Pujya Sharanabasaveshwara Pattina Souharda Sahakari Sangha Ni Vs ITO (ITAT Bangalore)
Section 263 Quashed: AO’s Plausible View on 80P Deduction Cannot Be Branded Erroneous
The Bangalore ITAT “B” Bench, in Pujya Sharanabasaveshwara Pattina Souharda Sahakari Sangha Niyamita v. ITO (ITA No.1180/Bang/2025, AY 2020-21; order dated 29.12.2025), has quashed the revisionary order passed u/s 263 by the PCIT, holding that the assessment order allowing deduction u/s 80P(2)(a)(i) was neither erroneous nor prejudicial to the interests of the Revenue.
The Assessee, a members’ credit co-operative society, had claimed deduction u/s 80P(2)(a)(i) on interest income earned from investments with co-operative banks/societies. During scrutiny, the AO conducted detailed enquiries, issued notices u/s 133(6) to banks, called for explanations, and thereafter consciously accepted the Assessee’s claim, completing the assessment at Nil income.
PCIT invoked section 263 by relying on certain Karnataka High Court rulings following Totgars and held that interest income should be taxed as “Income from Other Sources” u/s 56, thereby denying deduction u/s 80P. The Tribunal, however, noted that the AO had followed binding Karnataka High Court decisions such as Tumkur Merchants Souharda Credit Co-operative Ltd. and PCIT v. Totagars Co-operative Sale Society (392 ITR 74), which allow deduction where interest income is attributable to the business of providing credit facilities to members. The Tribunal also relied on the Supreme Court ruling in Mavilayi Service Co-operative Bank Ltd. holding that section 80P is a beneficial provision and must be construed liberally.
It was held that when two views are possible and the AO adopts one plausible view after due enquiry, section 263 cannot be invoked merely because the PCIT prefers another view. The Tribunal further distinguished the reliance placed by the Revenue on PCIT v. TE Connectivity India Pvt. Ltd., noting that in the present case the AO had made adequate enquiries and taken an express view.
Accordingly, the revisionary order u/s 263 was quashed and the Assessee’s appeal was allowed in full.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
