KESHORAIPATAN SAHKARI SUGAR MILLS LTD. vs. PRINCIPAL COMMISSIONER OF INCOME TAX

Case snapshot

Sections / provisions: 263

Questions before the Court / Tribunal

• Section 263: plausible view and adequacy of enquiry into deduction claims by a sugar mill/co-operative enterprise.
• What factual, statutory and procedural conditions control the relief?
• How does the operative order apply to the parties and the challenged proceeding?

Material facts and procedural background

Revision—Erroneous and prejudicial order—Lack of proper enquiry—AO allowed deduction under s. 80P(2)(d) on the interest income received by the assessee from co-operative bank—He has examined the issue which is evident from the finding recorded in the assessment order—AO has taken a plausible view—There is no lack of enquiry on the part of the AO and he has applied his mind and allowed the claim to the assessee—Principal CIT did not place on record any apparent error on the part of the AO to substantiate that the order passed by the AO is prejudicial to the interest of Revenue—She has not pinpointed any enquiry which was required to be made but not made by the AO—When the AO has conducted the required enquiry, the order passed by the AO could not be said to be erroneous and prejudicial to the interests of the Revenue—So long as the action of the AO cannot be said to be lacking bona fides, his action in accepting the explanation of the assessee cannot be faulted merely because it could have been lawful to make more detailed inquiries or because he did not write specific reasons for accepting the explanation—Non-mentioning of these reasons did not render the assessment order…

There is a specific finding and reference of the deduction claimed by the assessee in the assessment order. Thus, the AO has taken a plausible view which is based on decision relied upon by the Authorised Representative of the assessee and there is no lack of enquiry on the part of the AO and he has applied his mind and allowed the claim to the assessee. He has examined the issue which is evident from the finding recorded in the assessment order. As the case was for this limited purpose, the same has been examined and verified by the AO as it emerges from the findings of the AO. The Principal CIT did not place on record any apparent error on the part of the AO to substantiate that the order passed by the learned AO is prejudicial to the interest of Revenue. She only mentioned that the AO allowed deduction under s. 80P(2)(d) on the interest income received by the assessee from co- operative bank and thus, AO erred in allowing the deduction under s. 80P(2)(d) on such interest income. She has not pinpointed any enquiry which was required to be made but not made by the AO. There is no defect found from the enquiry that has been conducted by the AO. He collected the information based…

explanation of the assessee cannot be faulted merely because it could have been lawful to make more detailed inquiries or because he did not write specific reasons for accepting the explanation. Merely because the AO did not write specific reasons for accepting the explanation of the assessee, same cannot be reason enough to invoke powers under s. 263, and non-mentioning of these reasons did not render the assessment order "erroneous and prejudicial to the interest of the Revenue.—Mrs. Khatiza S. Oomerbhoy vs. ITO (2006) 101 TTJ (Mumbai) 1095 followed

AO having allowed deduction under s. 80P(2)(d) in respect of interest income received by the assessee from a co- operative bank after examining the issue and applying his mind which is evident from the finding recorded in the assessment order, and the Principal CIT having not pointed out any enquiry which was required to be made but not made by the AO, the order passed by the AO could not be said to be erroneous and prejudicial to the interests of the Revenue; merely because the AO did not write specific reasons for accepting the explanation of the assessee, same cannot be reason enough to invoke powers under s. 263; impugned revision order is vacated.

Mahendra Gargieya & Devang Gargieya, for the Assessee : James Kurian, for the Revenue

Appellant / assessee submissions

11. The learned counsel has relied on the case of The Totgars Co-operative Sale Society Ltd. vs. ITO (supra). However, the said case dealt with the interpretation, and the deduction, which would be applicable under s. 80P(2)(a)(i) of the IT Act. For, in the present case the interpretation that is required is of s. 80P(2)(d) of the IT Act and not s. 80P(2)(a)(i) of the IT Act. Therefore, the said judgment is inapplicable to the present case. Thus, neither of the two substantial questions of law canvassed by the learned counsel for the Revenue even arise in the present case."

Relying on the above written submission and paper book so filed by the learned Authorised Representative of the assessee, he has submitted that the case of the assessee was selected for limited scrutiny. The learned AO on the very issue as raised by the learned Principal CIT has already taken a plausible view and the same is clearly portrayed in the assessment order. The relevant finding of the learned AO is reiterated herein below :

Based on the above arguments the learned Authorised Representative of the assessee submitted that the learned AO has already based on the submission of the assessee has taken a view which is plausible view the same is not subjected to proceeding under s. 263 and he has strongly opposed the action under s. 263 of the Act. The learned Authorised Representative of the assessee also serviced the decision of Tribunal in assessee's own case for asst. yr. 2013-14 wherein the deduction of 80(P)(2)(d) is considered as allowable. The learned Authorised Representative of the assessee further submitted that the section of the case was under CASS for verify specific issue of deduction under chapter VIA wherein the learned AO has called for the details, applied his mind and given categorical finding in the assessment order the order cannot be considered as subject to revision under s. 263 of the Act. To drive home to this contention the learned Authorised Representative of the assessee relied upon the various judgments as submitted in the written submission. Relying on that judicial precedent the learned Authorised Representative of the assessee submitted that the view taken by the learned AO…

Based on the above recent development in the law and decision of the various High Courts the learned Departmental Representative submitted that the order of the learned AO is subject-matter of revision under s. 263 of the Act and has thus, justified the order of the learned Principal CIT.

Revenue / respondent submissions

11. The learned counsel has relied on the case of The Totgars Co-operative Sale Society Ltd. vs. ITO (supra). However, the said case dealt with the interpretation, and the deduction, which would be applicable under s. 80P(2)(a)(i) of the IT Act. For, in the present case the interpretation that is required is of s. 80P(2)(d) of the IT Act and not s. 80P(2)(a)(i) of the IT Act. Therefore, the said judgment is inapplicable to the present case. Thus, neither of the two substantial questions of law canvassed by the learned counsel for the Revenue even arise in the present case."

7. Per contra, the learned Departmental Representative is heard who has relied on the findings of the Principal CIT and has submitted the compilation of case law vide his submission dt. 20th July, 2022 the same is reiterated here in below :

Based on the above recent development in the law and decision of the various High Courts the learned Departmental Representative submitted that the order of the learned AO is subject-matter of revision under s. 263 of the Act and has thus, justified the order of the learned Principal CIT.

Court / Tribunal analysis and reasoning

With regard to the reliance on the Hon'ble Karnataka High Court judgement in the case of Principal CIT vs. Totagars Co-operative Sale Society (2017) 392 ITR 74 (Kar), it is pertinent to mention here that the relied upon judgment has been reviewed by the Hon'ble Karnataka High Court in the very same case in Appeal No. 100066 of 2016 decided on 16th June, 2017 and its earlier finding on the issue has been reversed. In its subsequent judgment the High Court held that "the character or nature of income, namely interest on investments or deposits, did not change irrespective of the fact whether it was earned or received from a schedule bank or co-operative bank. Further, the amendment of s. 194A(3)(v) excluding the co-operative banks from the definition of co-operative Society by Finance Act, 2015 and requiring them to deduct income-tax at source under s. 194A also made the legislative intent clear that the co-operative banks were not that specie of genus co-operative society, which would be entitled to exemption or deduction under the special provisions of Chapter VIA in the form of s. 80P. The person or body corporate from which such interest income was received would not change its…

"As regards the claim under s. 80P(2)(d), we find that the only condition for availing the deduction under this provision is any income by way of interest or dividend derived by the co-operative society from its investment with any other co-operative society, the whole of such income is allowable for deduction under s. 80P(1). Therefore, there is no condition for the assessee society to engaged in the activity of provide credits to the members or banking business for availing the deduction under s. 80P(2)(d) r/w s. 80P (1) of the Act. As regards the co- operative bank shall be treated as co-operative societies for the purpose of the interest income on investment in such co-operative bank under s. 80P(2)(d) the Mumbai Bench of this Tribunal in case of Lands' End Co-operative Housing Society Ltd. vs. ITO (supra), after considering the decision of the Hon'ble Supreme Court in case of Totagar's Co-operative Sale Society Ltd. vs. ITO (supra) has considered and decided this issue in para 8.3 as under :

8. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of applicable legal position and decisions relied upon. We find that the assessment was taken up for scrutiny under CASS to examine the deduction claimed under Chapter VI-A for limited purpose and on this issue, there is finding of the learned AO in the assessment order. Yet, learned Principal CIT has subjected the assessment order to revision proceedings on the short ground that the AO passed the assessment order is erroneous insofar as it is prejudicial to the interest of Revenue for the purpose of s. 263 of the Act and liable to revision under the Expln. 2 cl. (b) and cl. (a) of s. 263 of the Act as the learned AO allowed the deduction under s. 80P(2)(d) of the Act which is

not allowable to the assessee considering the facts placed on record. Thus, the main question centers on whether action of the AO in allowing the claim of the assessee under s. 80P(2)(d) is found faulted with, whether the assessee ought to have produced the appropriate evidence and whether non-recording of the reasons for accepting explanation will render the order erroneous and prejudicial to the interest of the Revenue. In fact, there is a specific finding and reference of the deduction claimed by the assessee founded place in the assessment order. Thus, we are of the considered view that he learned AO has taken a plausible view which is based on decision relied upon by the learned Authorised Representative of the assessee is one of the plausible views and we see that there is no lack of enquiry on the part of learned AO and we find that he has applied his mind and allowed the claim to the assessee.

10. Be that as it may, in our considered view, as the AO while framing the assessment had taken a plausible view of the matter of while allowing the claim of the assessee, and revenue did not demonstrate the error remain on the part of the learned AO. In fact, when the learned AO has conducted the required enquiry and not violated any of the conditions mentioned for revision of order as required by Expln. 2 of s. 263 of the Act, the order passed by the AO could not be deemed to be erroneous to be prejudicial to the interests of the Revenue. At this stage therefore, it is relevant to extract the Expln. 2 of s. 263 which the learned Departmental Representative has heavily relied upon :

Operative decision and relief

The order of the AO is, accordingly, set aside on the issues as discussed above. Hence, this appeal.

2.3 Selection of the case under CASS : Moreover, the very fact of selection of the case under CASS on the ground of deduction claimed under s. 80P(2)(d) followed by the issuance of the notices under ss. 143(2) and 142(1) along with questionnaire to the assessee. The AO raised very specific and relevant queries/called for explanation and evidences asking various details w.r.t., to produce cash book, bank book, etc., goes to fully establish that the AO was fully alive to the issue in hand from all angles, whether it is factual or legal aspect involved. In the response of the notices, the assessee filed complete documents w.r.t. queries raised along with production of cash book, bank and account books, etc. which was required by the AO time to time through the Authorised Representative, and the same were duly verified and examined by the AO. Despite there being complete application of mind by the AO on the issues involved the learned Principal CIT had wrongly set aside the assessment order dt. 25th Nov., 2019. Therefore, it was nothing but a case of change of opinion and suspicion, hence, assumption of jurisdiction under s. 263 is not permissible.

It is viewed that a co-operative bank falls within the realm of the definition of Co-operative Society' as contemplated in s. 2(19), therefore, the view taken by the lower authorities that dividend income received by the assessee from a Co-operative Bank, would not eligible for deduction under s. 80P(2)(d) cannot be sustained. Thus, the view taken by the lower authorities is not agreeable and the disallowance of the assessee's claim for deduction under s. 80P(2)(d) is vacated. Thus, this ground of appeal is allowed in terms of the aforesaid observations. (Para 22)

In the result, appeal of the assessee is allowed.

Ratio and legal principle

• The packaged judgment addresses Section 263: plausible view and adequacy of enquiry into deduction claims by a sugar mill/co-operative enterprise. The precise proposition must be read with the Court/Tribunal's reasoning and operative directions.
• Reliance depends on matching the statutory version, jurisdiction, procedural stage and material evidence recorded in the judgment.

Why this judgment matters

This decision is relevant to practitioners and affected parties dealing with section 263: plausible view and adequacy of enquiry into deduction claims by a sugar mill/co-operative enterprise. Its value lies in showing how the adjudicating forum connected the applicable rule to the proved facts and procedural posture.

Practitioner action points

• Match the statutory version, jurisdiction, procedural stage and decisive evidence before relying on the result.
• Verify current appellate, review and SLP history and any later amendment or controlling authority.
• Attach the complete judgment to the working paper or filing and cite the paragraph/page supporting the proposition.

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Section / provision impact

• 263 - apply the exact version considered in the judgment.

Case network

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Different outcome / possible distinction

• Shakti Singh Gulia vs ITO - Partly allowed
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