IN THE INCOME TAX APPELLATE TRIBUNAL “A’’BENCH: BANGALORE BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI KESHAV DUBEY, JUDICIAL MEMBER ITA No.1165/Bang/2025 Assessment Year : 2020-21 Assessment Year : 2020-21 Assessment Year : 2020-21 Assessment Year : 2020-21 Assessment Year : 2020-21 Assessment Year : 2020-21 Assessment Year : 2020-21 Assessment Year : 2020-21 Appellant by : Sri Prakash Hegde, A.R.

Respondent by : Sri Shivanand H Kalakeri, D.R.

Date of Hearing : 04.11.2025 Date of Pronouncement : 27.01.2026

O R D E R

PER KESHAV DUBEY, JUDICIAL MEMBER:

This appeal at the instance of the assessee is directed against the order of the ld. PCIT, Hubli dated 23.03.2025 vide DIN & Order No. ITBA/REV/F/REV5/2024-25/1074892874(1) passed u/s 263 of the Income Tax Act, 1961 (in short “The Act”) for the Assessment Year 2020-21.

2. The assessee has raised the following grounds of appeal:

3. The brief facts of the case are that the assessee is a co- operative society registered under the Karnataka Co-operative Society Act, 1959 and it was converted to a Souharda Co-operative under the Karnataka Souharda Sahakari Act,1997 & accordingly now governed by the Karnataka Souharda Sahakari Act,1997. The main objectives of the assessee society are providing credit facilities to the members of the society. The assessee society filed its return of income for the AY 2020-21 on 25/12/2020 declaring total income of Rs.NIL after claiming deduction u/s 80P(2)(a)(i) of the Act amounting to Rs. 32,69,917/-. The case of the assessee society was thereafter selected for scrutiny under CASS to examine the following issues:-

i) High creditors/liabilities.

ii) Investment/Advances/Loans.

iii) Deduction from total income under Chapter VI-A

3.1 Accordingly, the notice u/s 143(2) of the Act as well as notice u/s 142(1) of the Act along with the detailed annexure having questionnaire was issued to the assessee. In response to statutory notice dated 29/06/2021 issued u/s 143(2) of the Act, the assessee did not submit any reply, however in response to notices dated 16/11/2021 & 17/02/20222 issued u/s 142(1) of the Act along with the detailed annexure, the assessee filed the written submissions with relevant details as called for on 22/02/2022 & 03/03/2022. The AO after proper examination of the details along with the documentary evidence/written submission/explanation etc. submitted by the assessee, completed the assessment proceedings u/s. 143(3) r.w.s 144B of the Act by holding that no adverse inference is required to be drawn as the issues were explained by the assessee and the submission is found in order regarding the issue for which case had been selected for assessment proceedings and accordingly accepted the returned income as such for the assessment year under consideration.

3.2 The ld. Principal Commissioner upon calling for the assessment records and on examination of the same, observed that the order passed u/s. 143(3) r.w.s. 144B of the Act on 05/09/2022 was erroneous in so far as it is prejudicial to the interest of revenue on the issue of interest income earned from various banks and co- operative banks allowed as deduction u/s 80P of the Act. The ld. Principal Commissioner noticed that the assessee society had earned interest income from Co-operative Banks/ Commercial Banks amounting to Rs.65,88,141/- which according to him did not constitute business income and therefore the same needed to be taxed under the head “Income from other Sources” u/s 56 of the Act. Hence, the said amount would be ineligible for deduction u/s 80P(2)(a)(i) of the Act, which the AO had failed to examine and considered the same in the total income under the head income from other sources in view of the decision of the Hon’ble Supreme Court in the case of Totagars Co-operative Sale Society Limited vs. Income Tax Officer reported in 322 ITR 283 (SC) which held that utilization of surplus fund/ investments are taxable under the head “income from other sources” and therefore not eligib