TMI Blog2022 (9) TMI 153X X X X Extracts X X X X X X X X Extracts X X X X ..... 2), the ld.Pr.CIT ought to have dealt with this claim of the assessee before arriving at a finding of error in the assessment order holding the claim of deduction u/s 80P of the Act as being incorrectly allowed by the AO. It is only after dealing with this alternative claim and finding it to be incorrect that it could be said that the allowance of deduction of interest income had resulted in prejudice to the Revenue, which condition also needs to be satisfied alongwith finding the assessment order erroneous for exercising revisionary jurisdiction u/s 263 of the Act. In the circumstance that the assesses claim is found allowable under section 80P(2)(d) of the Act, the allowance of deduction u/s 80P(2)(a)(i) of the Act by the AO cannot be said to be to the prejudice of the Revenue since in any case the assesses claim of deduction was allowable. Having not so dealt with alternative claim of the assessee, there could not be said to be any finding of the error causing prejudice to the Revenue in the order of the AO and for this reason also the order passed by the ld.Pr.CIT needs to be aside. Thus we hold that the order passed under section 263 of the Act is not accordance with law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of the claim u/s 80P(2)(a)(i) of the Act, holding that the assessee did not qualify for deduction under the said section. Accordingly he held the assessment order passed to be erroneous and prejudicial to the interest of the Revenue since the AO had allowed this claim of the assessee for deduction of interest income u/s 80P(2)(a)( i) of the Act. He thereafter set aside the order of the AO directing him to pass a fresh order as per law after examining the issue legally and after allowing assessee opportunity of hearing. The detailed findings of the Ld.PCIT in this regard are at para 5 6 of his order which shall be referred to and reproduced by us wherever considered necessary. The assessee has challenged this order before us raising the following grounds: 1. The Ld. PCIT-3, Ahmedabad has erred in issuing show cause notice u/s 263 of the IT Act, 1961 dated 15/01/2019 without properly verifying the assessment order where deduction of Rs.24,87,788/- was granted u/s 80P(2)(a)(i) and not u/s 80P(2(d) of the IT Act, 1961 as noted by the office of PCIT-3, Ahmedabad. 2. The Ld. PCIT-3, Ahmedabad further erred in assuming jurisdiction u/s 263 of the IT Act, without properly a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act, that his claim was allowable even as per section 80P(2)(d) of the Act and the Ld.PCIT had held the assessment order erroneous without dealing with this alternate claim of allowability of deduction by the assessee. He pointed out from the communication to the Pr.CIT against the show cause notice, placed before us at P.B page no.25-26 and 27-33 that the assessee had stated that his claim was allowable even under section 80P(2)(d) of the Act ; that after giving a finding that the assessee had incorrectly claimed deduction under section 80P(2)(a)(i) on account of interest income earned on deposits/FDRs with various banks, the ld.Pr.CIT had still directed the AO to reconsider the issue afresh and pass fresh assessment order as per law after examining the above legal position. He contended that it is clear, that even the Ld.Pr.CIT was not sure, whether the assessee s claim was in accordance with law or not. Therefore he contended there was no finding of error by the Ld.PCIT in the order of the AO even with regards to the claim of deduction u/s 80P(2)(a)(i) of the Act 4. The ld.counsel for the assessee contended that for the above reasons, the order passed under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to claim deduction of the said income as per section 80P(2)(a)(i) of the Act. Thus, facts before us confirm the contention of the ld.counsel for the assessee, that while revisionary proceedings were initiated finding the assessee ineligible for claim of deduction under section 80P on one premise, the order was ultimately found to be erroneous finding the assessee ineligible for claiming deduction on another premise. 8. Having found so, we are not in agreement with the Ld.Counsel for the assessee that the fact that the assessee was not put to notice by the Ld.PCIT about the premise on which the assessment order was ultimately found erroneous while assuming jurisdiction u/s 263 of the Act renders the order passed u/s 263 invalid. This issue stands settled by the Hon ble apex court in the case of Commissioner of Income Tax, Mumbai v Amitabh Bachchan 2016 (69) taxmann.com 170 (SC) wherein the Hon ble apex court laid down the proposition that section 263 of the Act does not require prior notice to be given to the assessee for assuming jurisdiction to proceed under the section. It was held that all that the section requires is hearing the assessee before passing order u/s 263 of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relating to deposits in Banks made by it and the outstanding liabilities of the assesee and noted that the investments made in banks was 35.6% of its liabilities. From this analysis he derived that having small depositors there was no need to maintain such huge liquidity and even the bye laws of the society do not prescribe maintaining such huge liquidity . He accordingly derived from this analysis that the deposits were made in Banks with the motive of earning interest thereon and not for the purposes of maintaining liquidity. He thereafter went on to hold that the decisions relied upon by the assessee since did not consider this factual aspect they were of no assistance to the assessee. The relevant discussion of the Ld.PCIT is at para 5.3 to 6 of the order as under: 5.3 The assessee has also placed reliance on the judgment by Hon'ble ITAT in the case of Jafari Monin Vikas Coop Credit Society Ltd (ITA No. 442 of 2013) citing similarity of issue with the present case. The judgment of Jafri Monin Vikas Co-operative Credit Society (Supra) in connection with the distinction between a Cooperative Credit Society and a Cooperative Bank in the context of exclusion conditions sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it A/c. 1,30,500.00 Yathashakti A/c. 2,57,550.00 Total(in Rs.) 10,09,15,690.87 It can be seen that against the Current liabilities of Rs. 10.09 Crore, the assessee has invested a total of Rs. 3.65 crore in other bank accounts. It is thus noticed that an investment of 35.69%(more than 1 /3rd) has been made by the assessee against its current liabilities, which according to the assessee, is tor the purpose of maintaining liquidity to serve the liability of its members by keeping funds in hand. Assessee had also submitted that instead of keeping these funds in current accounts, Fixed Deposits were made so as to earn additional interest income. 5.5 Before examining the applicability of Jafari Momin case to the facts of present case, it will be necessary to analyze the factual matrix of the present case. As can be seen from the above, the assessee has invested in fixed deposits more than one-third of its current liabilities. The twin purpose for this even as per assessee is - (submission dated 31.01.2019 01,02.2019, para 4) (a) To ensure maintenance of l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r passed by the A.O. u/s. 143(3) of the Act on 23/11/2016 is erroneous and prejudicial to the interest of the revenue as the Assessing Officer has failed to charge the interest income earned from various banks while computing the total income of the assessee and has wrongly considered these for deduction. By virtue of the powers vested in me u/s. 263 of the I T Act, I hereby set-aside the order u/s. 143(3) of the Act dated 23/11/2016 and direct the Assessing Officer to pass a fresh assessment order as per law after examining properly the above legal position after allowing assessee adequate opportunity of being heard, in accordance with law and following prescribed procedure. 7. It may be ensured that the fresh assessment order is passed within the prescribed time limit as stipulated under section 153(3) of the Act. 11. Considering the fact that the Ld.PCIT had analysed certain facts relating to the issue while arriving at his finding, it was imperative upon him to have confronted the facts and analysis to the assessee for his rebuttal thereon. Not doing so tantamount to taking an adverse view on facts at the back of the assessee, which is in clear violation of the princi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore commencing the enquiry. Hon ble High Court held that as per the judgment of Hon ble Apex Court itself, the assessee needed to be heard before the Commissioner takes a decision on the issue, and in the present case no such opportunity being given to the assessee before the Commissioner reached his decision; the revisionary order had rightly been set aside by the ITAT as in violation of principle of natural justice. The finding of the Hon ble High Court had para 7 to 10 as under: 7. It is true that the Apex Court in Amitabh Bacchan (supra) has held, all that CIT is required to do before reaching his decision and not before commencing the enquiry, CIT must give the assessee an opportunity of being heard. It is true that the Judgment also says no notice is required to be issued. But in the case at hand, there is a finding of fact by the ITAT that no show cause notice was issued and no issue was ever raised by the CIT regarding payments made to persons specified under Section 40A(2)(b) of the Act before reaching his decision in the Order dated 20th March, 2013. If that was not correct certainly the order of the CIT would have mentioned that an opportunity was given and in any c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1971] 82 ITR 824 (SC). Paragraph 4 of the decision in Electro House (supra) being illumination of the issue indicated above may be usefully reproduced hereunder: This section unlike Section 34 does not prescribe any notice to be given. It only requires the Commissioner to give an opportunity to the assessee of being heard. The section does not speak of any notice. It is unfortunate that the High Court failed to notice the difference in language between Sections 33-B and 34. For the assumption of jurisdiction to proceed under Section 34, the notice as prescribed in that section is a condition precedent. But no such notice is contemplated by Section 33-B. The jurisdiction of the Commissioner to proceed under Section 33-B is not dependent on the fulfilment of any condition precedent. All that he is required to do before reaching his decision and not before commencing the enquiry, he must give the assessee an opportunity of being heard and make or cause to make such enquiry as he deems necessary. Those requirements have nothing to do with the jurisdiction of the Commissioner. They pertain to the region of natural justice. Breach of the principles of natural justice may affect t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch facts, as may be considered relevant by the assessee, must be afforded to him by the C.I.T. prior to the finalization of the decision. 13. The above ground which had led the learned Tribunal to interfere with the order of the learned C.I.T. seems to be contrary to the settled position in law, as indicated above and the two decisions of this Court in Gita Devi Aggarwal (supra) and M/s Electro House (supra). The learned Tribunal in its order dated 28th August, 2007 had not recorded any finding that in course of the suo motu revisional proceedings, hearing of which was spread over many days and attended to by the authorized representative of the assessee, opportunity of hearing was not afforded to the assessee and that the assessee was denied an opportunity to contest the facts on the basis of which the learned C.I.T. had come to his conclusions as recorded in the order dated 20 th March, 2006. Despite the absence of any such finding in the order of the learned Tribunal, before holding the same to be legally unsustainable the Court will have to be satisfied that in the course of the revisional proceeding the assessee, actually and really, did not have the opportunity to conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de before the Id. CIT(A), audit reports etc. We have noticed that the assessee has been statutorily investing its surplus fund from the year 1992 with other Co-operative Societies which include Cooperative Banks and on such investments, the appellant has been receiving interest and dividend which has been claimed as deduction u/s. 80P(2)(d) of the Act. We find that the provision of section 80P(4) are not applicable to the assessee, because section 80P(4) says that provision of this section shall not apply in relation to Co-op Bank other than Primary Agricultural Credit societies or a Primary Coop agricultural and Rural Development Bank. Regarding eligibility for receiving interest received from the co-operative bank we have noticed from the judicial pronouncement in the case of Surat Varvkar Sahakari .Sangh Ltd. v. Assistant Commissioner of Income Tax (2016)72 taxmann.com 169(Gujarat) in ~ 8. Section 80P(2)(d) of the Act allows whole deduction of an income by way of interest or dividends 'derived by the co-operative society from its investment with any other co-operative society. This provision does not make any distinction in regard to source of the investment because th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in subsection (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely :- (a)to(c)** (d) in respect of any income by way of interest or dividends derived by the cooperative society from its investments with any other cooperative society, the whole of such income; Thus, from a perusal of the aforesaid Sec. 80P(2)(d) it can safely be gathered that income by way of interest income derived by an assessee co-operative society from its investments held with any other cooperative society, shall be deducted in computing the total income of the assessee. We'may herein observe, that what is relevant for claim of deduction under Sec. 80P(2)(d) is that the interest income should have been derived from the investments made by the assessee co-operative society with any other cooperative society. We though are in agreement with the observations of the lower authorities that with the insertion of Sub-section (4) of Sec. SOP, vide the Finance Act, 2006, with effect from 01.04.2007, the provisions of Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the business of providing credit facilities to its Members. There is no dispute with reference to the transactions with the Members, as Assessing Officer has not considered that issue at all in the order. Therefore, assessee being a co-operative society registered under the APMACS Act is eligible for deduction u/s.80P(2)(a)(i) of the Act. Not only that, assessee is also eligible for deduction u/s.80P(2)(d) on the incomes received from other eligible co-operative societies/banks. Therefore, on the facts of the case, we do not see any reason to disallow the deduction u/s.80P. Revenue has raised the grounds that provisions of u/s.80P(4) were applicable to assessee. We do not see any reason to consider this ground as the restrictions brought out subsequently u/s.80P(4) is applicable in the case of a co-operative bank not a co-operative society. This issue is also discussed in the co-ordinate bench at Hyderabad decision in the case of The Advocates Mutually Aided Coop Society, Hyderabad pronounced on 20-02- 2015 as under: 22.1 The ground No.3 regarding deduction under section 80P(2)(d) is in respect of interest received from Cooperative Societies and the Cooperative Banks. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s dismissed . 5. In view of the above, we do not see any merit in the Revenue's grounds. Accordingly, Revenue's appeals are dismissed. 3.3 The Hon'ble Gujarat High Court in case of Suarat Vankar Sahakari Sangh Ltd. V/s. Assistant Commissioner of Income tax 72 taxmann.com 169 had an occasion to consider following question of Law: Whether the assessee co-operative society was entitled under sec. 80P(2)(d) of the entire interest of Rs.10,17,976/- received by it from the co- operative Bank? While answering the above question of law in favour of assessee, Hon'ble Gujarat High Court held as under: 8. Section 80P(2)(d) of the Act allows whole deduction of an income by way of interest or dividends 'derived by the co-operative society from its investment with any other co-operative society. This provision does not make any distinction in regard to source of the investment because this Section envisages deduction in respect of any income derived by the cooperative society from any investment with a co-operative society. It is immaterial whether any interest paid to the cooperative society exceeds the interest received from the bank on investme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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