2025 (7) TMI 1107 - AT - Income Tax

Revision u/s 263 - Deduction u/s 80P - interest income earned by the assessee -as per CIT Assessing Officer during the course of assessment proceedings has not asked any specific question to the effect as to whether the interest income in question is business income or not. Further according to him a cooperative bank cannot be treated as cooperative society for the purpose of allowability of deduction u/s 80P(2)(d) - HELD THAT - Coordinate Bench of the Tribunal in the case of Talegaon Nagari Sahakari Patsanstha Limited 2024 (6) TMI 1476 - ITAT PUNE has held that the interest income earned by a co-operative society on deposits made out of surplus funds with co-operative banks as well as scheduled banks qualify for deduction both under the provisions of section 80P(2)(a)(i) and 80P(2)(d) of the Act. Since the AO in the instant case after considering the reply of the assessee has taken a plausible view therefore the same in our opinion cannot be considered as erroneous although it may be prejudicial to the interest of the Revenue. It is the settled proposition of law that for assuming the jurisdiction u/s 263 of the Act the twin conditions i.e. (i) the order of the AO is erroneous and (ii) the order is prejudicial to the interest of revenue must be fulfilled. In the instant case the order passed by the Assessing Officer may be prejudicial to the interest of revenue but it cannot be said to be erroneous since the AO has taken a plausible view on this issue after calling for various details from the assessee to which the assessee has replied. Therefore in absence of fulfillment of the twin conditions the Ld. PCIT in our opinion is not justified in assuming the jurisdiction u/s 263. We therefore set aside the order passed by the Ld. PCIT. The grounds raised by the assessee are accordingly allowed.

Summary

ISSUES:

• Whether the Assessing Officer's order allowing deduction under section 80P(2)(a) of the Income Tax Act, 1961 without specific inquiry into whether the interest income earned is from core business or residual income taxable under 'Income from Other Sources' is erroneous and prejudicial to revenue.
• Whether interest income earned by a co-operative society from investments in co-operative banks qualifies for deduction under section 80P(2)(d) of the Act.
• Whether a co-operative bank qualifies as a co-operative society for the purpose of deduction under section 80P(2)(d) of the Act.
• Whether the jurisdiction under section 263 of the Income Tax Act can be invoked where the Assessing Officer has taken a plausible view after making inquiries and considering submissions.

RULINGS / HOLDINGS:

• On the first issue, the Assessing Officer had conducted inquiries and obtained detailed submissions before allowing deduction under section 80P(2)(a), thus the order is not "erroneous" though it may be "prejudicial to the interest of revenue."
• Regarding deduction under section 80P(2)(d), the Tribunal held that interest income earned by a co-operative society on deposits with co-operative banks qualifies for deduction under sections 80P(2)(a)(i) and 80P(2)(d), following a coordinate Bench decision.
• The Tribunal rejected the view that a co-operative bank cannot be treated as a co-operative society for section 80P(2)(d) purposes, noting that co-operative banks are registered under cooperative societies legislation and thus fall within the definition of "co-operative society" under section 2(19) of the Act.
• The jurisdiction under section 263 cannot be invoked merely because the order may be prejudicial to revenue; both conditions of error and prejudice must be satisfied. Since the Assessing Officer took a plausible view after inquiry, the revisionary jurisdiction was improperly exercised.

RATIONALE:

• The Court applied the statutory framework of section 80P of the Income Tax Act, 1961, which provides deductions to co-operative societies on income derived from core business activities such as banking or providing credit facilities to members.
• It relied on the Supreme Court judgment holding that interest income earned from investing surplus funds is "Income from Other Sources" and not business income eligible for deduction under section 80P(2)(a), but distinguished that the Assessing Officer had made specific inquiries and taken a plausible view.
• The Tribunal referred to the definition of "co-operative society" under section 2(19) of the Act and relevant High Court decisions to interpret co-operative banks as co-operative societies for section 80P(2)(d) deduction eligibility.
• The Tribunal emphasized the twin conditions for invoking section 263 jurisdiction: the order must be both erroneous and prejudicial to revenue; absence of error precludes revision even if prejudicial.
• The Tribunal noted that the Assessing Officer issued notices, sought detailed information, and considered submissions before allowing deductions, thereby negating the claim of non-inquiry as per Explanation 2 to section 263.