Bharath Credit Co-operative Society Limited Vs PCIT (ITAT Bangalore)
In this case, the assessee, a co-operative credit society, claimed deduction under section 80P(2)(a)(i) on interest income earned from deposits made with banks out of its surplus funds. The Assessing Officer (AO), during limited scrutiny, specifically examined the nature and taxability of such interest and accepted the claim after calling for detailed explanations and supporting evidence.
The Principal Commissioner invoked revisionary powers under section 263 on the ground that the AO had wrongly allowed deduction on bank interest which, according to him, ought to have been taxed as “Income from Other Sources” in light of the decision in Totgars Co-operative Sale Society Ltd. He held the assessment order to be “erroneous and prejudicial to the interests of the revenue” and set it aside for fresh assessment.
The Tribunal held that section 263 can be invoked only when both conditions are satisfied: the order must be erroneous and also prejudicial to revenue. Mere disagreement with the AO’s view or inadequacy of discussion in the assessment order is not enough. The record showed that the AO had raised specific queries on the eligibility of 80P deduction on interest from investments and had applied his mind before accepting the claim.
The Tribunal further noted that there are divergent jurisdictional High Court decisions on whether such interest is attributable to the business of providing credit facilities. Since two views were legally possible and the AO had adopted one plausible view after enquiry, the PCIT could not substitute his own opinion through section 263.
It was also held that the Supreme Court ruling in Totgars was fact-specific to cases where surplus represented amounts payable to members (a liability), whereas in the present case the deposits were out of own surplus funds and not member liabilities. Therefore, the AO’s approach was supported by other binding jurisdictional precedents treating such interest as business income eligible for deduction.
Accordingly, the Tribunal annulled the revision order under section 263 and restored the original assessment, holding that the AO’s order was neither erroneous nor prejudicial to the interests of the revenue.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal at the instance of the assessee is directed against the order of the ld. PCIT, Bengaluru-1 dated 7.3.2025 vide DIN & Order No. ITBA/REV/F/REV5/2024-25/1074194140(1) passed u/s 263 of the Income Tax Act, 1961 (in short “The Act”) for the Assessment Year 2020-21.
