Income Tax Appellate Tribunal - MumbaiNagothane Byapari Sahakari Patsanstha ... vs Pr. Cit-1, Thane on 29 March, 2022IN THE INCOME TAX APPELLATE TRIBUNAL\n                              "B" BENCH, MUMBAI\n\n\n         BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND\n               SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER\n                    आयकर अपील सं/ I.T.A. No. 1011/Mum/2021\n                    (निर्धारण वर्ा / Assessment Year: 2016-17)\n\n     Nagothane Vyapari Sahakari        बिधम/   Principal Commissioner of\n     Patsanstha Maryadit,               Vs.    Income Tax\n     Bazerpeth Nagothane,                      Thane-1\n     Raigarh - 402106\n     PAN : AAAAN4367N\n          (अपीलाथी /Appellant)         :            (प्रत्यथी) / Respondent)\n\n     Assessee by:                      Shri Rajiv Khandelwal (AR)\n     Revenue by:                       Shri A.K. Kardam (CIT DR)\n\n          सुनवाई की तारीख / Date of Hearing :                 08.02.2022\n          घोषणा की तारीख /Date of Pronouncement :             29.03.2022\n\n\n                                आदे श / O R D E R\n\n\nPer Rahul Chaudhary, Judicial Member:1.      By way of the present appeal the Appellant/Assessee has\n        challenged the order dated 26.03.2021 passed by the Ld.\n        Principal Commissioner of Income Tax Thane-1 (hereafter\n        referred to as „the PCIT‟] underSection 263of the Income Tax\n        Act, 1961 (hereafter referred to as „the Act‟) whereby the Ld.\n        PCIT had set aside assessment order, dated 29.11.2018, passed\n        underSection 143(3)of the Act by holding the same to the\n        erroneous and prejudicial to the interest of the revenue with the\n        direction to the Assessing Officer to examining the applicability\n        of provision ofSection 80P(2)(d)of the Act.2.      The Appellant before us is a co-operative society registered\n        under theCo-operative Society Act, 1960. The Appellant filed\n        return of income for the Assessment Year 2016-17 declaring „Nil‟\n        taxable income after claiming deduction underSection 80PofITA. No. 1011/Mum/2021A.Y. 2016-17\n\n     the Act in respect of interest income earned from surplus\n     amount kept as temporary deposits with banks (including co-\n     operative banks).3.   During the relevant previous year, the Assessee earned interest\n     income of INR 53,78,345/- from normal banking business,\n     interest income of INR 41,85,230/- from co-operative banks (i.e.\n     Sarswat Bank & RDCC Bank), and interest income of INR\n     5,42,724/- from commercial banks (i.e., Dena Bank & Bank of\n     India).4.   The case of the Appellant was selected for scrutiny and during\n     the assessment proceedings the Assessing Officer (AO) called for\n     the details and breakup of all the receipts and asked the\n     Appellant to justify its claim for deduction underSection 80Pof\n     the Act. After examining the reply filed by the Appellant, the AO\n     concluded that the Appellant was not entitled to claim deduction\n     underSection 80P(2)(a)/(d) of the Act in respect of interest\n     income    of   INR   5,42,724/-   from    commercial    banks     and\n     accordingly made disallowance of INR 2,62,244/- (after allowing\n     deduction for expenses). The Assessing Officer accepted the\n     contention of the Appellant that deduction underSection\n     80P(2)(d)of the Act is available in respect of interest income\n     earned by the Appellant on deposit of surplus funds with the co-\n     operative banks. The AO completed the assessment at total\n     income    of   INR   4,31,610/-   vide   assessment    order    dated\n     29.11.2018.5.   Being aggrieved, the Appellant had challenged the additions\n     made by the AO before the Commissioner of Income Tax\n     (Appeals) [hereinafter referred to as „the CIT(A‟)]. However,\n     during the pendency of the aforesaid appeal, the Appellant\n     opted for Direct Tax Vivad Se Vishwas Scheme. The application2ITA. No. 1011/Mum/2021A.Y. 2016-17\n\n     filed by the appellant under the said scheme was approved -\n     Form No. 3 was received on 17.11.2020; and Form No. 4 was\n     filed on 02.03.2021.6.   However, on 18.03.2021 the PCIT issued notice underSection\n     263requiring the Appellant to submit the response on or before\n     22.03.2021 through e-mail / e-filing portal, and on 26.03.2021\n     the PCIT passed order underSection 263of the Act which has\n     been impugned in the present appeal.7.   The Appellant has challenging the order passed by PCIT on the\n     grounds of violation of principles of natural justice and also on\n     the ground of lack of jurisdiction of PCIT to pass the order underSection 263of the Act, firstly, on account the assessment order\n     neither being erroneous nor prejudicial to interest of Revenue\n     and, secondly, for the reason that the appellant having had\n     opted for Direct Tax Vivad Se Vishwas Scheme for the relevant\n     assessment year.8.   The   Learned   Authorised    Representative    of   the   Appellant\n     (hereinafter referred to as „the Ld. AR‟) submitted that order\n     underSection 263of the Act was passed without granting\n     sufficient opportunity to the Appellant to put forward the facts\n     and therefore, there was violation of principles of natural justice.\n     On merits he submitted that the AO had raised the issue of\n     allowability of deduction underSection 80Pof the Act in the\n     assessment proceedings. After going through the submissions\n     filed by the Appellant, the AO complete assessment after\n     allowing deduction underSection 80P(2)(d)of the Act in respect\n     of interest received from co-operative society and disallowing\n     deduction underSection 80P(2)(a)/(d) of the Act in respect of\n     interest received from banks. Therefore, the AO had carried out\n     necessary inquiry and took a view which was neither erroneous3ITA. No. 1011/Mum/2021A.Y. 2016-17\n\n     nor prejudicial. The Ld. AR relied upon the decision of the\n     Tribunal in the case ofKaliandas Udyog Bhavan Premises vs.\n     ITO: ITA No. 6547/Mum/2017, dated 24.04.2018.9.   In response the Learned Departmental Representative relied on\n     order passed by PCIT to justify the exercise of power of revision\n     underSection 263of the Act the relevant extract of which read\n     as under:"04. As mentioned above that the assessee has shown\n           interest income of Rs. 57,78,345/-......xx xx\n\n           Thus, the plain reading of the above section describes\n           that the assessee has to invest the surplus fund with co-\n           operative    society    and   not   co-operative   Banks.\n           .........................It is seen that the assessee has invested\n           the surplus fund with the Co-operative Banks and received\n           interest on the said investments. Interest income would\n           come in the category of "Income from Other Sources and\n           not income from business". Hence, such interest income\n           would be taxable undersection 56of the Act as decided\n           by the Hon‟ble Supreme Court in the case of Totgars Co-\n           operativeSociety Vs. ITO.05.   xx     xx06.    Also, videFinance Act2006, deduction from income\n           of Co-operative Banks as per the provisions ofSection 80Pof the Act, has been withdrawn by way of insertion ofSection 80P(4)w.e.f. 1/4/2007 which differentiates a co-\n           operative bank in comparison to co-operative society. It is\n           thus clear that a co-operative bank is a commercial bank\n           and does not fall under the purview of a Cooperative\n           Society and interest income is not eligible for deduction\n           u/s 80P(2)(d) of theIncome-Tax Act, 1961. Hence, in view\n           of the above, the said deduction is required to be\n           disallowed and added back to income.4ITA. No. 1011/Mum/2021A.Y. 2016-1707.    Considering the above mentioned facts, I am of the\n            considered opinion that the assessmentu/s 143(3)made\n            by the A.O. dated 29.11.2018 is prejudicial & erroneous to\n            the interest of the revenue. I therefore, set aside the order\n            of the AO passedu/s 143(3)with the direction to examine\n            the applicability of provisions ofsection 80P(2) (d)of the\n            Act considering the above discussed facts and to redo the\n            assessment after affording adequate opportunity to the\n            assessee."10.   We   have   perused   the   records   and    considered     the   rival\n      submissions. A perusal of the assessment order would show that\n      the AO had specifically raised query regarding allowability of\n      deduction underSection 80Pof the Act. Relevant extract of the\n      assessment order reads as under:"3.1 During the course of assessment proceedings, the\n            details and break up of all the receipts have been called\n            for and on perusal of same, it is observed that the society\n            has earned interest of Rs. 53,78,345/- on deposits made\n            with the various cooperative banks, Bank of India & Dena\n            Bank. The provision ofsection 80Papplicable to the year\n            under consideration is being reproduced as under:-"80P(1) Where, in the case of an assessee being a co-\n            operative society,..........."XX XX\n\n            Considering the activities of the assessee society, the\n            interest income earned on deposits made with the various\n            banks cannot be treated as income attributable to the\n            business of society. During the course of assessment\n            proceedings, the AR of the assessee was confronted with\n            the above facts and a question was raised on the\n            aliowability of deductionu/s 80P(2)(a)(i)in respect of\n            interest earned on deposits with various banks. The\n            decision of Totogar‟s to held the interest received on5ITA. No. 1011/Mum/2021A.Y. 2016-17\n\n            surplus fund retained by the society and not used for the\n            purpose of the business as income from other sources has\n            been distinguished not correctly. ............................ The\n            object of the society to serve its members by offering the\n            credit facilities is the purpose for which the deduction is\n            available. It is for this reasonsection 80P(2)(d)has been\n            inserted in the act to ensure that any surplus of one\n            society may be utilized by other society to serve their\n            members. The deposits made with the bank has not been\n            extended this deductions which makes the legislative\n            intention very clear that if the funds are utilized by the\n            members of the society then earnings on those funds\n            have been extended the benefit of deductions. Thus if the\n            deposits are utilized for the members then the taxability\n            benefits reaches to the society. ......................This\n            legislative spirit has not been considered in any of the\n            decisions cited by the AR of the assessee. The\n            overemphasis on liability or surplus funds used by the\n            society to. make distinction with Totogar‟s is actually\n            misplaced, The AR of the assessee argued that\n            alternatively the deduction may be allowedu/s 80P(2)(d)which is acceptable. considering the provision of law\n            made as discussed above. The interest on deposits with\n            State Bank of India cannot be held as business incomeu/s\n            80P(2)(a)(i)of the Income Tax Act, and also not fall under\n            the purview of Sec 80P(2)(d) and therefore added back to\n            the total income of the assessee." (Emphasis supplied)11.   From the above, it is clear that the AO had conducted the\n      necessary inquiry and examined the issue of allowability of\n      deduction underSection 80P(2)(a)as well as 80P(2)(d) of the\n      Act. The view taken by the AO is in line with the decision of the\n      Mumbai Bench of the Tribunal in the case ofKaliandas Udyog\n      Bhavan Premises vs. ITO: ITA No. 6547/Mum/2017, dated\n      24.04.2018 wherein after considering the provisions ofSection\n      80P(4)of the Act it has been held by the Tribunal that a\n      cooperative bank continues to be a co-operative society, and\n      even after introduction ofSection 80P(4), a co-operative society6ITA. No. 1011/Mum/2021A.Y. 2016-17\n\nis entitled to claim deduction underSection 80P(2)(d)of the Act\nin respect of the interest received from a cooperative bank.The relevant portion of the decision is reproduced below:"7.   We have deliberated at length on the issue under\n         consideration and are unable to persuade ourselves to\n         be in agreement with the view taken by the lower\n         authorities. Before proceeding further we may herein\n         reproduce the relevant extract of the said statutory\n         provision, viz Sec. 80P(2)(d), as the same would have a\n         strong bearing on the adjudication of the issue before\n         us."80P(2)(d)\n\n            (1)    Where in the case of an assessee being a co-operative     society, the gross total income\n                   includes any income referred to in sub-section (2), there shall be deducted, in\n                   accordance with and subject to the\n                   provisions of this section, the sums specified\n                   in sub-section (2), in computing the total\n                   income of the assessee.(2)    The sums referred to in sub-section (1) shall\n                   be the following namely:-(a)....(b)....(c)....(d) in respect of any income by way of\n                   interest or dividends derived by the co-operative society from its investments with\n                   any other co-operative society, the whole of\n                   such income"Thus, from a perusal of the aforesaidSec. 80P(2)(d)it\n         can safely be gathered that income by way of interest\n         income derived by an assessee cooperative society\n         from its investments held with any other cooperative\n         society, shall be deducted in computing the total\n         income of the assessee. We may herein observe, that7ITA. No. 1011/Mum/2021A.Y. 2016-17\n\nwhat is relevant for claim of deduction underSec.\n80P(2)(d)is that the interest income should have been\nderived from the investments made by the assessee co-\noperative society with any other cooperative society.\nWe though are in agreement with the observations of\nthe lower authorities that with the insertion of Sub-\nsection (4) ofSec. 80P, vide theFinance Act, 2006, with\neffect from 01.04.2007, the provisions ofSec. 80Pwould no more be applicable in relation to any co-\noperative bank, other than a primary agricultural credit\nsociety or a primary co-operative agricultural and rural\ndevelopment bank, but however, are unable to\nsubscribe to their view that the same shall also\njeopardise the claim of deduction of a co-operative\nsociety underSec. 80P(2)(d)in respect of the interest\nincome on their investments parked with a co-operative\nbank. We have given a thoughtful consideration to the\nissue before us and are of the considered view that as\nlong as it is proved that the interest income is being\nderived by a co-operative society from its investments\nmade with any other co-operative society, the claim of\ndeduction under the aforesaid statutory provision, viz.Sec. 80P(2)(d)would be duly available. We may herein\nobserve that the term "co-operative society‟ had been\ndefined underSec. 2(19)of the Act, as under:"(19) "Co-operative society" means a cooperative\n     society registered under theCo-operative\n     Societies Act, 1912(2 of 1912), or under any other\n     law for the time being in force in any state for the\n     registration of cooperative societies;"We are of the considered view, that though the co-\noperative bank pursuant to the insertion of Sub-section\n(4) ofSec. 80Pwould no more be entitled for claim of\ndeduction underSec. 80Pof the Act, but however, as a\nco-operative bank continues to be a co-operative\nsociety registered under theCo-operative Societies Act,\n1912(2 of 1912), or under any other law for the time\nbeing enforced in any state for the registration of\ncooperative societies, therefore, the interest income8ITA. No. 1011/Mum/2021A.Y. 2016-17\n\n     derived by a co-operative society from its investments\n     held with a co-operative bank, would be entitled for\n     claim of deduction underSec.80P(2)(d)of the Act.8.   We shall now advert to the judicial pronouncements\n     that had been relied upon by the authorized\n     representatives for both the parties and the lower\n     authorities. We find that the issue that a co-operative\n     society would be entitled for claim of deduction underSec. 80P(2)(d)for the interest income derived from its\n     investments held with a cooperative bank is covered in\n     favour of the assessee in the following cases:(i)    Land and Cooperative Housing Society Ltd. Vs. ITO(2017) 46 CCH 32 (Mum)(ii)   M/s C. Green Cooperative Housing and Society Ltd.Vs. ITO21(3)(2), Mumbai (ITA No. 1343/Mum/2017,\n            dated 31.03.2017(iii) Marvwanjee Cama Park Cooperative Housing\n           Society Ltd. Vs. ITORange-20(2)(2), Mumbai (ITA\n           No. 6139/Mum/2014, dated 27.09.2017.We further find that the Hon'ble High Court of Karnataka in\nthe case ofPr. Commissioner of Income Tax and Anr. Vs.\nTotagars Cooperative Sale Society(2017) 392 ITR 74 (Karn)\nand Hon‟ble High Court of Gujarat in the case ofState Bank\nOf India Vs. CIT(2016) 389 ITR 578 (Guj), had also held that\nthe interest income earned by the assessee on its\ninvestments held with a co-operative bank would be eligible\nfor claim of deduction underSec. 80P(2)(d)of the Act. Still\nfurther, we find that the CBDT Circular No. 14, dated\n28.12.2006, as had been relied upon by the ld. A.R, also\nmakes it clear beyond any scope of doubt, that the purpose\nbehind enactment of sub-section (4) ofSec. 80Pwas to\nprovide that the cooperative banks which are functioning at\npar with other banks would no more be entitled for claim of\ndeduction underSec. 80P(4)of the Act.We are of the\nconsidered view that the reliance placed by the CIT(A) on the\njudgment of the Hon‟ble Supreme Court in the case ofTotgars Cooperative Sale Society Ltd. vs. ITO(2010) 322 ITR9ITA. No. 1011/Mum/2021A.Y. 2016-17\n\n283(S.C.) being distinguishable on facts, thus, had wrongly\nbeen relied upon by him. The adjudication by the Hon‟ble\nApex Court in the aforesaid case was in context ofSec.\n80P(2)(a)(i), and not on the entitlement of a co-operative\nsociety towards deduction underSec. 80P(2)(d)on the\ninterest income on the investments parked with a co-\noperative bank.We further find that the reliance place by\nthe ld. D.R on the order of the ITAT "F" bench, Mumbai in\nthe case of M/sVaibhav Cooperative Credit Society Vs. ITO-15(3)(4) (ITA No. 5819/Mum/2014, dated 17.03.2017 is also\ndistinguishable on facts. We find that the said order was\npassed by the Tribunal in context of adjudication of the\nentitlement of the assessee co-operative bank towards claim\nof deduction underSec.80P(2)(a)(i)of the Act. We find that it\nwas in the backdrop of the aforesaid facts that the Tribunal\nafter carrying out a conjoint reading of Sec, 80P(2)(a)(i) r.w.Sec. 80P(4)had adjudicated the issue before them.We are\nafraid that the reliance placed by the ld. D.R on the aforesaid\norder of the Tribunal being distinguishable on facts, thus,\nwould be of no assistance for adjudication of the issue before\nus. Still further, the reliance placed by the Ld. D.R on the\norder of the ITAT „SMC‟ Bench, Mumbai in the case of Shri\nSai Datta Co-operative Credit Society Ltd. Vs. ITO (ITA No.\n2379/Mum/2015, dated 15.01.2016, would also not be of any\nassistance, for the reason that in the said matter the\nTribunal had set aside the issue to the file of the assessing\nofficer for fresh examination, That as regards the reliance\nplaced by the ld. D.R on the judgment of the Hon'ble High\nCourt of Karnataka in the case ofPr. CIT Vs. Totagarsco-\noperative Sale Society (2017) 395 ITR 611 (Karn), the High\nCourt had concluded that a co-operative society would not\nbe entitled to claim of deduction underSection 80P(2)(d).We however find that as held by the Hon'ble High Court of\nBombay in the case ofK. Subramanian and Anr. Vs. Siemens\nIndia Ltd. and Anr(1985) 156 ITR 11 (Bom), where there is a\nconflict between the decisions of non-jurisdictional High\nCourt‟s, then a view which is in favour of the assessee is to\nbe preferred as against that taken against him.Thus, taking\nsupport from the aforesaid judicial pronouncement of the\nHon‟ble High Court of jurisdiction, we respectfully follow the10ITA. No. 1011/Mum/2021A.Y. 2016-17\n\n           view taken by the Hon'ble High Court of Karnataka in the\n           case ofPr. Commissioner of Income Tax and Anr. Vs.\n           Totagars Cooperative Sale Society(2017) 392 ITR 74 (Karn)\n           and Hon‟ble High Court of Gujarat in the case ofState Bank\n           Of India Vs. CIT(2016) 389 ITR 578 (Guj), wherein it was\n           observed that the interest income earned by a co-operative\n           society on its investments held with a co operative bank\n           would be eligible for claim of deduction underSec.80P(2)(d)of the Act.9.   We thus in the backdrop of our aforesaid observations are\n           unable to persuade ourselves to be in agreement with the\n           view taken by the lower authorities that the assessee would\n           not be entitled for claim of deduction underSec. 80P(2)(d),\n           in respect of the interest income on the investments made\n           with the co-operative bank. We thus set aside the order of\n           the lower authorities and conclude that the interest income\n           of Rs.27 48, 553/- earned        by the assessee on the\n           investments held with the co-operative bank would be\n           entitled for claim of deduction under Sec. 80P(2)(d)."\n           (Emphasis supplied)12.    In view of the above, it is clear that the assessment order passed\n       by the AO was neither erroneous nor prejudicial to the interest of\n       revenue. Assuming arguendo even if the contention of PCIT is\n       accepted, the view taken by the AO regarding allowability of\n       deduction underSection 80P(2)(d)of the Act in respect of\n       interest received by the Appellant from a cooperative bank\n       would still qualify as a plausible view and thereby taking away\n       the jurisdiction of PCIT to invoke powers of revision underSection 263of the Act. It is settled legal position that in case the\n       view taken by the AO is a plausible view, PCIT cannot be\n       permitted to substitute his opinion in place of the AO to arrive to\n       a contrary finding. Thus, we allow Ground No.1 and hold that in\n       the facts and circumstances of the present case the PCIT lacked\n       the jurisdiction to exercise powers underSection 263of the Act.\n       Accordingly, the order, dated 26.03.2021, passed by the PCIT11ITA. No. 1011/Mum/2021A.Y. 2016-17\n\n       underSection 263of the Act is set aside and the assessment\n       order, dated 29.11.2018, passed underSection 143(3)of the Act\n       is reinstated.13.    Since we have decided Ground No.1 in favour of the Appellant\n       and set aside the impugned order, the need to adjudicate\n       Ground No.2 and 3 does not arise. Having said that we like to\n       observe that the power underSection 263have been exercised\n       seemingly in undue haste in violation of principles of natural\n       justice. The Appellant had challenged the additions made by the\n       AO before the Commissioner of Income Tax (Appeals), however,\n       during the pendency of the aforesaid appeal, the Appellant\n       opted for Direct Tax Vivad Se Vishwas Scheme. The application\n       filed by the appellant under the said scheme was approved and\n       Form No. 4 was filed on 02.03.2021. On 18.03.2021 the PCIT\n       issued notice underSection 263requiring the Appellant to\n       submit the response on or before 22.03.2021 through e-mail / e-\n       filing portal, and on 26.03.2021 the PCIT passed order underSection 263of the Act, noting that no reply has been filed by in\n       response to notice issued, without giving any further notice or\n       hearing to the Appellant. In our considered view this resulted in\n       the violation of principles of natural justice and unwarranted\n       multiplicity of proceedings at the peril of the appellant herein.14.    For the reasons stated hereinabove, the present appeal by the\n       assessee is allowed.Order pronounced on 29.03.2022.Sd/-                                             Sd/-\n          (Shamim Yahya)                                (Rahul Chaudhary)\n         Accountant Member                                Judicial Member\n\n\nमुं बई Mumbai; ददनां क Dated :   29/03/2022\nAlindra, PS12ITA. No. 1011/Mum/2021A.Y. 2016-17आदे श की प्रनिनिनि अग्रे नर्ि/Copy of the Order forwarded to :1.   अपीलाथी / The Appellant2.   प्रत्यथी / The Respondent.3.   आयकर आयुक्त(अपील) / The CIT(A)-4.   आयकर आयुक्त / CIT5.   दवभागीय प्रदतदनदध, आयकर अपीलीय अदधकरण, मुं बई / DR, ITAT,\n     Mumbai6.   गार्ड फाईल / Guard file.आदे शधिु सधर/ BY ORDER,\n\nसत्यादपत प्रदत //True Copy//\n\n                                   उि/सहधयक िं जीकधर /(Dy./Asstt. Registrar)\n                                  आयकर अिीिीय अनर्करण, मुं बई / ITAT, Mumbai13