TMI Blog2015 (4) TMI 94X X X X Extracts X X X X X X X X Extracts X X X X ..... s made with the SBI. It may be true that deposits are made in banks so that the funds are not kept idle but we are of the view that the motive for making deposits with SBI cannot change the character of interest income earned on deposit made from SBI to be one arising from business of providing credit facility to its member We are not in agreement with the submission of the Ld AR for the reason that though we find that AO had raised a query with respect to claim with respect to deduction u/s 80P but neither there was any query of the AO, with respect to the claim of deduction 80P(2)(d) and therefore no submission of the Assessee, with respect to interest earned from SBI and therefore it cannot be said that there was application of mind by the AO on that issue and for which we also find support by the decision in the case of Gee Vee Enterprises vs. Addl CIT & ORS (1974 (10) TMI 29 - DELHI High Court) wherein observed that the 1TO is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Gujarat State Co-op Act. It is stated to be registered with the object of accepting deposits from the employees of State Bank of India (SBI), Gujarat region with a view to encouraging thrift and providing credit facilities to them. For AY 2009-10, Assessee filed its return of income for on 21.8.2009 declaring total income of Rs Nil after claiming the entire amount of ₹ 29,69,444/- as deduction u/s 80P of the Act. The case was selected for scrutiny and thereafter the assessment was framed under section 143(3) vide order dated 24.5.2011 and the total income as filed by the Assessee at Rs Nil was accepted by the AO. Subsequently, on examination of records of assessment, ld. CIT noticed that Assessee had earned interest of ₹ 16,14,579/- from SBI which was claimed as deductible u/s 80P. CIT was of the view that only interest/dividend derived by the assessee from its investment from other cooperative society is allowable as deduction. Since SBI is not a cooperative society, the interest of ₹ 16.14 lacs earned from SBI was not eligible for deduction under the provisions of s. 80P(2)(d). He accordingly issued notice and called upon the Assessee to show cause as to why t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the proposition that where two views are possible and the ITO has taken one view with which the CIT does not agree, the order of the ITO cannot be treated as an erroneous order prejudicial to the interest of the Revenue, unless the view taken by the ITO is unsustainable in law. With respect to the issue of claim of deduction u/s 80P, the Ld AR submitted that during the course of assessment proceedings, A.O, apart from raising various query, AO vide notice u/s 142(1) dated 29.4.2011, had raised a specific query with respect to the claim of deduction u/s 80P (the copy of which is placed at page 37 of the paper book) and the query of the AO was also replied by the Assessee vide its reply dated 9.5.2011 (the copy of which is placed at page 34 35 of the paper book). The Id. A.R. therefore submitted that after considering the submissions of the Assessee and on being satisfied by the replies given by Assessee, the Assessee was allowed the deduction u/s 80P. 8. On the merits of the case ld. AR submitted that Assessee is a cooperative society formed by the employees of SBI Gujarat Circle under the Gujarat Co-operative Societies Act 1961 in the category of Employees Co-op. Credit soci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der of CIT. 9. We have heard the rival submissions and perused the material on record. The issue in the present case is above the invoking of provisions of Section 263 by CIT. 10. S. 263(1) of the Act, the powers under which CIT has assumed power for revision reads as under: The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the ITO is erroneous in so far as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. 11. The reading of the above provisions makes it very clear that the power of suo motu revision u/s 263(1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision u/s 263, namely (i) the order is erroneous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits and gains attributable to its activities meaning thereby that the deduction will be allowed only when there is direct or proximate connection with or nexus to the income and the business carried on by the Society. It is also an undisputed fact that the Assessee has earned interest from the deposits it has placed with SBI (State Bank of India) and it is Assessee's contention that the deposits with SBI is to ensure that the funds received from the members on the regular basis is not kept idle and thus earn interest. Here it will be relevant to note that Section 80P(2)(d) provides that interest and dividend received by a cooperative society from investments with other cooperative society is exempt from tax. It is also an undisputed fact that SBI is not a cooperative society and therefore the interest received from SBI cannot be considered to be exempt u/s 80P(2)(d) of the Act. In the present case, the interest income earned on extending credit facilities by the Assessee to its members will be business income as there exists nexus between the income and the business of the society, which is extending credit facility to its members but it cannot be said that there is such n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )(i) of the Act to include profits and gains. This sub-section is an inclusive provision. The Parliament has included specifically business profits into the definition of the word income . Therefore, we are required to give a precise meaning to the words profits and gains of business mentioned in s. 80P(2) of the Act. In the present case, as stated above, assessee-society regularly invests funds not immediately required for business purposes. Interest on such investments, therefore, cannot fall within the meaning of the expression profits and gains of business . Such interest income cannot be said also to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members or marketing of the agricultural produce of its members. When the assessee-society provides credit facilities to its members, it earns interest income. As stated above, in this case, interest held as ineligible for deduction under s. 80P(2)(a)(i) is not in respect of interest received from members. In this case, we are only concerned with interest which accrues on funds not required immediately by the assessee(s) for its business purposes and wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word erroneous in s. 263 emerges out of this context. It is because it is incumbent on the 1TO to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word erroneous in s. 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct. 17. Considering the facts and circumstances of the case and for the reasons stated hereinabove and relying on the decisions cited hereinabove, we are of the view that the order of the AO which was revised by the CIT in his order u/s 263 was erroneous and therefore exercise of jurisdiction u/s 263 by ld. CIT was justified. We therefore dismiss the ground of Assessee and in the result the appeal o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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