Vapi Merchant Saving & Credit Co. Op. Society Ltd., Vapi V. The PCIT, Valsad, Valsad

ITA 107/SRT/2022

AI Insights

The case involves Vapi Merchant Savings & Credit Co.op Society, which appealed against the order of the PCIT, Valsad, revising the assessment order for AY 2017-18. The PCIT had directed the Assessing Officer to disallow a deduction of Rs.13,25,707 claimed under section 80P of the Income Tax Act, 1961, which pertained to interest income from fixed deposits with various banks. The Tribunal examined whether the revision under section 263 was justified, considering the precedents and the specific provisions of section 80P(2)(d), which exempts interest earned from investments made with any cooperative society.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 301769 (ITAT-SURAT)
• Duration Of Justice: 8 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 29-01-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 04-05-2022
• Other Referred Cases: Totgars Co-operative Sale Society Ltd. vs. ITO, Bardoli Vibhag Gram Vikas Co-operative Credit Society Ltd. vs PCIT, Surat Vankar Sahkari Sangh v. Asstt. CIT, CIT v. Sabarkantha District Co-operative Milk Producers Union Ltd., Merwanjee Cama Park Co-operative Housing Society v. ITO, Kaliandas Udyog Bhavan Premises Co-operative Society Ltd. v. ITO, Veer Co-operative Group Housing Society Ltd. v. ITO, Pr. CIT v. Totgars Co-operative Sales Society Ltd., Uttar Gujarat Uma Co-operative Society Ltd. v. ITO, Menasi Seemeya group Gramagala Seva Sahakari Sangh Niyamitha Venalli v. CIT, Solitaire CGHS v. Pr. CIT, Sasme Co-op Society v. Pr. CIT, Surendarnagar District Co-operative Milk Producer Union Ltd. v. Dy. CIT, Aryan Arcade Ltd. v. Pr. CIT, Mepco Industries Ltd. v. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Assessment record; Co-operative Credit Society
• Section: 263; 143(3); 80P; 72

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM आयकर अपील सं./ITA No.107/SRT/2022 Ǔनधा[रण वष[/Assessment Year: (2017-18) (Virtual Court Hearing) Vapi Merchant Saving and Credit Co. Op. Society, 130, 1 st Floor Varun Complex, Opp. Reliance Super Market, GIDC, Vapi – 396195. Vs. The PCIT, Valsad. (Appellant) (Respondent) èथायीलेखासं./जीआइआरसं./PAN/GIR No.: AAAAV3925E Assessee by Shri Mahesh Chhajed, CA Respondent by Shri Ashish Pophare, CIT(DR) Date of Hearing 30/01/2023 Date of Pronouncement 31/01/2023 आदेश / O R D E R PER DR. A. L. SAINI, AM: By way of this appeal, the assessee has challenged the correctness of the order passed by the Learned Principal Commissioner of Income Tax, Valsad [in short ‘the Ld. PCIT’], dated 27.03.2022, under section 263 of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’]. 2. The grounds of appeal raised by the assessee are as follows: “1. The Ld. Pr. CIT has erred in law and on facts in initiating and passing the order u/s 263 of the Income Tax Act, 1961 as the assessment order sought to be revised is neither erroneous nor prejudicial to the interest of the revenue. 2. The Ld. Pr. CIT has erred in law and on facts in setting aside the assessment order passed by the Ld. AO u/s 143(3) by directing AO to disallow deduction claimed u/s 80P of the Act of Rs.13,25,707/-. 3. The appellant craves liberty to add, amend, alter or modify all or any grounds of appeal before final appeal.” 3. Brief facts qua the issue are that the assessee is a Co-operative Credit Society and is engaged in providing loan to its members at low interest rate. The Page | 2 ITA 107/SRT/2022/AY.2017-18 Vapi Merchant Savings & Credit Co.op Society Ltd. assessee filed its return of income for AY.2017-18 on 30.08.2017 declaring total income of Rs. NIL. Thereafter, the aforementioned case was selected for scrutiny through CASS. The Assessment order under section 143(3) was passed on 23/11/2019 accepting the returned income of Rs. Nil. The assessment order was revised by Ld. PCIT by invoking his jurisdiction under section 263 by holding that the assessee is a co-operative credit society and has earned interest income on loan given to its members and interest earned on fixed deposit receipts. On perusal of the assessment records, it is seen that the assessee had earned interest income of Rs.13,25,707/- which includes interest income earned on fixed deposit receipts from Cosmos bank Ltd., Mehsana Urban Bank, Saraswhat Bank, Surat Peoples Bank and Valsad Dist. Bank. The assessee claimed deduction of Rs.27,53,734/- under section 80P and same was allowed by Assessing Officer. The Hon’ble Supreme Court in the case of the Totgars Co- operative Sale Society Ltd. vs. ITO (2010) 322 (ITR) 283 (SC) held that income from utilization of surplus funds was taxable under the head income from other sources, and therefore not eligible for deduction under section 80P. In the light of the principles enunciated by the honourable Supreme Court, in case of a society engaged in providing credit facilities to its members, income from investments made in banks does not fall within any of the categories mentioned in section. However, section 80P(2)(d) of the Act specifically exempts interest earned from investments made by it with any co-operative society, a co- operative society is entitled to deduction of the whole of such income under section 80P(2)(d) of the Act. However, interest earned from investments made in any bank, not being co-operative society, is not deductible under section 80P(2)(d) of the Act. The Assessing Officer has not disallowed the corresponding amount by invoking the provisions of Section 80P of the IT Act and added to the total income of the assessee and therefore the action of the Assessing Officer is in violation of section 80P of the I.T. Act. After the decision of honourable Supreme Court on this issue there are no two views possible and therefore the issue has attained finality as far as interest earned from banks not being a co-operative society is concerned. Page | 3 ITA 107/SRT/2022/AY.2017-18 Vapi Merchant Savings & Credit Co.op Society Ltd. 4. Aggrieved by the order of the Ld. PCIT, the assessee is in appeal before us. 5. The Ld. Counsel for the assessee submitted that the issue is squarely covered by the judgement of Co-ordinate Bench of ITAT, Surat, in the case of Bardoli Vibhag Gram Vikas Co-operative Credit Society Ltd. vs PCIT, (2021) 127 taxmann.com 334 (Surat Trib.), wherein it was held as follows: “8. We have heard the submission of learned authorized representative (ld.AR) of the assessee and the learned Commissioner of Income tax-Departmental representative (ld. CIT-DR) for the Revenue and perused the assessment order as well as order passed by ld. PCIT. The Ld. AR for the assessee submits that the order passed by assessing officer under section 143(3) in allowing deduction under section 80P(2)(d) is not erroneous. The assessing officer during the assessment examined the issue in detail and took a possible and a reasonable view on the claim made by assessee. The finding of the assessing officer in the assessment order about the examination of this issue is clearly discernable. The learned PCIT by examining the record, may have a different view, thus the revision order passed by learned PCIT is not valid in the eyes of law. The learned AR for the assessee submits that for revising the assessment order, twin condition as provided under section 263 must be fulfilled simultaneously, that is the assessment order is erroneous and insofar as prejudicial to the interest of revenue. The order passed by assessing officer is not at all erroneous; the order is in accordance with the decision of various Tribunals and order passed by jurisdictional High Court on similar issue. The learned AR for the assessee also invited our attention on para 4 of the assessment, wherein the consideration of the issue under reference is clearly discernable. The learned AR for the assessee further submits that the assessing officer while issuing show cause notice dated 6-3-2019 raised a specific quarry on this issue. The assessee furnished its explanation with regard to the claim of deduction under section 80P(2)(d). The assessee explained before Ld. PCIT that assessee is claiming statutory deduction. The learned AR for the assessee further submitted that it is settled law that once assessing officer made enquiry on a particular point and after deliberation allow deduction, on that very point, the proceeding under section 263 cannot exist to form a different view. The ld.AR for assessee further submits that assessee claim similar deduction was disallowed by the assessing officer while passing the assessment order in A.Y. 2009-10, 2010-11 and again in 2012-13. However on appeal before Ld. CIT(A) the assessee was allowed deductions under section80P(2)(d). On further appeal by the revenue before the Tribunal the appeal of the revenue was dismissed in ITA No. 2166/Ahd/2014 dated 18-4-2017, ITA No. 2582/Ahd/2014 dated 28-6- 2018 and in ITA No. 2617/Ahd/2016 dated 18-12-2018 for A.Y. 2009-10, 2010- 11 and 2012-13 respectively. The copies of the decisions of Tribunal are placed on record. The ld.PCIT for the first time revised the assessment order on the issue. 9. On merit of the case the learned AR for the assessee submits that the assessee earned interest from its investment in cooperative bank. The cooperative banks are primarily a cooperative society, as has been held by various benches of Page | 4 ITA 107/SRT/2022/AY.2017-18 Vapi Merchant Savings & Credit Co.op Society Ltd. Tribunal. Cooperative societies interest income from deposit with the cooperative bank is eligible for claim of deduction under section 80P(2)(d). The learned AR of the assessee further submits he has also furnished his written submission and the same may be considered in support of his various other submissions. In support of his submission the learned AR of the assessee relied upon the following decisions: ♦ Surat Vankar Sahkari Sangh v. Asstt. CIT [2016] 72 taxmann.com 169/[2020] 421 ITR 134 (Gujarat), ♦ CIT v. Sabarkantha District Co-operative Milk Producers Union Ltd. [Tax Appeal No. 473 of 2014 dated 16-6-2014] ♦ Merwanjee Cama Park Co-operative Housing Society v. ITO [IT Appeal No. 6139 (Mum.) of 2014, dated 27-9-2017] ♦ Kaliandas Udyog Bhavan Premises Co-operative Society Ltd. v. ITO [2018] 94 taxmann.com 15 (Mum. - Trib), ♦ Veer Co-oprative Group Housing Society Ltd. v. ITO [2018] 67 ITR (Trib.) 268 (Delhi), ♦ Pr. CIT v. Totgars Co-oprative Sales Society Ltd. [2017] 78 taxmann.com 169/392 ITR 74 (Ker.), ♦ Totgars Cooprative Sales Society Ltd. v. ITO [2010] 188 Taxman 282/322 ITR 283 (SC), ♦ Uttar Gujarat Uma Co-operative Society Ltd. v. ITO [IT Appeal No. 1670 & 1671 (Ahd.) of 2018, dated 28-2-2019 ♦ Menasi Seemeya group Gramagala Seva Sahakari Sangh Niyamitha Venalli v. CIT [IT Appeal No. 609 & 610 (Bang.) of 2014, dated 06-2- 2015], ♦ Solitaire CGHS v. Pr. CIT [IT Appeal No. 3155 (Mum.) of 2019, dated 29-11-2017], ♦ Sasme Co-op Society v. Pr. CIT [IT Appeal No. 185 (SRT) of 2020, dated 3-3-2021] 10. On the other hand the learned CIT-DR for the revenue supported the order of learned PCIT. The learned DR further submits that the order passed by assessing officer is not only erroneous but it is prejudicial to the interest of revenue as well. The assessing officer simply allowed the deduction under section 80P(2)(d) without discussing the issue in details and the nature of interest earned by assessee on deposit with cooperative banks. The order is not in accordance with the decision of Hon'ble Karnataka High Court Totagars cooperative sales society (second Totagars case) (supra). Thus, the order passed by in allowing deduction under section 80P(2)(d) assessing officer is certainly prejudicial to the interest of revenue. The twin conditions of section 263 that assessment order is erroneous and insofar as prejudicial to the interest of revenue, clearly available in this case. The learned CIT prayed for upholding Page | 5 ITA 107/SRT/2022/AY.2017-18 Vapi Merchant Savings & Credit Co.op Society Ltd. the order passed by learned PCIT by dismissing the appeal filed by the assessee. 11. We have considered the rival submission of both the parties. We have also deliberated on the written submission filed by learned AR of the assessee and various case laws relied by him during his submission. We have also gone through the various documentary evidences filed in the form of paper book (PB) by learned AR of the assessee. We have noted that during the assessment the Assessing Officer vide notice under section 143(2)/142(1) of the Act dated 31-8- 2015 and 13-4-2016. The assessee filed its reply through its CA (AR) and furnished required details and after examining the issue allowed the deductions under section 80P(2)(d) as discussed in para 4 of the assessment order. The Assessing Officer passed assessment order on 18-10-2016. 12. The ld. PCIT before passing under section 263 of the Act, identified the issue regarding the claim of deduction under section 80P(2)(d) in its show cause notice dated 6-3-2019. The assessee in its reply dated 7-3-2019 clearly explained that the issue was examined by Assessing Officer and that the assessment order is not erroneous. The assessee also explained that similar disallowances/issues was subject matter in the appeal filed by the revenue before Tribunal in A.Y. 2009-10, 2010-11 and 2012-13 and the assessee was allowed similar deductions. 13. The Hon'ble Jurisdictional High Court in Aryan Arcade Ltd. v. Pr. CIT [2019] 412 ITR 277 (Gujarat) held that merely because Commissioner held a different belief that would not permit him to take the order in revision, it if further held that when Assessing Officer made full enquiry, he made up his mind, the notice of revision is not valid. (emphasis added by us). Further, Hon'ble Madras High Court in CIT v. Mepco Industries Ltd. [2007] 163 Taxman 648/294 ITR 121 (Madras) held that when two views are possible on an issue and it is not the case of the Commissioner that the view taken by Assessing Officer is not permissible in law, Commissioner cannot invoke his jurisdiction under section 263 of the Act. (emphasis added by us) 14. As we have noted above the assessing officer has made enquiries on the allowability of deduction under section 80(P)(2)(d) and passed the assessment order, thus, the Assessing Officer has taken a reasonable and possible view which cannot be held as erroneous. 15. The Hon'ble Karnataka High Court in Totagars Cooperative Sales Society (supra) held that for the purpose of section 80P(2)(d) a Co-operative Bank should be considered by a Co-operative Society and interest earned by Co-operative Society from Cooperative Bank would necessarily be deductible under section 80P(1) of the Act. Further, the Hon'ble Jurisdictional High Court in Surat Vankar Sahakari Sangh Ltd. (supra) held that assessee co-operative society is eligible for deduction under section 80P(2)(d) in respect of gross interest received from co-operative bank without adjusting interest paid to said bank. 16. The Co-ordinate Bench of Rajkot Tribunal in Surendarnagar District Co- operative Milk Producer Union Ltd. v. Dy. CIT [2019] 111 taxmann.com Page | 6 ITA 107/SRT/2022/AY.2017-18 Vapi Merchant Savings & Credit Co.op Society Ltd. 69/179 ITD 690 (Rajkot Tribunal) also held the assessee co-operative society could not claim benefit under section 80P(2)(d) in respect of interest earned by it from deposits made with nationalized/private banks, however, the said benefit was available in respect of interest earned and on deposits made with co- operative bank. Thus, in view of the aforesaid legal discussion we are of the considered view that order passed by Assessing Officer is not erroneous, though it may be prejudicial to the interest of the Revenue. Therefore, the twin conditions that orders is erroneous and so far as prejudicial to the interest of revenue, as prescribed under section 263 is not fulfilled in the present case. 17. Moreover, we have seen that in assessee's own case for A.Y. 2009-10, 2010- 11 and 2012-13, the similar disallowance under section 80P(2)(d) was made by the assessing officer while passing assessment order under section 143(3), however, on appeal before Ld. CIT(A) , the disallowances were deleted and the order of the Ld. CIT(A) in all years were confirmed. 18. The ld. DR for the revenue relied on the case law in Totagars Co-operative Sales Society (second case)/(supra), wherein the Hon'ble Karnataka High Court held that interest earned by a Co-operative Society from surplus deposits kept with Co-operative bank, is not eligible for deduction under section 80P(2)(d). Considering the legal position that when there are conflicting decisions of non- jurisdictional High Courts, on similar issue, the decision of Jurisdictional High Court is having binding precedent. Thus, keeping in view of the decision Hon'ble Jurisdictional High Court in Surat Vankar Sahakari Sangh Ltd. (supra) wherein the assessee-co-operative society is held eligible for deduction under section 80P(2)(d) in respect of gross interest received from co-operative bank without adjusting interest paid to said bank, we conclude that the order passed by assessing officer is not erroneous. Hence, the grounds of appeal raised by assessee are allowed. 19. In the result, appeal of the assessee is allowed. 6. On the other hand, Learned Departmental Representative (Ld. DR) for the Revenue relied on the findings of the Ld. PCIT. 7. We have heard both the parties and noted that the issue under consideration is squarely covered by the judgment of Co-ordinate Bench, ITAT, Surat wherein it was held that deduction under section 80P(2)(d) is allowable in the case of co-operative bank that is interest received on fixed deposit made in co-operative bank is allowable under section 80P(2)(d) of the Act and hence the Assessing Officer after examining the assessee’s submission and the position in law allowed the claim of the assessee. Therefore, order passed by the Assessing Officer should not be erroneous and prejudicial to the interest of Revenue. Hence, we quash the order of Ld. PCIT. Page | 7 ITA 107/SRT/2022/AY.2017-18 Vapi Merchant Savings & Credit Co.op Society Ltd. 7. In the result, the appeal filed by the assessee is allowed. Order pronounced on 31/01/2023 by placing the result on the Notice Board. Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER lwjr /Surat Ǒदनांक/ Date: 31/01/2023 SAMANTA Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // TRUE COPY // Assistant Registrar/Sr. PS/PS ITAT, Surat