Gujarat High Court
The Principal Commissioner Of Income ... vs M/S. Ambika Co-Operative Credit ... on 21 April, 2025
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/TAXAP/171/2024 ORDER DATED: 21/04/2025
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 171 of 2024
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THE PRINCIPAL COMMISSIONER OF INCOME TAX 3
Versus
M/S. AMBIKA CO-OPERATIVE CREDIT SOCIETY LTD.
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Appearance:
MS MAITHILI D MEHTA(3206) for the Appellant(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR.JUSTICE D.N.RAY
Date : 21/04/2025
ORAL ORDER
(PER : HONOURABLE MR.JUSTICE D.N.RAY)
1. Heard learned Senior Standing Counsel Ms. Maithili D.
Mehta for the appellant.
2. The present Tax Appeal is filed under Section 260A of
the Income Tax Act, 1961 (for short 'the Act'), by the
Appellant, arising from the order dated 08.09.2023 passed
by the Income Tax Appellate Tribunal, (for short, "the
ITAT"), "A" Bench, Ahmedabad, in ITA No.350/Ahd/2023
for the Assessment Year 2018-19, proposing the following
substantial question of law:
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(A) "Whether on the facts and in the circumstances of
the case and in law, the ITAT erred in deleting
disallowance u/s 80P(2)(d) of the IT Act on account of
the interest of Rs. 16,84,431/- earned?"
3. The brief facts of the case are as follows:
3.1. The Assessee is a Co-operative Society engaged in
the business of providing credit facilities, by way of loans
and advances to its members. For the Assessment Year
(AY) 2018-19, the Assessee filed its return of income on
06.10.2018, declaring a total income of ₹NIL after claiming
deductions under Section 80P of the Income-tax Act, 1961
(hereinafter referred to as "the Act"). The return was
selected for scrutiny under the E-assessment Scheme,
2019, and an assessment order under Section 143(3) of the
Act was passed on 06.08.2020, accepting the returned
income as filed.
3.2. Upon examination of the assessment record under
Section 263 of the Act, the learned Principal Commissioner
of Income Tax (for short 'PCIT'), Ahmedabad-3, observed
that the Assessee had disclosed a gross total income of
₹35,49,682/-, on which deduction to the same extent was
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claimed under Section 80P. The return of income revealed
that the Assessee had earned interest income amounting to
₹16,84,431/- from Fixed Deposits placed with Mehsana
District Central Co-operative Bank Ltd., Mehsana, and
Mehsana Urban Co-operative Bank Ltd., Vijapur. This
amount was claimed as deductible under Section 80P(2)(d)
of the Act.
3.3. The case of the Revenue is that the aforesaid
interest income does not qualify for deduction under
Section 80P(2)(d) of the Act, in light of the express
language of the provision and judicial interpretation
rendered by this Court. It is contended that the Assessing
Officer, while framing the assessment under Section 143(3)
of the Act, failed to make any inquiry or verification
regarding the eligibility of the said deduction, thereby
rendering the assessment order erroneous in law.
3.4. The PCIT exercised the jurisdiction under Section
263 of the Act, vide order dated 16.03.2023 and held that
the assessment order dated 06.08.2020 had been passed
without requisite inquiry, thereby being erroneous in so far
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as it was prejudicial to the interests of the Revenue. The
PCIT, accordingly, set aside the said assessment order and
directed the Assessing Officer to frame a fresh assessment
after treating the Fixed Deposit interest income of
₹16,84,431/- as "Income from Other Sources" under the
head specified in Section 56 of the Act, and to disallow the
corresponding deduction claimed under Section 80P(2)(d)
of the Act.
3.5. Aggrieved by the order passed under Section 263
of the Act, the Assessee preferred an appeal before the
Income Tax Appellate Tribunal (ITAT). Vide order dated
08.09.2023, the ITAT allowed the appeal and set aside the
order passed by PCIT.
4. Ms. Maithili D. Mehta, learned Senior Standing Counsel
appearing on behalf of the appellant submitted that the
order of the Principal Commissioner of Income Tax
exercising powers under Section 263 of the Act is correct
in law and facts, inasmuch as, it is evident that the
Assessing Officer was very much aware about the appraisal
report indicting the assessee and yet, the material revealed
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in the appraisal report were not considered by the
Assessing Officer while finalizing the assessments, nor
were the Assessees confronted and given opportunity to
rebut the findings of the appraisal report. Therefore, this
amounted to non-application of mind which is a valid
ground for interference under Section 263 of the Act.
Discussion and findings:
5. On perusal of the records before us, we find that the
Tribunal has held as under:
"8. We have considered the rival submission and
perused materials available on record and various case
laws relied by the Ld. A.R. 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 proceeding 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 furnished
required details and after examining the issue allowed
the deductions under section 80P(2)(d) as discussed in
Page 2 of the assessment order dated 08-02-2021, thus
the question no inquiry by the A.O. does not arise.
8.1. 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 20-2-2023. The assessee in its reply dated
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27-02-2023 & 15-03-2023 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 of appeal filed by the Revenue before Tribunal in
ITA Nos. 1891/Ahd/2014 & 2987/Ahd/2015 relating to
the Assessment Years 2011-12 and 2012-13 and the
assessee was allowed similar deductions.
9. Further the Hon'ble Jurisdictional High Court in Aryos
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 is further held that when Assessing Officer
made full enquiry, he made up his mind, which is one of
the plausible view and therefore the revision is not valid.
Further, Hon'ble Madras High Court in CT 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.
9.1 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.
10. Moreover, we have seen that in assessee's own case
for A.Ys. 2011-12 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 the Co-ordinate
Benches of this Tribunal in ITA No. 1891/Ahd/2014
(cited supra) held as follows:
"......15. We now advert to the lead issue of Section
80(P)(2) disallowance of Rs.27,97,019/- in respect
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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 28.12.2006 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 former
decision goes contrary to hon'ble jurisdictional
high court's judgment in Tax Appeal No.473 of
2024 CIT vs. Sabarkantha District Cooperative
Milk Porducers 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.1,42,19,515/- 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
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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."
10.1. The Hon'ble Karnataka High Court in Totagars
Cooperative Sales Society (supra) held that for the
purpose of section 80(P)(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 80(P)(2)(d)
in respect of gross interest received from co-operative
bank without adjusting interest paid to said bank
10.2. Further the Co-ordinate Bench of Rajkot Tribunal
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in Surendranagar District Co-operative Milk Producer
Union Ltd. v. Dy. CIT [2019] 111 taxmann.com 69/179
ITD 690 (Rajkot Tribunal) also held the assessee co-
operative society could not claim benefit under section
80(P)(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 the assessment order is erroneous and so
far as prejudicial to the interest of revenue, as
prescribed under section 263 is not fulfilled in the
present case.
10.3. The Hon'ble Gujarat High Court in the case of CIT
vs. Sabarmantha District Co-Op. Milk Producers Union
Ltd. in Tax Appeal No. 473 of 2014 held as follows:
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.1,42,19,515/-
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,
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proposed question B is also answered against the
revenue.
11. Respectfully following the above judicial precedents,
in our considered view, the Ld. PCIT erred in holding
that the order passed by A.O. as erroneous and
prejudicial to the interest of the Revenue on account of
allowability of interest earned by the assessee from
cooperative banks, coupled with the fact when the Ld.
Assessing Officer had made due enquiries on this issue,
during the course of original assessment proceedings.
12. In the result, the appeal filed by the Assessee is
hereby allowed."
13. In this appeal, Ld. PCIT by the Revision order u/s.
263 denied the benefit of deduction u/s. 80P(2)(d) of Rs.
16,84,431/- being received from Cooperative Banks.
Since the issue herein also identical with the decision
rendered in ITA No. 322/Ahd/2023 applying the same
ratio, this appeal filed by the Assessee is hereby
allowed."
6. We find that the aforesaid findings of the Tribunal are
correct and appropriate in the facts of the case. This Court in
its decision in the matter of Principal Commissioner of
Income Tax vs. Ashwinkumar Urban Co-operative
Society Limited reported in 2024:GUJ:HC:60601-DB has
referred to the decision of the Apex in case of Mavilayi
Service Co-operative Bank Ltd vs. CIT, Ahmedabad
reported in (2021) 431 ITE1(SC) to eventually hold as
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under:
"33. In view of the above dictum of law as well as the
provisions of the Act which are considered we are of the
opinion that the provisions of section 80P(2)(d) would be
applicable in the facts of the case and the PCIT was not
justified in invoking revisional powers under section 263
of the Act which is rightly reversed by the Tribunal
holding that the cooperative bank is a cooperative
society registered under the Gujarat State Cooperative
Societies Act and in view of the various decisions of the
Court, the Tribunal after following the same has come to
the conclusion that the assessment was not erroneous
allowing deduction of section 80P(2)(d) of the Act which
is in consonance with the various decisions of the Court
as a twin condition invoking section 263 as to the
assessment being erroneous and prejudicial to the
interest of the revenue are not being fulfilled."
7. In view of the aforesaid position of law, no question of
law much less any substantial question of law arises for
determination of this Court under Section 260A of the Act.
Accordingly, the present appeal is dismissed. No order as to
costs.
(BHARGAV D. KARIA, J)
(D.N.RAY,J)
ILA
