Case Law Details
Pahalampur Samabay Krishi Unnayan Samity Ltd. Vs ITO (ITAT Kolkata)
The ITAT Rajkot allowed the appeal filed by the assessee against the order passed by the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act for Assessment Year 2020-21. The dispute related to the assessee’s claim of agricultural income of ₹41.63 lakh, which had been accepted by the Assessing Officer during scrutiny assessment under section 143(3) read with section 144B of the Act.
The assessee had filed its return declaring nil taxable income and agricultural income of ₹41,63,806. The case was selected for limited scrutiny on the issues of agricultural income risk analysis and large agricultural income per acre compared to average agricultural income for the territory, land ownership type, and land type. During the assessment proceedings, the Assessing Officer issued detailed notices under section 142(1) seeking information regarding land holding, agricultural income, crop details, productivity, agricultural expenses, and supporting evidence.
The assessee submitted various details and documents before the Assessing Officer, including revenue records in Form Nos. 7/12 and 8A, details of agricultural income and expenses, cash flow statements, bank statements, balance sheets for multiple years, certificates from the Talati-cum-Mantri, crop-wise details, sale bills, and cash receipts. The assessee explained that the increase in agricultural income was due to full utilization of land for agricultural activities, improved crop yield, better irrigation facilities, favourable monsoon conditions, and improved farming practices. It was also submitted that the family jointly carried out agricultural activities over more than 41 acres of land.
After considering the documents and conducting verification, including issuing notices under section 133(6) to purchasers, the Assessing Officer accepted the agricultural income declared by the assessee and completed the assessment on 08.08.2022.
Subsequently, the PCIT initiated revision proceedings under section 263 on the ground that the Assessing Officer had not conducted adequate inquiry regarding agricultural income and expenses. According to the PCIT, the assessee had produced sale bills only for part of the agricultural income and had not submitted sufficient documentary evidence for agricultural expenses amounting to ₹5,65,017. The PCIT held that the Assessing Officer failed to verify quantity, quality, manpower, production, sale, and transportation details relating to agricultural produce. On this basis, the PCIT treated the assessment order as erroneous and prejudicial to the interests of the Revenue and directed the Assessing Officer to pass a fresh assessment order after proper inquiry.
Before the Tribunal, the assessee contended that the Assessing Officer had already conducted exhaustive inquiry during assessment proceedings. The assessee relied on copies of notices issued by the Assessing Officer and replies filed along with supporting documents to show that all relevant issues relating to agricultural income, land holding, crop details, productivity, and sales had been examined in detail.
The Tribunal observed that the Assessing Officer had issued elaborate notices under section 142(1), specifically asking for details relating to agricultural income, increase in agricultural receipts, land holding, crop details, productivity per acre, certificates from agricultural authorities, and supporting evidence. The assessee had furnished replies along with documentary evidence, including land records, Talati certificates, bank statements, cash statements, balance sheets, crop details, and sale records.
The Tribunal further noted that the Assessing Officer had independently verified the transactions by issuing notices under section 133(6) to six parties and had accepted the agricultural income only after receiving and verifying the replies. It was also observed that many sale proceeds had been received through banking channels, supporting the genuineness of agricultural receipts.
According to the Tribunal, the details and evidence submitted during assessment proceedings were sufficient to justify the agricultural operations and agricultural income claimed by the assessee. The Tribunal held that the Assessing Officer had carried out proper verification and inquiry and had passed the assessment order after due application of mind.
The Tribunal relied on earlier judicial precedents, including the decision of the Rajkot Bench in Shri Vasantkumar Manji Thacker & Himmat Liladhar and the Karnataka High Court decision in CIT vs. Gokuldas Exports. It reiterated that inadequate inquiry, as perceived by the PCIT, cannot justify revision under section 263 where the Assessing Officer had already conducted inquiry and adopted one of the possible views. The Tribunal held that section 263 does not permit substitution of the PCIT’s judgment for that of the Assessing Officer merely because the PCIT holds a different opinion.
The Tribunal concluded that the assessment order was neither erroneous nor prejudicial to the interests of the Revenue. Accordingly, the order passed under section 263 was quashed and the appeal of the assessee was allowed.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
Both the appeals have been filed by the assessee against the orders of the ADDL/JCIT(A)-1, VIAKHAPATNAM [hereinafter referred to as “the Ld. CIT(A)”] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) in appeal Nos.CIT(A), Kolkata-6/10611/2018-19 and CIT(A), Kolkata-6/10444/2019-20 common dated 18.11.2025 respectively. Since issues are involved in the appeals are identical, therefore, these have been heard together and are being disposed of by the common order. ITA No.5/Kol/2026 is taken as lead case and the decision of this order will mutatis mutandis apply to another appeal in ITA No.6/Kol/2026 also.
2. Shri Somnath Ghosh, Advocate represented on behalf of the assessee and Shri Kallol Mistry, Sr. DR, Sr. DR represented on behalf of the revenue.
3. It was submitted by the ld. AR that the assessee had made investment in nationalized banks. It was the submission that the assessee had received interest of Rs.82,95,187/- for the impugned assessment year 2016-17. It was the submission that the Assessing Officer denied the benefit of deduction u/s 80P(2) to the extent of Rs.29,17,422/- on the ground that the interest as received from investment in nationalized bank is not eligible for deduction u/s 80P(2) treating the same as income from other sources. The ld. AR relied on the decision of the Coordinate Bench of this Tribunal in the case of Mundukhola Baksagarh SKUS Ltd. vs. ITO in ITA No.879/Kol/2024 dated 15.01.2025, wherein in paras 10 to 11, the Coordinate Bench of this Tribunal has held that the assessee is entitled to the benefit of deduction 80P(2) observing as under:
“10. After hearing the rival contentions and perusing the materials available on record, we find the income earned by the society by way of interest on deposits held with co-operative banks which is the income of the society and therefore, in our opinion the assessee is entitled for claiming deduction u/s 80(1) of the Act. The case of the assessee find support from the decision of co-ordinate Bench in the case of Gour Gamin Bank (Presently merged with Bangiya Gramin Vikash Bank) Vs. DCIT in ITA Nos. 305/Kol/2012 & 320/KOL/2012 for A.Y. 2004-05 vide order dated 31.03.2014, Sagar Gamin Bank (presently merged with Bangiya Gramin Vikash Bank) Vs. DCIT vide order dated 31.03.2014 in ITA No.304/KOL/2012 for A.Y. 2002-03. The operative part in ITA No. 305 & 320/KOL/2012 is extracted below for the sake of ready reference:-
“3. We have heard rival contentions and gone through facts and circumstances of the case. We find that the assessee is eligible for deduction u/s. 80P of the act and payment of gratuity, payment of leave encashment and provision for doubtful debts is also out of eligible income and that also gross total income of the Co-operative Society. As pointed out by CIT. Counsel for the assessee to the provisions of section 80P(1) of the Act that the gross total income includes any income referred to in sub-section (2) means the deduction will be allowed from gross total income. The relevant provision of section 80P(1) reads as under:
“(1) Where in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee.”
It means the addition made by CIT on account of provision for gratuity, provision for leave encashment eventually which was paid before filing of return of income u/s. 139(1) of the Act and provision for bad and doubtful debts, is eligible for deduction u/s. 80P of the Act in view of the fact that deduction is to be allowed out of gross total income. Accordingly, this disallowance in any way will not affect on income for the reason that this will also be part of gross total income and will be eligible for deduction u/s. 80P of the Act. These three common issues of assessee’s appeal are allowed.
4. The only issue in this appeal of revenue is against the order of CIT(A) deleting the disallowance of deduction u/s. 80P of the Act in respect of receipts of interest on non-SLR funds For this, revenue has raised following grounds:
“1. On the facts and circumstances of the case, the CIT. CIT(A) has erred in ignoring the aims and objectives enshrined in the Preamble of the RRB Act, 1976, in terms of the principle laid down in Keshavanand Bhartis case.
2. On the facts and circumstances of the case, the Ld. CIT(A) has erred in not taking cognizance of the fact that the assessee, a creation of RRB Act, in view of violation of section 3(1) of the RRB Act cannot be granted tax benefits u/s. 80P(2)(a)(i) on the plea that Regulatory Bodies have not acted against it which would be contrary to the principle laid down in Bihari LaI Jaiswal & Ors 217 ITR 746 (SC).
3. On the facts and circumstances of the case Ld. CIT(A) has erred in not considering the prime issue that public policy laid down by the Parliament can not be overlooked and tax benefits be granted, despite objection of the Revenue, on the ground that regulatory body has not taken any action against the assessee for its violation.
4. On the facts and circumstances of the case Ld. CIT(A) has erred in not considering the fact that the legislature has not given deduction to all banks but only to RRB to promote target area and group for upliftment and in such a situation , all other banking activity of RRB not be given the benefit of deduction except the income which is in conformity with the aims and objects enshrined in sec. 3(1) and the preamble of the RRB Act.
5. On the facts and circumstances of the case Ld. CIT(A) has erred in concluding that expenses incurred in connection with or apportionable to activities in violation of the RRB Act or in violation of public policy can be allowed as a deduction.
6. On the facts and circumstances of the case Ld. CIT(A) has erred in not taking cognizance of the fact that section 18 of the RRB Act is simply an enabling provision and can neither act to the prejudice of provision laid down in section 3(1) of the said Act, nor can defeat the aims and objectives enshrined in the Preamble of the RRB Act.”
5. At the outset Ld. Counsel for the assessee filed copy of Tribunal’s order in assessee’s own case in ITA No. 1771/K/2008 for AY 2005-06 and submitted that the issue is squarely covered in favour of assessee. We find that the Tribunal in ITA No. 1771/K/2008 for AY 2005-06 in assessee’s own case has held as under:
“11. We have heard rival contentions and gone through facts and circumstances of the case. We find that the assessee bank has deployed total deposits into three types of income earning instruments i.e. CRR, SLF funds and non-SLR funds. The investments of the above funds are made as per RRB Act, 1976 and violations of the Act have been determined as SLR fund and non-SLR fund. Income has been determined according to the funds deployed as per RRB Act. We have gone through the above case laws and find that whether income is attributable to SLR or non-SLR funds would not make any difference for the purpose of quantifying deduction on interest by Cooperative Bank u/s. 80P(2)(a)(i) of the Act as deposits of surplus idle money available from working capital i.e. reserves, excess collection of interest and other incomes all attributable to banking business. Therefore, the interest earned on non-SLR funds will also qualify for deduction u/s. 80P(2)(a)(i) of the Act.
Hon’ble Allahabad High Court in the case of CIT Vs. Muzaffarnagar District Co-operative Bank Ltd. (2013) 214 Taxman 498 (All) relying on the decision of Hon’ble Supreme Court in the case of Bihar State Cooperative Bank Ltd. Vs. CIT (1960) 39 ITR 114 (SC) and of Hon’ble Bombay High Court in the case of CIT Vs. Goa Urban Cooperative Bank Ltd., (Tax Appeal Nos. 6 & 8 of 2005, and in Tax Appeal No. 54 of 2008, decided on 15.07.2009) have held that interest earned out of deposits of surplus fund and interest earned on SLR or non-SLR funds will qualify for deduction u/s. 80P(2)(a)(i) of the Act. The relevant paras 8, 9 and 10 reads as under:
“8. The Supreme Court in Bihar State Co-operative Bank Ltd. (supra) explained in para 12 and 13 that the interest earned out of deposits of surplus fund has to be treated as interest earned in the banking business. Paras 11.12 and 13 of the judgement are quoted as below.
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In view of the above, we are of the view that the issue is squarely covered in favour of assessee and assessee is eligible for deduction u/s. 80P(2)(a)(i) of the Act on interest earned on non-SLR funds. This issue of revenue’s appeal is dismissed.
6. In the result, appeal of assessee is allowed and that of revenue is dismissed.”
11. We therefore respectfully following the decision of the co-ordinate Bench in ITA Nos. 305 & 320/KOL/2012 hold that the interest earned from the co-operative banks is eligible for deduction u/s 80P(1) of the Act.”
4. In reply, the ld. Sr. DR vehemently supported the orders of the Assessing Officer and ld. CIT(A).
5. I have heard the rival submissions. It is noticed that the present issue of benefit of deduction 80P(2) is squarely covered by the decision of the Coordinate Bench of this Tribunal in the case of Mundukhola Baksagarh SKUS Ltd. vs. ITO (supra). Respectfully following the decision of the Coordinate Bench of this Tribunal, the Assessing Officer is directed to grant the benefit of deduction u/s 80P(2) on the interest earned from nationalized banks.
6. In the result, both the appeals of the assessee are allowed.
Order pronounced in the open court on 06/05/2026.
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