Reopening under Section 148 on an issue previously examined constitutes an impermissible change of opinion.

The petitioner, a co-operative bank, filed its return for Assessment Year 2014–15 declaring nil income after claiming deductions under Section 80P of the Income Tax Act, 1961, including deduction for interest earned from co-operative banks.

During scrutiny proceedings, the Assessing Officer sought details regarding the petitioner’s interest income and other income. The petitioner furnished the relevant details and justified its claim under Section 80P(2)(d).

The Assessing Officer passed an assessment order under Section 143(3) on 2 December 2016, making additions in respect of interest from nationalised banks and miscellaneous/rental income, but did not disallow the deduction claimed for interest earned from co-operative banks.

The petitioner’s appeal was dismissed by the Commissioner of Income Tax (Appeals) on 17 February 2018.

Thereafter, the Income Tax Officer issued a notice under Section 148 on 16 December 2019, proposing to reopen the assessment on the ground that interest of Rs.5,93,32,466 earned from co-operative banks was not eligible for deduction under Section 80P(2)(d).

The petitioner’s objections to the reopening were rejected on 4 March 2020. It therefore challenged the notice and the reopening proceedings before the High Court.

Whether the notice issued under Section 148 was invalid because the proposed reopening was based on the same material and issue that had already been examined during the scrutiny assessment, thereby constituting a mere change of opinion.

Whether interest earned by a co-operative society or co-operative bank from investments or deposits with co-operative banks is eligible for deduction under Section 80P(2)(d).

The Court applied Sections 147 and 148 of the Income Tax Act, 1961, which permit reassessment only where the Assessing Officer has a legally sustainable reason to believe that income has escaped assessment; reassessment cannot be undertaken merely on a change of opinion on material already considered during scrutiny.

Section 80P(2)(d) grants deduction to a co-operative society in respect of interest or dividends derived from investments with another co-operative society.

Relying on Diamond Jubilee Cooperative Bank Limited v. Union of India, [2025] 181 taxmann.com 177 (Gujarat), and the authorities cited therein, including Apex Co-operative Bank of Urban Bank of Maharashtra & Goa Ltd. v. Maharashtra State Co-operative Bank Ltd., 2003 (11) SCC 66, and Kerala State Co-operative Agricultural & Rural Development Bank Ltd. v. Assessing Officer, [2023] 154 taxmann.com 305, the Court held that interest earned on investments with a co-operative bank, which is itself a co-operative society, qualifies for deduction under Section 80P(2)(d).

The Court found that the petitioner’s claim relating to interest income under Section 80P(2)(d) had been specifically examined during the original scrutiny proceedings.

The petitioner had furnished the relevant details in response to the Assessing Officer’s show-cause notice, and the assessment order made other specific additions while leaving the claim concerning interest from co-operative banks undisturbed.

Since the reasons recorded for reopening relied on the same material and the same legal issue, and no fresh tangible material was identified, the subsequent reassessment proceedings amounted to a prohibited change of opinion.

Independently, the Court held that the Department’s substantive view was contrary to the law laid down in Diamond Jubilee Cooperative Bank, under which interest earned from investments with co-operative banks is eligible for deduction under Section 80P(2)(d).

Accordingly, the notice dated 16 December 2019 issued under Section 148 and the consequential reassessment proceedings for A.Y. 2014–15 were quashed and set aside.