by the Ld. AO and provisions of section 263 does not empower him to take action on same facts to arrive at the varying conclusion that the order passed by his sub-ordinate is erroneous and prejudicial to the interests of the Revenue, since the same material was there on record and the said material was considered by the Ld. AO and a particular view was taken, the mere fact that a different view can be taken, should not be the basis for an action under section 263 of the Act and it cannot be held to be justified. Per contra, the departmental representative [for short “DR”] supported the orders of Ld. PCIT.
To hit the ball on the head, it will be apt to first reproduce the provision of section 263(1) in verbatim as it stood and applicable; 9.1 263. Revision of orders prejudicial to revenue – “(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous insofar as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order ITAT-Nagpur Page 8 of 13 M/s Nivedita Mahila Gramin Bigar Sheti Sahakari Pat Sanstha, Maryadit ITA No. : 123/NAG/2018 & 107/NAG/2019 AY : 2013-2014 & 2014-2015 enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.” (2) . . . . . . . (Emphasis Supplied)
9.2 A plain reading of this provision makes it clear that, the precondition to exercise revisionary jurisdiction by the PCIT/CIT suo moto under it, is that the order of AO must be erroneous insofar as it is prejudicial to the interests of the revenue is concern. Consequently, the provision mandates the satisfaction of existence of twofold conditions before invocation and these explicitly are; (i) the order of the assessing officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the revenue. If any one of two is absent or unsatisfied, that is where the order of the assessing officer is erroneous but is not prejudicial to the revenue or where order is not erroneous but is prejudicial to the revenue, then the recourse to Section 263(1) of the Act fails. Albeit the foresaid twin satisfaction drawn from the assessment records may trigger the revisionary jurisdiction, yet such shall not automatically empower the revisionary tax authorities to conclude the revision proceedings without obeying additional dual riders such as; (i) making or causing to be made such enquiry as necessary and (ii) according an opportunity of being heard to the assessee following the principle of natural justice.
9.3 In the light of provision of law, it is of paramount importance to note that, an incorrect assumption of facts or an incorrect application of law or passing an order without application of mind or without applying the principle of natural justice, shall discretely be sufficient to hold the order ITAT-Nagpur Page 9 of 13 M/s Nivedita Mahila Gramin Bigar Sheti Sahakari Pat Sanstha, Maryadit ITA No. : 123/NAG/2018 & 107/NAG/2019 AY : 2013-2014 & 2014-2015 being erroneous. Albeit the term prejudicial to the interests of the revenue is not at all defined in the Act, but is needs to be understood in its ordinary meaning and it is of wide import and is not confined to mere loss to ex- chequer.
9.4 In the light of ration laid down by Hon’ble Supreme Court of India and the various High Courts on the subject matter, we have the audacity to summarise the inferential but harmonious analysis of revisionary provision laid in section 263 of the Act, into a five steps of “Queen Principle”, falling out of which the assuming revisionary jurisdiction u/s 263 shall be contra legem, and these steps are; (1) There must be an explicit query from the adjudicating tax authority as regards to any claim made including information supplied in the return of income filed or to be filed, and (2) There must be direct, clear and an unreserved submission from the assessee in reply to aforesaid query, and (3) The submission must be followed by detailed inquiry (and not mere enquiry) by the tax authorities into assessee’s eligibility of claim, basis of claim and compliance of pre as well post conditions as may be attached to the claim under scrutiny, and (4) There should be even-handed application of mind by the adjudicating authority in reaching out the allowability or dis-allowability of claim under consideration, (5) finally, the adjudication must ensure correct application of law as regards to aforesaid following principle of natural justice.
9.5 Nota bene, in the instant case, during the course of assessment proceedings, explicit queries were raised and unreserved submission were ITAT-Nagpur Page 10 of 13 M/s Nivedita Mahila Gramin Bigar Sheti Sahakari Pat Sanstha, Maryadit ITA No. : 123/NAG/2018 & 107/NAG/2019 AY : 2013-2014 & 2014-2015 matured before the Ld. AO, and pursuant to which inquiries into entitlement having regards to nature of banking business with members & non-members were conducted and thereupon in the light of supportive evidential material, drawing an even-handed conclusions assessments allowing deduction u/s 80P were carried out, leaving no air in assessments.
9.6 In this context it is apt to quote the decision of Hon’ble High Court of Madhya Pradesh in the case of “CIT vs Mehrotra Brothers” reported at 270 ITR 157 (MP), the Lordship relying on “CIT Vs Ratlam Coal Ash Co.” reported in 171 ITR 141, had held that when the AO considered the records before him and completed the assessment after considering the evidence filed and after his satisfaction about the genuineness of claim, the order of revision under Section 263 on the vague ground that the AO did not make proper enquiry was not valid.
9.7 In a similar occasion, the Hon’ble Delhi High Court in “CIT Vs International Travel House” reported at 194 Taxman 324, observed that, the Commissioner had really made an effort to cause a routine inquiry with regard to the matter that had already been concluded and he thought that he had the authority to begin a fresh litigation because of the view entertained by him. The Hon’ble Lordship’s have held that, a mere change of opinion or view would not enable the Commissioner to exercise jurisdiction under section 263 of the Act, more so, when the Assessing Officer had considered the details and the explanation offered by the assessee.
ITAT-Nagpur Page 11 of 13 M/s Nivedita Mahila Gramin Bigar Sheti Sahakari Pat Sanstha, Maryadit ITA No. : 123/NAG/2018 & 107/NAG/2019 AY : 2013-2014 & 2014-2015 9.8 In the light of aforesaid judicial precedents, considering the facts of the case extenso, we concede with the contention of the Ld. AR that, in support of appellant claim as expounded hereinbefore at para 6, there was indeed unvarying and indistinguishable material placed before both these tax authorities during the course of regular assessment vis-à-vis revisionary proceeding, which in turn demonstrates that, the Ld. AO considering the same submission of the assessee carried out inquiry with respect to eligibility of claim, basis of claim and compliance relating thereto(if any) and then finalized the assessment taking one of the plausible view in the light of settled legal position in allowing the deduction u/s 80P, this evidently concludes that the adjudication squarely fell within aforementioned “Queen Principle”. Whereas under revisionary proceedings Ld. PCIT yet again conducted an inquiry into the claim of the appellant based on the like material and sitting on the same fence displaced with the views of Ld. AO and directed for modification of assessment which is ostensibly impermissible under a law following the ration laid in down by Hon’ble Jurisdictional High Court in “CIT Vs Gabriel India Ltd.” reported in 203 ITR 108 (Bom) and the Hon’ble Apex Court in “Malabar Industrial Co Ltd. Vs CIT” reported in 243 ITR 83. Ergo, in the above context, we find the order of Ld. PCIT is unsustainable in law, consequently we quash the 263 revisionary orders and restore the orders of assessment passed u/s 143(3).
Resultantly, the appeals of the appellant are allowed in terms of aforesaid observation.
ITAT-Nagpur Page 12 of 13 M/s Nivedita Mahila Gramin Bigar Sheti Sahakari Pat Sanstha, Maryadit ITA No. : 123/NAG/2018 & 107/NAG/2019 AY : 2013-2014 & 2014-2015 Order pronounced on this Thursday, 28th day of April, 2022.
-S/d- -S/d- RAVISH SOOD JAMLAPPA D BATTULL JUDICIAL MEMBER ACCOUNTANT MEMBER रायपुर / RAIPUR ; िदनांक / Dated : 28th April, 2022 आदेश क� �ितिलिप अ�ेिषत / Copy of the Order forwarded to :
1. 1. अपीलाथ� / The Appellant. 2. ��यथ� / The Respondent.
3. The CIT, Nagpur (C.G) 4. The Pr. CIT, Nagpur (C.G) 5. िवभागीय �ितिनिध,आयकर अपीलीय �यायािधकरण, नागपुर ब�च, नागपुर / DR, ITAT, Nagpur Bench, Nagpur. 6. गाड�फ़ाइल / Guard File. आदेशानुसार / BY ORDER, // True Copy // िनजीसिचव / Private Secretary आयकर अपीलीय �यायािधकरण, नागपुर ब�च, नागपुर / ITAT, Nagpur ITAT-Nagpur Page 13 of 13