The Radhu Mercantile Co. Op Credit Society Ltd., Radhu V. The ITO, Ward-1, Nadiad

ITA 153/AHD/2022

AI Insights

The case involves The Radhu Mercantile Co.Op. Credit Society Ltd., which appealed against the revision order by the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act, 1961. The PCIT had set aside the original assessment order, which accepted the society's claim for a deduction under section 80P for interest income from a cooperative bank, deeming it erroneous and prejudicial to the Revenue's interests. The Tribunal examined whether the PCIT's revision was justified, considering precedents and the specific provisions of the Income Tax Act. The Tribunal concluded that the original assessment was correct and not erroneous, leading to the quashing of the PCIT's revision order.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 114336 (ITAT-AHMEDABAD)
• Duration Of Justice: 11 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-04-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 18-04-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 08-05-2022
• Other Referred Cases: The Ekta Co-operative Credit Society Ltd. vs. PCIT, M/s. Laxmi Bachat Sharafi Sahkari Mandali Ltd. vs. ITO, Bardoli Vibhag Gram Vikas Co.Op. Credit Society Ltd., State Bank of India vs. CIT, Katlay Kariyana Merchant Sahkari Sarafi Mandali Ltd. vs. ACIT, Totagar's Co-operative Sale Society Ltd. vs. ITO, The Sardar Patel Co-operative Credit Society Ltd. vs. PCIT, People's Co.Op. Credit Society Ltd. vs. PCIT, Citizen Co-operative Society Ltd. vs. ACIT, Sabarkantha District Cooperative Milk Producers Union Ltd. vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Principle of natural justice; Co-operative Credit Society; Set aside
• Section: 263; 143(3); 80P; 64; 72

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “D” BENCH Before: Shri Waseem Ahmed, Accountant Member And Shri T.R. Senthil Kumar, Judicial Member The Radhu Mercantile Co.Op. Credit Society Ltd. Sarvoday Shopping Centre, Bazar, Radhu- 387560 PAN: AAAAT6328M (Appellant) Vs The ITO, Ward-1, Nadiad (Respondent) Assessee Represented: Shri M.K. Patel, Adv. Revenue Represented: Shri Aarsi Prasad, CIT-DR Date of hearing : 19-04-2023 Date of pronouncement : 21-04-2023 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:- This appeal is filed by the Assessee as against the Revision order dated 27.03.2022 passed by the Principal Commissioner of Income Tax-1, Vadodara under section 263 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year (A.Y) 2017-18. ITA No. 153/Ahd/2022 Assessment Year 2017-18 I.T.A No. 153/Ahd/2022 A.Y. 2017-18 Page No The Radhu Mercantile Co.Op. Credit Society Ltd. . vs. PCIT 2 2. The brief facts of the case is that the assessee is a co-operative society engaged in the business of providing credit facilities to its members. For the Assessment Year 207-18, the assessee filed its Return of Income declaring total income at Rs. 5,14,460/- after claiming deduction of Rs. 9,41,73/- under chapter VIA of the Act. Regular assessment u/s. 143(3) was made on 09.2.2019 accepting the Returned income. 2.2. On perusal of records by PCIT, the assessee shown gross total income at Rs. 14,55,535/- after claiming deduction u/s. 80P of Rs. 9,41,073/-. Further perusal of Profit and Loss account, the assessee received interest income of Rs. 18,14,676/- from the Co- operative Bank (KDCC Bank) which is not eligible for deduction either u/s. 80P(2)(a)(i) or u/s. 80P(2)(d) of the Act. The Assessing Officer while passing the assessment order has not verified the claim of deduction u/s. 80P of the Act, which is an erroneous order and prejudicial to the interest of Revenue. Therefore a show cause notice dated 14.03.2022 was issued to the assessee and requiring the assessee to file its submissions on or before 18.03.2022. Though the notice was served by registered e-mail on 14.03.2022 and also through Speed Post. However the assessee has not replied to the notice. Therefore the Ld. PCIT by this impugned order dated 27.03.2022, without giving any further opportunity set aside the assessment order with a direction to the A.O. to pass fresh assessment order after taking into consideration the issues discussed by him and granting reasonable opportunity of being heard to the assessee. I.T.A No. 153/Ahd/2022 A.Y. 2017-18 Page No The Radhu Mercantile Co.Op. Credit Society Ltd. . vs. PCIT 3 3. Aggrieved against the Revision order, the assessee is in appeal before us raising the following Grounds of appeal: (1) That on facts, and in law, the learned CIT has grievously erred in exercising jurisdiction u/s 263 of the Act. (2) That the learned CIT has grievously erred in law, and on facts, in holding that the claim of deduction made u/s 80P (2) (a) (i) or u/s 80P(2)(d) of the Act in respect of interest received from Co-operative Bank is not allowable. (3) That on facts and in law, the entire claim ought to be allowed as prayed for. 4. The Ld. Counsel Shri M.K. Patel appearing for the assessee submitted before us a Paper Book and compilation of case laws. The Ld. PCIT passed the impugned order by giving only one hearing which was not responded by the assessee and passed this Revision order without giving further opportunity to the assessee. The Ld. Counsel for the assessee submitted before us on identical issues the very same Bench of this Tribunal in ITA No. 562/Ahd/2019 dated 24.08.2022 in the case of The Ekta Co-operative Credit Society Ltd. vs. PCIT and in ITA No. 963/Ahd/2019 dated M/s. Laxmi Bachat Sharafi Sahkari Mandali Ltd. vs. ITO and the Surat Bench of the Tribunal in the case of Bardoli Vibhag Gram Vikas Co.Op. Credit Society Ltd. reported in [2021] 127 taxmann.com 334 wherein quashed the Revision proceedings as unjustifiable. Thus the Ld. Counsel pleaded that when the Assessing Officer made proper enquiries on allowability of deduction u/s. 80P(2)(d) and passed assessment order in respect of gross interest received from co-operative banks which is a reasonable and possible view taken by the Assessing Officer that cannot be held as erroneous and prejudicial to the interest of Revenue thereby invoking powers u/s. I.T.A No. 153/Ahd/2022 A.Y. 2017-18 Page No The Radhu Mercantile Co.Op. Credit Society Ltd. . vs. PCIT 4 263 to revise the assessment order by the Ld. PCIT is unjustifiable and liable to be quashed. 5. Per contra, the Ld. CIT-DR Shri Aarsi Prasad appearing for the Revenue supported the order passed by Ld. PCIT and submitted the Jurisdictional High Court in the case of State Bank of India vs. CIT held that interest income on deposit placed with commercial bank is not exempt u/s. 80P(2)(a)(i) of the Act. Further Jurisdictional High Court in the case of Katlay Kariyana Merchant Sahkari Sarafi Mandali Ltd. Vs. ACIT held that co-operative banks are not specie of genus co-operative society, which would be entitled to exemption or deduction under the special provisions of Chapter VI-A in the form of section 80P of the Act. Therefore the Revision order passed by the PCIT does not require any interference and the assessee is liable to be dismissed. 6. We have given our thoughtful consideration and perused the materials available on record including the Paper Book and case laws filed by the assessee. This issue was considered by Co- ordinate Bench of this Tribunal and passed the following order after considering the Karnataka High Court judgment in the case of Totagar’s Co-operative Sale Society Ltd. and State Bank of India vs. CIT of our Jurisdictional High Court. The relevant portion of the order is reproduced as follows: “...5. We have given our thoughtful consideration and perused the materials available on record including the Paper Book filed by the assessee. As rightly argued by the Ld. Representative of the assessee, this issue is being dealt by the Co-ordinate Bench of the Tribunal in its decision in the case of The Sardar Patel Co-operative Credit Society Ltd (cited supra), wherein its held as follows: 4. We have heard the arguments of both the sides and also perused the relevant material available on record. As submitted by the learned Counsel for the I.T.A No. 153/Ahd/2022 A.Y. 2017-18 Page No The Radhu Mercantile Co.Op. Credit Society Ltd. . vs. PCIT 5 assessee, the assessment completed by the Assessing Officer under Section 143(3) of the Act allowing the similar claim of the assessee for deduction under Section 80P(2) of the Act in respect of interest income earned on the deposits with Mehsana Urban Co-operative Bank was set aside by the same learned PCIT vide his order passed under Section 263 of the Act in the case of the People Co-op. Credit Society Ltd by relying on the decision of Hon'ble Karnataka High Court in the case of Totgars Cooperative Sale Society (supra) and, on appeal by the assessee, the Coordinate Bench of this Tribunal vide its order dated 21.02.2022 passed in ITA No.384/Ahd/2020 set aside the order passed by the learned PCIT under Section 263 of the Act restoring that of the Assessing Officer by relying inter alia on the decision of the Hon'ble jurisdictional High Court in the case of State Bank of India (supra). Copy of the said order of the Tribunal is also placed on record and perusal of the same shows that a similar issue was decided by the Tribunal vide paragraph No.7 of its order as under:- "7. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the entire details called for during the assessment proceedings were submitted by the assesses at the time of assessment under Section 143(3) of the Act and the Assessing Officer was very well aware that section 80P claim was reflected in the details of the assessee. The assessee vide letter dated 22.05.2017 submitted the details regarding deduction under Section 80P of the Act which was claimed in the return of income which included in the interest income from Mehsana Urban Co-operative Bank. The PCIT has issued the show cause notice under Section 263 on 14.02.2020 on the very same issue which was verified by the Assessing Officer in Section 143(3) proceedings itself. Once the issue verified by the Assessing Officer and the jurisdictional Court has allowed the said claim related to interest income earned from Co-operative Bank, the PCIT cannot exercise Section 263 of the Act. The Id. A.R. aptly relied upon the decision of State Bank of India vs. CIT (2016) 72 Taxmann.com 64 dated 25.04.2016. On the basis of Hon'ble Karnataka High Court decision in the case of Totgars Co-operative Sales Society (supra), the PCIT cannot invoke provisions of section 263 of the Act. Thus, Section 263 does not sustain and appeal of the assessee is allowed." 5.1. Further the Co-ordinate Bench judgment in the case of People’s Co.Op. Credit Society Ltd. (cited supra) held as follows: 4. We now advert to the lead issue of Section 80(P)(2) disallowance of Rs.27,97,019/- in respect of assessee's interest income derived from its deposits with the Banas Co-operative Bank. Both the lower authorities quote the legislative amendment vide Finance Act, 2006 w.e.f. 01.04.2007 inserting subsection 4 in Section 80P as well as CBDT's explanatory notes to the above Finance Act dated 28.122006 in holding that the impugned interest income derived from co-operative bank is not eligible for deduction. Learned Departmental Representative vehemently contends that hon'ble Karnataka high court's recent decision in (2017) 83 taxmann.com 140 (Karnataka) PCIT vs. Totagars Co-operative Sale Society has settled the law that such an income is not allowable as Section 80P deduction in view of the legislative amendment hereinabove. Mr. Kabra thereafter files hon'ble apex court's judgment in (2017) 397 ITR 1 (SC). The Citizen Co- operative Society Ltd. vs. ACIT settling Section 80P deduction issue in respect of ordinary and nominal members. We however find that the above I.T.A No. 153/Ahd/2022 A.Y. 2017-18 Page No The Radhu Mercantile Co.Op. Credit Society Ltd. . vs. PCIT 6 former decision goes contrary to hon'ble jurisdictional high court's judgment in Tax Appeal No. 473 of 2014 CIT vs. Sabarkantha District Cooperative Milk Producers Union Ltd. declining Revenue's identical question of law challenging tribunal's decision allowing Section 80P deduction in respect of interest earned on fixed deposits with a cooperative bank in assessment year 2009-10 i.e. post Section 80P(4) amendment w.e.f. 01.04.2007. Their lordships' reasoning to this effect reads as under: "4.0. Now, so far as proposed question no. B i.e. whether the Appellate Tribunal has substantially erred in upholding the order of the CIT(A) in deleting the disallowances of Rs.1,42,19,5157- under Section 80(P)(2)(d) of the Act is concerned, it is required to be noted that the assessee claimed deduction under Section 80(P)(2)(d) of the Act on the interest earned on the fixed deposit with Cooperative Bank and the Societies and it has been found that as such the income was received from the investment in Cooperative Societies and Cooperative Bank. Considering Section 80(P)(2)(d) of the Act when the only requirement was that the income should be received from investment in Cooperative Societies and the Cooperative Bank which in the present case has been fulfilled, it cannot be said that the learned Tribunal has committed any error in deleting disallowance of Rs.1,42,19,515/- under section 80(P)(2)(d) of the Act. We are in complete agreement with the view taken by the learned Tribunal. Under the circumstances, proposed question B is also answered against the revenue." We therefore follow hon'ble jurisdictional high court's judgment than hon'ble Karnataka high court's decision. Coming to hon'ble apex court's decision in the Citizen Co-operative Society Ltd. (supra), we find that there is no dispute about the category of members as it was before their lordships. We thus conclude in view of all these facts and circumstances that hon'ble jurisdictional high court's judgment is binding on us. We accordingly delete the impugned disallowance of Rs.27,97,019/- in question. This lead appeal ITA No. 1891/Ahd/2014 is partly accepted. 5.2. We therefore respectfully following the above decisions of the Co-ordinate Bench of this Tribunal, which has followed jurisdictional High Court judgment and we hereby quash the impugned order passed by the Ld. PCIT u/s. 263 of the Act and restore the assessment order passed by the Assessing Officer u/s. 143(3) of the Act. Thus, the grounds raised by the assessee are hereby allowed.” 6.1. In another Co-ordinate Bench of This Tribunal in the case of Laxmi Bachat Sharafi Sahkari Mandali Ltd. (cited supra) held as follows: “... 9. The next contention that the order of the Ld.PCIT needs to set aside being passed without giving opportunity of hearing to the assessee, we find, merits consideration. The contention of the Ld.Counsel for the assessee in this regard was that the specific ground on which the assesses claim of deduction u/s 80P of interest income earned from FD’s etc in Banks was found incorrect, being not allowable as per section 80P(2)(a)(i) of the Act, was never confronted to the assessee. I.T.A No. 153/Ahd/2022 A.Y. 2017-18 Page No The Radhu Mercantile Co.Op. Credit Society Ltd. . vs. PCIT 7 10. A perusal of the order of the ld.Pr.CIT does not reveal any such opportunity being given to the assessee. The show cause notice issued by the Ld.PCIT to the assessee while assuming jurisdiction u/s 263 of the Act mentions the disallowability of the claim of deduction as per a different provision i.e 80P(2)(d) of the Act. The ld.DR was unable to demonstrate that the assessee was issued notice prior to holding the assessment order being erroneous on account of allowing deduction of interest income u/s 80P(2)(a)(i) of the Act. We have noted that the assessee in his reply filed to the Ld.PCIT in response to notice issued under section 263 of the Act had pointed out that the Ld.PCIT had wrongly found the deduction claimed by the assessee u/s 80P(2)(d) of the Act and it was clarified that the assessee had claimed deduction u/s 80P(2)(a)(i) 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 principles of natural justice. The suo moto submissions made by the assessee regarding his eligibility to claim deduction on this ground cannot by any stretch be said to tantamount to having heard the assessee on this premise, more particularly when the Ld.PCIT brushed aside this contention on the basis of certain facts which the assessee was not even put to notice. Any submissions made without putting the assessee to notice relation to. The order passed by the Ld.PCIT is in clear violation of the principles of natural justice and needs to be set aside for this reason alone we hold. “ 6.2. Thus keeping in view of the decisions of Hon’ble Jurisdictional High Court wherein it was held that the assessee co-operative society is eligible for deduction u/s. 80P(2)(d) in respect of gross interest received from co-operative banks, without adjusting interest paid to said bank. We are of the considered opinion, the assessment order passed by the Assessing Officer is not an erroneous order, which does not require Revision u/s. 263 of the Act. Therefore, we hereby quash the impugned Revision order passed by the PCIT u/s. 263 of the Act and restore the assessment order passed by the Assessing Officer u/s. 143(3) of the Act. Thus the grounds raised by the Assesse are hereby allowed. I.T.A No. 153/Ahd/2022 A.Y. 2017-18 Page No The Radhu Mercantile Co.Op. Credit Society Ltd. . vs. PCIT 8 7. In the result, the appeal filed by the Assessee is allowed for statistical purpose. Order pronounced in the open court on 21-04-2023 Sd/- Sd/- (WASEEM AHMED) (T.R. SENTHIL KUMAR) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad : Dated 21/04/2023 आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपीलȣय अͬधकरण, अहमदाबाद