Vishnu Vilas Vs ITO (ITAT Bangalore)
Section 263 Cannot Be Invoked Where AO Took a Plausible View on Section 80P Deduction – ITAT Bangalore Quashes PCIT Revision
The Bangalore ITAT allowed the appeal of a Souharda Co-operative Society and quashed the revision order passed by the PCIT under section 263 for AY 2020-21. The PCIT had revised the scrutiny assessment on the ground that interest earned by the assessee from co-operative banks and commercial banks should have been taxed as “Income from Other Sources” under section 56 and consequently disallowed deduction under section 80P(2)(a)(i), relying mainly on the Supreme Court decision in Totagars Co-operative Sale Society Ltd.
The Tribunal held that the Assessing Officer had conducted proper enquiries during scrutiny, including examination of the deduction under Chapter VI-A, investments, and interest income, and thereafter accepted the returned income. This was therefore not a case of “no enquiry” or “lack of enquiry” so as to attract Explanation 2(a) to section 263.
On merits, the ITAT noted that there exists divergence of judicial views, including binding Karnataka High Court decisions (such as Tumkur Merchants Souharda Credit Co-operative Ltd. and Guttigedarara Credit Co-operative Society Ltd.) holding that interest earned on temporary deployment of funds by credit co-operative societies is attributable to the business of providing credit facilities and eligible for deduction under section 80P(2)(a)(i). The AO having adopted one such plausible and legally sustainable view, the PCIT could not substitute his own opinion merely because another view was possible.
The Tribunal further observed that the Totagars Supreme Court ruling was fact-specific and distinguishable, as it related to interest on surplus funds representing members’ sale proceeds retained as a liability, which was not the case here. Consequently, the assessment order was neither erroneous nor prejudicial to the interests of the Revenue. The revision order under section 263 was therefore annulled and the assessee’s appeal was allowed.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
