Jhunjhunu Karya Vikrya Sahakari Samiti Limited Vs PCIT (ITAT Jaipur)
CIT has subjected the assessment order to revision proceedings on the short ground that the Assessing Officer passed the assessment order ‘is erroneous in so far as it prejudicial to the interest of revenue as the said order has been passed by the assessing officer in a routine and perfunctory manner without examining the issue of deduction u/s. 80(P)(2)(d) of the Act.’ Thus, the main question centers on whether action of the assessing officer in allowing the claim of the assessee us/s. 80(P)(2)(d) is found faulted with, whether the assessee ought to have produced the appropriate evidence and whether non-recording of the reasons for accepting explanation will render the order erroneous and prejudicial to the interest of the revenue. In fact, there is a specific finding and reference of the deduction claimed by the assessee founded place in the assessment order. Thus, we are of the considered view that he ld. AO has taken a plausible view which is based on decision relied upon by the ld. AR of the assessee is one of the plausible views and we see that there is no lack of enquiry on the part of Ld. AO and we find that he has applied his mind and allowed the claim of the assessee.
Thus, ld.AO has examined that issue as it is evident form the finding recorded in the assessment order. As the case was for this limited purpose the same has been examined and verified by the ld. AO as it emerges from the findings of the AO. The ld. Pr. CIT evidently did not place on record any apparent error on the part of the AO so as to substantiate that order passed by the ld. AO is prejudicial to the interest of revenue. He only mentioned that the AO has not applied his mind to the issue in proper manner. He has not pin pointed any of the enquiry which is required to be made is not made by the ld. AO. and he has to examine the issue on merits. There is no further defect found from the record from the material that has been collected by the ld. AO to verify the point raised in the limited scrutiny. The decision and contentions raised by ld. DR are all related to the fact that the ld. AO either has not examined the issue and the related enquiry on the issue apparently not done or not done to the extent it was required to be examined based on the facts. Since, in this case ld. AO has clearly conducted the enquiry and revenue did not pin point the error on the part of the assessing officer the order passed after due application of mind cannot be subjected to proceeding u/s. 263 of the Act.
FULL TEXT OF THE ORDER OF ITAT JAIPUR
This appeal is filed by the assessee aggrieved from the order of the Pr. Commissioner of Income Tax, Jaipur-2 [ Here in after referred as Ld. PCIT ] for the assessment year 2017-18 dated 29.03.2022 as per provision of section 263 of the Act, which in turn arises from the order passed by the ITO, Ward-01, Jhunjhunu passed under Section 143(3) of the Income tax Act, 1961 (in short ‘the Act’) dated 11.12.2019.
2. Aggrieved from the order of the ld. PCIT the assessee has marched this appeal on the following grounds;
“1. That on the facts and in the circumstances of the case, the ld. Principal Commissioner of Income-tax-II, Jaipur grossly erred in passing an order u/s 263 of the Income-tax and in holding that the assessment made by the ld. Assessing Officer vide order dated 11.12.2019 for the assessment year 2017-18 is found to be erroneous in so far as it is prejudicial to the interest of the revenue.
2. That on the facts and in the circumstances of the case, the Id. Principal Commissioner of Income-tax-I, Jaipur grossly erred in holding that “the id. AO passed the assessment order in a routine and perfunctory manner without examining the issue of deduction u/s 80P(2)(d) of the Act” is wholly unjustified, bad in law and deserve to be quashed.
2.1 That the learned Assessing Officer passed the assessment order after appreciating all supporting documents and evidences which was just and proper therefore the assessment order passed by the learned assessing officer is neither erroneous nor is prejudicial to the interest of the revenue.
2.2 That the learned Pr.CIT has gone on assumptions, presumptions, conjecture and surmises which is bad in law.
2.3 That on the facts and in the circunstances of the case, the Id. Principal Commissioner of Income-tax-II, Jaipur grossly erred in denying the claim of the assessee appellant amounting of Rs. 13,00,000/- under section 80(P)(2)(d) of the Act.
3. The appellant craves leave to add, alter, modify or amend any ground on or before the date of hearing.”
3. Succinctly, the fact as culled out from the records is that the return of income declaring Rs. Nil/- income was E-filed on 29/11/2017. The case of the assessee was selected for limited scrutiny through CASS. Consequently notice u/s 143(2) was issued on 09/08/2018 and served upon the assessee. Further notice u/s 142(1) along with questionnaire was also issued and duly served upon the assessee. In compliance to the statutory notices, the assessee filed written submission electronically. The assessment was completed as per provision of section 143(3) on declared income on 11.12.2019 where in the returned income was accepted.
4. On culmination of assessment proceeding the Principal Commissioner of Income tax, Jaipur -2 [ here in after referred as “PCIT”] on examination of the assessment records observed that the assessee has claimed deduction of interest income of Rs. 13,00,000/- u/s. 80(P)(2)(d). This interest was received from Jhunjjhunu Kendriya Sahakari Bank Limited and the same was allowed by the ld. AO. The ld. PCIT noted that the ld. AO has not verified the issue of allowability of deduction u/s. 80(P)(2)(d) while passing the order u/s. 143(3) of the act and the order is erroneous in so far as it is prejudicial to the interest of revenue. On account of this observation the ld. PCIT has issued a show cause notice u/s. 263 dated 19.02.2022 asking the assessee to explain as to why the assessment order passed by the Assistant Commissioner of Income tax, Sikar may not be revised and may not be treated as erroneous and prejudicial to the interest of revenue regarding the non-application of the law on the grant of deduction u/s. 80(P)(2)(d).
5. In response assessee filed a detailed reply in the proceeding u/s. 263 of the Act which is discussed in the order of the ld. PCIT and the same is not repeated to avoid duplication. After examination of the submission of the assessee the ld. PCIT set a side the order of the ld. AO. The relevant finding of the ld. PCIT is reiterated here in below:
“10. I have gone through the assessment order and case records and submission filed by the assessee, in the facts and circumstances of the case I find that the powers of revision are inherent and PCIT/CIT can use these powers if it notices that any order passed by the AO is not in following conformity with the law. In reaching such conclusion, I am aided by the following rulings:-
The Hon’ble Supreme Court in the case of Malabar Industrial Limited V/S CIT2431TR has held that “An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind.
11. From the above facts and circumstances of the case and having regard to the material available on record, the Assessing Officer failed to consider/apply his mind to the information available on record with regard to the deduction allowed to the cooperative society u/s 80P(2)(d) of the Act. This in turn has resulted in passing of an erroneous order by the Assessing Officer in the case due to non-application of mind to relevant material, reflecting non appreciation of facts and an incorrect application of mind to law which is prejudicial to the interest of the revenue. Thus, the order passed u/s 143(3) on 11.12.2019 is erroneous and prejudicial to the interest of the revenue.
12. Accordingly, by virtue of powers conferred on the undersigned under the provisions of section 263 of the Income Tax Act 1961, I hold that the order under Section 143 (3) of the IT Act dated 11.12.2019 for AY 2017-18 passed by the Assessing Officer is erroneous in so far as it prejudicial to the interest of revenue as the said order has been passed by the Assessing Officer in a routine and perfunctory manner without examining the issue of deduction u/s 80P(2)(d) of the Act. The order has thus resulted in wrong deduction of income to the assessee. The order of the Assessing Officer is therefore liable to revision under the clause (a) & (b) of Explanation (2) to section 263 of the Income Tax Act. Hence, the assessment order is set aside as discussed above on the issue of deduction allowed u/s 80P(2)(d) of the Act.”
6. Feeling aggrieved from the order of the ld. PCIT the assessee has marched this appeal on the grounds as raised here in above. The ld. AR appearing on behalf of the assessee has placed their written submission to support the grounds raised, which is extracted in below;
As per directions of the Hon’ble Bench, written submissions on behalf of the assessee appellant are as under:
1 The Assessee Appellant – Society is a Co-operative Society registered under the Rajasthan Cooperative Societies Act, 1965 and is engaged in the business of marketing of the agricultural produce grown by its members and purchase of agricultural implements, seeds or other articles intended for agricultural for the purpose of supplying to its members. During the year under consideration, it earned interest on FDR kept with M/s. Jhunjhunu Kendriya Sahkari Bank Ltd.
2 The ld. Assessing Officer has raised queries during the course of assessment proceedings including with regards to interest earned by the assessee appellant and deduction u/s. 80P of the Act claimed by the assessee appellant and the same was duly responded by the assessee appellant.
3 Being satisfied the ld. Assessing Officer passed assessment order u/s. 143(3) of the Act dated 11.12.2019 and accepted the returned income.
4 Thereafter the ld. PCIT, Jaipur-2 issued notice u/s. 263 of the Act dated 19.02.2022 whereby it was proposed that benefit of deduction u/s. 80P(2)(d) has wrongly been granted by the Assessing Officer on the interest earned by the assessee appellant from M/s. Jhunjhunu Kendriya Sahkari Bank Ltd.
5 Detailed reply dated 28.02.2022 thereto was filed by the assessee appellant objecting to issuance of notice u/s. 263 of the Act.
6 Ignoring the submissions of the assessee appellant, the ld. PCIT passed an order dated 29.03.2022.
7 For ready reference, extracts of relevant provisions of Section 80P is reproduced hereunder:
80P Deduction in respect of income of Co-operative Societies
(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 sum specified in sub-section (2), in computing the total income of the assessee.
(2) The sums referred to in sub-section (1) shall be the following, namely:
(a) In the case of a co-operative society engaged in –
(i) …………
(ii) …………
(iii) the marketing of agricultural produce grown by its members, or] the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members
(v) …………
(vi) ………..
(vii) …………..
the whole of the amount of profits and gains of business attributable to any one or more of such activities
(d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such income;
(4) The provisions of this section shall not apply in relation to any co- operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank.
Explanation. For the purposes of this sub-section,- (a) “co-operative bank” and “primary agricultural credit society” shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949); (b) “primary co-operative agricultural and rural development bank” means a society having its area of operation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities.]
8. Finance Ministers Budget Speech while introducing sub-section 80P(4) of the Act is as follows:
Cooperative Banks, like any other bank, are lending institutions and should pay tax on their profits. Primary Agricultural Credit Societies (PACS) and Primary Cooperative Agricultural and Rural Development Banks (PCARDB) stand on a special footing and will continue to be exempt from tax under section 80P of the Income Tax Act. However, I propose to exclude all other cooperative banks from the scope of that section.”
9 CBDT Circular dated 28.12.2006 containing explanatory notes on provisions contained in the Finance Act, 2006, reads as follows:
22.2. The cooperative banks are functioning at par with other commercial banks, which do not enjoy any tax benefit. Therefore, section 80P has been amended and a new subsection (4) has been inserted to provide that the provisions of the said section shall not apply in relation to any cooperative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. The expressions ‘co-operative bank’, ‘primary agricultural credit society’ and ‘primary cooperative agricultural and rural development bank’ have also been defined to lend clarity to them.
10 The Co-operative Bank pursuant to the insertion of Sub-section (4) of Sec. 80P would no more be entitled for claim of deduction under Sec. 80P of the Act, however, the interest income derived by a co-operative society from its investments held with a co-operative bank, would continue to be entitled for claim of deduction under Sec.80P(2)(d) of the Act since a Cooperative bank continues to be a co-operative society registered under the Co-operative Societies Act, 1912 or under any other law for the time being enforced in any state for the registration of co-operative societies.
10. The assessee society fulfills all the conditions stated u/s. 80P of the Act, i.e.:
√ The assessee is a cooperative society duly registered with the Registrar Cooperative Societies under the Rajasthan Cooperative Societies Act. It is undisputed position.
√ Gross total income of the assessee society includes the income referred to in section 80P(2)(a)(iii), 80P(2)(a)(iv) & 80P(2)(d) of the Act.
√ The assessee society is engaged in carrying on the business as per its objects and such income is allowable as a deduction u/s. 80P(2)(a)(iii) & 80P(2)(a)(iv) of the Act.
√ The assessee society has earned interest from Jhunjhunu Kendriya Sahkari Bank Ltd. which is a Registered Cooperative Society and such interest is allowable as a deduction u/s. 80P(2)(d) of the Act.
11. Similar nature of income was earned by the assessee society in the past years and assessment orders were passed u/s. 143(3) of the Act for the a.y. 2012-2013 & for the a.y. 2013-2014 and no adverse view taken by the ld. Assessing Officer or even by the Ld. CIT u/s. 263 or u/s. 148 of the Act.
12. That it is trite that the exercise of power u/s. 263 of the Act is ousted in case of a debatable issue. An assessment order can be termed as erroneous and prejudicial to the interest of the Revenue, if the Assessing Officer has taken a view which is not legally tenable. Per contra, if two views are available on a particular issue and the AO adopts one of such views, the case goes outside the purview of revisional power exercisable by the Pr.CIT u/s.263 of the Act. Proceedings u/s. 263 cannot be sustained where the ld. CIT holds a view which was different from that of the Assessing Officer. Section 263 of the Act does not visualize a case of substitution of the judgment of the Revisional Commissioner for that of AO unless the decision of the AO is found to be erroneous. Minal Nayan Shah v. PCIT 2019 (10) TMI 730 ITAT Ahmedabad.
12.1 The language used by the legislature in section 263 is to the effect that the CIT may interfere in revision, if he considers that the order passed by the Assessing Officer is erroneous insofar as it is prejudicial to the interest of the revenue. It is quite clear that two conditions must coexist in order to give jurisdiction to the CIT to interfere in revision. The order of the Assessing Officer in question must not only be erroneous but also it must be prejudicial to the interest of the revenue. In other words, merely because the assessment order is erroneous, the CIT cannot interfere. Again, merely because the order of the Assessing Officer is prejudicial to the interest of the revenue, then that is not enough to confer jurisdiction on the CIT to interfere in revision. The CIT cannot assume jurisdiction u/s 263, if the two conditions prescribed under the provisions of Act, viz. (i) the order is erroneous; and (ii) the same is also prejudicial to the interest of the revenue is not satisfied. Each and every erroneous order cannot be the subject matter of revision because the second requirement also must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation, a lesser tax than what was just, has been imposed.
12.2 The phrase “prejudicial to the interest of the revenue” has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue has a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. For example, when an Assessing Officer adopted one of the courses permissible in law and it has resulted in loss of revenue or where two views are possible and the Assessing Officer has taken one view with which the CIT did not agree with, it cannot be treated as an erroneous order prejudicial to the interest of the revenue because the view taken by the Assessing Officer is unsustainable in law.
12.3 In the instant case, Explanation 2(a) to section 263 is not applicable as the assessment order is not passed by without making inquiries or verification granting any relief without verification. Nor the said provision has been relied upon in the impugned Show Cause Notice and thus deserves to be ignored. On the contrary, the ld. AO has raised queries and the assessee has replied to the same.
12.4 In the instant case, Explanation 2(b) to section 263 is not applicable as the assessment order is not passed by granting any relief without verification. Nor the said provision has been relied upon in the impugned Show Cause Notice and thus deserves to be ignored.
12.5 In the instant case, Explanation 2(c) to section 263 is not applicable as the assessment order is not contrary to any order, direction or instruction issued by the Board under section 119. Nor the said provision has been relied upon in the impugned Show Cause Notice and thus deserves to be ignored.
12.6 In the instant case, Explanation 2(d) to section 263 is not applicable as the show cause notice has not referred to any judgment of the Hon’ble jurisdictional High Court or of the Hon’ble Supreme Court. Nor the said provision has been relied upon in the impugned Show Cause Notice and thus deserves to be ignored.
13 We wish to refer and rely upon following authorities which have under identical factual backdrop have held that initiation of proceedings u/s. 263 of the Act is bad in law and have even otherwise held that benefit of deduction u/s. 80P(2)(d) ought to be given to the assessee societies wherein interest is earned from cooperative banks:
