PCIT cannot Revise 80P Deduction on Bank Interest if AO Assessment not Erroneous or Prejudicial to Revenue: ITAT [Read Order]
ITAT held Deduction on Bank Interest Allowed by AO Cannot be Revised by PCIT When Assessment Order is Neither Erroneous Nor Prejudicial to Revenue
The Income Tax Appellate Tribunal, BangaloreBench, held that the Principal Commissioner of Income Tax (PCIT) cannot revise the deduction under Section 80P of the Income Tax Act, 1961 in respect of interest income earned from co-operative banks or commercial banks where the Assessing Officer (AO) had passed the assessment order after proper enquiry and the order was neither erroneous nor prejudicial to the interest of the revenue.
The appellant, Adarsh Souharda Sahakari Niyamit, is a cooperative society registered under the Karnataka Souharda Sahakari Act, 1997 and is engaged in providing credit facilities to its members. The appellant filed its return and declared Nil income after claiming deduction under section 80P(2)(a)(i) of the Income Tax Act amounting to ₹32,69,917.
The AO completed the assessment proceedings under section 143(3) r.w.s 144B of the Income Tax Act with proper examination of the details, and considering the documentary evidence and explanation furnished by the appellant.
The Principal Commissioner of Income Tax (PCIT), the respondent, observed that the appellant earned interest income amounting to ₹65,88,141 from Co-operative Banks and Commercial Banks. According to the respondent, interest income did not constitute business income and to be taxed under the head “Income from other Sources” under section 56 of the Act.
Prakesh Hedge, representing the appellant, contended that the order passed by the respondent was illegal and without jurisdiction as the assessment order passed by the AO was neither erroneous in fact nor in law and was not prejudicial to the interest of revenue to the income tax administration as a whole.
The appellant counsel also contended that the respondent has no power to substitute the judgement of the AO especially when the AO has taken one of the plausible views.
Shivanand H Kalakeri, represented the respondent, submitted that the Order of the AO was erroneous and prejudicial to the interest of revenue as the interest income earned from Co-operative/Commercial banks should have been taxed as Income from ‘Other Sources’ under the provisions of section 56 of the Act.
Keshav Dubey, Judicial Member and Waseem Ahmed, Accountant Member, observed that the Supreme Court of India in the case of Commissioner of Income-tax (Central) , Ludhiana v. Max India Ltd (2007), held that where two views are possible and the Income tax officer has taken one view which was not agreed by the commissioner cannot be treated as erroneous order or prejudicial to the interest of the revenue, unless the view taken by the Income-tax Officer is unsustainable in law.
Accordingly, it was held by the tribunal that the assessment order passed by the AO is neither erroneous nor prejudicial to the interest of the revenue and annulled the order passed by the respondent under section 263 of the Act.
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