As assessee is co-operative sty. & nt co-op. bank, exempt. in tax not allowed,HC

Facts in Brief:

1. The assessee is a credit co-operative society engaged in providing credit facilities to its members.

2. It has filed returns of the income for the assessment year 2007-08 claiming deduction under section 80P(2)(a)(i) (of Income Tax Act, 1961) amounting to Rs. 2,04,03,878 (rupees two crores four lakhs three thousand eight hundred and seventy-eight only).

3. The Assessing Officer has passed assessment under section 143(3) (of Income Tax Act, 1961) on December 29, 2009, disallowing to the tune of Rs. 1,66,47,180 in respect of interest received from Gem Sugars Ltd., Bilagi Sugars Ltd. and Nirani Cements Ltd.

4. However, the Assessing Officer allowed deduction under section 80P(2)(a)(i) (of Income Tax Act, 1961) to the extent of Rs. 1,93,73,000.

5. The Commissioner of Income-tax invoking his power under section 263 (of Income Tax Act, 1961) issued notice to the assessee calling upon him to show-cause as to why the order of assessment should not be set aside in view of section 80P(4) (of Income Tax Act, 1961).

6. After service of notice, the assessee entered appearance and brought to the notice of the authority that the assessee is not a co-operative bank and, therefore, section 80P(4) (of Income Tax Act, 1961) has no application to the case of the assessee.

7. However, the revisional authority was of the view that the assessing authority has not considered the application of section 80P(4) (of Income Tax Act, 1961) which was inserted with effect from April 1, 2007, and, therefore, he set aside the order of assessment and remanded the matter back to the assessing authority to consider the applicability of the aforesaid provision.

8. On appeal, Tribunal held that as the assessee is not a co-operative bank, section 80P(4) (of Income Tax Act, 1961) has no application. Moreover, the power under section 263 (of Income Tax Act, 1961) could be invoked by the revisional authority only if the order is erroneous and thereby is prejudicial to the interests of the Revenue. In the instant case, as the assessee is not a co-operative bank, i.e., there is no error committed by the assessing authority much less the said order was prejudicial to the interests of the Revenue and, therefore, the order passed by the revisional authority was set aside.

On appeal, HC held as under:

9. In the instant case, when the status of the assessee is a co-operative society and is not a co-operative bank, the order passed by the assessing authority extending the benefit of exemption from payment of tax under section 80P(2)(a)(i) (of Income Tax Act, 1961) is correct. There is no error. When there is no error, the question of order being prejudicial would not arise. The Tribunal has rightly entertained the appeal and set aside the order. Therefore, the said order is in accordance with law and cannot be found fault with. The substantial question of law is answered in favour of the assessee and against the Revenue.

RELVEANT PARAS OF JUDGMENT ARE AS UNDER:

10. CIT v. Digital Global Soft Ltd. [2013] 354 ITR 489/[2011] 203 Taxman 98/15 taxmann.com 78 (Kar.) where paragraph 18, it has held as under (page 500) :

"As is clear from the wording in section 263 (of Income Tax Act, 1961), the Commissioner gets the jurisdiction to revise any proceedings under this Act if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. Therefore, it is clear that he cannot exercise the power of revision solely on the ground that the order passed is erroneous. He gets jurisdiction only if such erroneous order is prejudicial to the interests of the Revenue. 'Prejudicial to the Revenue' means, lawful revenue due to the State has not been realized or cannot be realised. In other words, by the order of the assessing authority if the lawful revenue to the State has not been realised or cannot be realised, as the said order is prejudicial to the interests of the Revenue and also erroneous, he gets jurisdiction to interfere with the said order under section 263 (of Income Tax Act, 1961). Therefore, for attracting section 263 (of Income Tax Act, 1961), the condition precedent is (a) the order of the Assessing Officer sought to be revised is erroneous, and (b) it is prejudicial to the interests of the Revenue. If one of them is absent, i.e., if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue, recourse cannot be had to section 263(1) (of Income Tax Act, 1961). The satisfaction of both the conditions stipulated in the section is the sine qua non for the Commissioner to exercise his jurisdiction under section 263 (of Income Tax Act, 1961)."

Case Reference-Commissioner of Income-tax v. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha Bagalkot

HIGH COURT OF KARNATAKA