IN THE INCOME TAX APPELLATE TRIBUNAL “A’’BENCH: BANGALORE BEFORE MS. PADMAVATHY S., ACCOUNTANT MEMBER AND SHRI KESHAV DUBEY, JUDICIAL MEMBER ITA No.788/Bang/2025 AssessmentYear:2020-21 AssessmentYear:2020-21 AssessmentYear:2020-21 AssessmentYear:2020-21 AssessmentYear:2020-21 AssessmentYear:2020-21 AssessmentYear:2020-21 AssessmentYear:2020-21 AssessmentYear:2020-21 AssessmentYear:2020-21 Appellant by : Sri Ravishankar S.V., A.R.

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

Date of Hearing : 24.11.2025 Date of Pronouncement : 30.01.2026

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, Bengaluru-1 dated 7.3.2025 vide DIN & Order No. ITBA/REV/F/REV5/2024-25/1074194140(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 registered co-operative society engaged in the business of providing loans, FD facilities to society members only. The assessee society filed its return of income for the AY 2020-21 on 17/01/2021 declaring total income of Rs.1,79,390/- after claiming deduction u/s 80P(2)(a)(i) of the Act amounting to Rs. 40,23,937/-. The said return of income of the assessee was processed u/s 143(1) of the Act. The case of the assessee society was thereafter selected for limited scrutiny under CASS to examine the following issues:-

i) Assessee has shown substantial amount of loan and advance.

ii) Claim of large Deduction

3.1 Accordingly, the notices u/s 143(2) of the Act as well as notices u/s 142(1)of the Act along with Annexure containing the detailed questionnaire were issued to the assessee. In response to statutory notices, the assessee filed the details as called for on 10/06/2022 & 11/08/2022. The AO after proper examination of the details along with the documentary evidences/written submission/explanations etc. submitted by the assessee, completed the assessment proceedings u/s. 143(3) r.w.s 144B of the Act by observing as follows-

1) The line of investigation is stick to issue involved in the instant case.

2) The submission of the assessee is duly perused, verified and also analyze in terms of the provisions attracted in the present case.

3) On verification, it is found that the loans given by the assessee to its members only and from its own fund and charge interest thereon.

4) There are no any other activities which violate/attract the provisions of the Income Tax Act & the same is also not pointed out by the Auditor.

5) The assessee has offered income for tax under head income from House Property and remaining income earned under head Business & Profession amounting to Rs. 40,23,937/-

claimed deduction u/s 80P(2)(a)(i) of the Act.

6) The claim of deduction is duly examined and found that the same is as per provisions of the Act.

7) The case of the assessee falls in the category of providing credit facilities to members and income earned under head as per provisions of the Act is entitled to claim deduction u/s

80P(2) of the Act The AO with the above observations concluded the Limited Scrutiny assessment by holding that no variation is warranted in this case and the return income of the assessee u/s 139(1) of the Act is accepted.

3.2 The ld. PCIT, Bengaluru-1 upon calling for the assessment records and examination, observed that the order passed by the AO u/s. 143(3) r.w.s. 144B of the Act on 23/08/2022 was erroneous in so far as it is prejudicial to the interest of revenue in view of clause(d) to explanation 2 of section 263 of the Act on the issue of interest income earned by the assessee society amounting to Rs.38,17,031/- on investments and deposits held with banks/financial institutions other than co-operative societies. The ld. Principal Commissioner noticed that the impugned interest income had been claimed as deduction u/s 80P(2)(a)(i) of the Act. In view of the judgment of the H