Laxmi Bachat Sharafi Sahkari Mandali Ltd. Vs ITO (ITAT Ahmedabad)
ITAT Ahmedabad held that exercising revisionary jurisdiction u/s 263 of the Income Tax Act for not dealing with alternative claim and claiming the order of AO as prejudicial to the interest of revenue is not sustainable as anyhow deduction was available to the assessee.
Facts- On verification of records, the PCIT noted that the assessee had received substantial interest on Fixed deposits from various banks including ADC Bank and Mehsana Urban Bank which did not qualify for deduction u/s 80P(2)(d) of the Act and he initiated revisionary proceedings u/s 263 of the Act.
The PCIT dismissed the contentions of the assessee and held that the assessment order passed was erroneous and prejudicial to the interest of the Revenue since the AO had allowed the claim of the assessee for deduction of interest income u/s 80P(2)(a)( i) of the Act.
Conclusion- The assessee had demonstrated his claim being allowed alternatively under another clause of section 80P(2), the ld.Pr.CIT ought to have dealt with this claim of the assessee before arriving at a finding of error in the assessment order holding the claim of deduction u/s 80P of the Act as being incorrectly allowed by the AO. It is only after dealing with this alternative claim and finding it to be incorrect that it could be said that the allowance of deduction of interest income had resulted in prejudice to the Revenue, which condition also needs to be satisfied alongwith finding the assessment order erroneous for exercising revisionary jurisdiction u/s 263 of the Act. In the circumstance that the assesses claim is found allowable under section 80P(2) (d) of the Act, the allowance of deduction u/s 80P(2)(a)(i) of the Act by the AO cannot be said to be to the prejudice of the Revenue since in any case the assesses claim of deduction was allowable.
Having not so dealt with alternative claim of the assessee, there could not be said to be any finding of the error causing prejudice to the Revenue in the order of the AO and for this reason also the order passed by the ld.Pr.CIT needs to be aside.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
Present appeal has been filed by the assessee against order passed by the ld.Pr.Commissioner of Income-Tax-3, Ahmedabad [hereinafter referred to as “Pr.CIT”] dated 20.3.2019 in exercise of his revisionary jurisdiction under section 263 of the Income Tax Act, 1961 (“the Act” for short) pertaining to Asst.Year 2014-15.
2. Brief facts relating to the case are that the assessee is a cooperative society engaged in the activity of providing loans and accepting deposits from its members. For the impugned year return of income had been filed by the assessee declaring Nil income after claiming deduction u/s 80P of the Act at Rs.24,87,788/- which was accepted by the Assessing Officer (AO) in the assessment framed u/s 143(3) of the Act, wherein minor addition of Rs.35, 138/- was made on account of excess deduction claimed u/s 80P(2) (c) (ii) of the Act. Subsequently, on verification of records the Ld.PCIT noted that the assessee had received substantial interest on Fixed deposits from various banks including ADC Bank and Mehsana Urban Bank which did not qualify for deduction u/s 80P(2)(d) of the Act since the banks from which interest had been earned did not qualify as cooperative society for the purpose of claiming deduction under section 80P(2)(d) of the Act. Finding that the assessing officer had failed to examine this issue and had as a consequence incorrectly allowed assesses claim of deduction of interest income earned from deposits/FDRs under section 80P of the Act, he initiated revisionary proceedings u/s 263 of the Act ,issuing show cause notice to the assessee in this regard. Due reply was filed by the assessee contending that he had claimed deduction of the said incomes u/s 80P(2)(a)(i) of the Act ,which he contended it qualified for, and not u/s 80P(2)(d) of the Act as noted by the Ld.PCIT. He also contended that his claim was allowable as per both the sections, 80P(2)(d)/(a)(i) of the Act. The Ld.PCIT however dismissed the contentions of the assessee discussing in detail the allowability of the claim u/s 80P(2)(a)(i) of the Act, holding that the assessee did not qualify for deduction under the said section. Accordingly he held the assessment order passed to be erroneous and prejudicial to the interest of the Revenue since the AO had allowed this claim of the assessee for deduction of interest income u/s 80P(2)(a)( i) of the Act. He thereafter set aside the order of the AO directing him to pass a fresh order as per law after examining the issue legally and after allowing assessee opportunity of hearing. The detailed findings of the Ld.PCIT in this regard are at para 5 & 6 of his order which shall be referred to and reproduced by us wherever considered necessary. The assessee has challenged this order before us raising the following grounds:
“1. The Ld. PCIT-3, Ahmedabad has erred in issuing show cause notice u/s 263 of the IT •Act, 1961 dated 15/01/2019 without properly verifying the assessment order where deduction of Rs.24,87, 788/- was granted u/s 80P(2)(a)(i) and not u/s 80P(2(d) of the IT Act, 1961 as noted by the office of PCIT-3, Ahmedabad.
2. The Ld. PCIT-3, Ahmedabad further erred in assuming jurisdiction u/s 263 of the IT Act, without properly appreciating the facts of the case and the legal position placed before him that the order passed by the assessing officer is not erroneous in so far as prejudicial to the interest of
3. The Ld. PCIT-3, Ahmedabad also erred in giving direction to the assessing officer to pass afresh assessment order as per law after examining properly the legal position discussed by him in his order.
4. The Ld. PCIT-3, Ahmedabad ought to have considered the plea of the appellant society that interest income is not out of investment made by the assessee society but out of its operational funds and therefore question of applying the ratio laid down by Supreme Court in case of M/s. Totgar Cooperative Society 322 ITR 283 does not arise.
The Ld. PCIT-3, Ahmedabad ought to have considered the plea of the appellant society that interest income under dispute qualifies for deduction under section 80P(2) (d) of the Act as well.”
3. The primary arguments by the Ld.Counsel for the assessee against the of the impugned order of the Ld.PCIT being not in accordance with law, before us was that:
