Introduction: In a recent case before the Income Tax Appellate Tribunal (ITAT) in Mumbai, the issue of interest income deduction under Section 80P of the Income Tax Act for a cooperative housing society was under consideration. The case revolved around whether cooperative societies were eligible for this deduction.
1. Background of the ITAT Case: The case was brought before the ITAT by the Navrang Basant Co-operative Housing Society Limited, the appellant. The appeal challenged an appellate order issued by the National Faceless Appeal Centre in Delhi, relating to the assessment year 2017-18.
2. Grounds Raised by the Assessee: The key grounds of appeal raised by the appellant were as follows:
i. Disagreement with the Commissioner of Income Tax (Appeals) for not allowing a deduction under Section 80P(2)(d) concerning interest earned from cooperative banks.
ii. Clarification that the deduction was claimed under Section 80P(2)(d) and not Section 80P(4).
iii. Citing the decision of the CIT(A) for the assessment year 2015-16 in the appellant’s own case, as well as decisions from the jurisdictional Tribunal where deduction under Section 80P(2)(d) was allowed for interest income from cooperative banks.
3. Deduction Claim and Assessment: The appellant, a cooperative housing society, had filed its return of income for the assessment year 2017-18, declaring a total income of nil. In the return, the appellant claimed a deduction under Section 80P amounting to ₹1,589,385. The deduction was specifically under Section 80P(2)(d). The return was subsequently selected for scrutiny.
During the assessment proceedings, the Assessing Officer observed that the appellant had received interest income of ₹1,589,385 from a cooperative bank. The appellant had claimed this as a deduction under Section 80P(2)(d). However, the Assessing Officer questioned the eligibility of this deduction under Section 80P.
4. Denial of Deduction: The Assessing Officer’s view was that the interest income received by the appellant from cooperative banks was not eligible for deduction under Section 80P because cooperative banks did not qualify as cooperative societies. Consequently, the assessment order was issued, denying the deduction under Section 80P(2)(d) and assessing the total income at ₹1,589,385.
5. Appeal to CIT(A) and Decision: The appellant appealed to the Commissioner of Income Tax (Appeals) (CIT(A)), and the appeal was ultimately dismissed. The decision was based on a ruling by the Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. vs. CIT, which was issued on January 12, 2021.
6. Appeal to ITAT: Discontented with the CIT(A)’s order, the appellant filed an appeal with the ITAT.
7. ITAT’s Decision and Rationale: The ITAT considered the appellant’s claim and the legal provisions. It was established that the appellant, as a cooperative housing society, did not fall under the category of cooperative banks, and, therefore, Section 80P(4) did not apply to them. This section specifically denies deductions to cooperative banks.
The ITAT relied on a recent judgment by the Supreme Court, the Kerala State Co-Operative Agricultural & Rural Development Bank Ltd. vs. Assessing Officer  154 taxmann.com 305 (SC) [14-09-2023], which clarified that deductions under Section 80P are not denied to cooperative societies like housing societies, only to cooperative banks.
As a result, the ITAT reversed the CIT(A)’s decision and allowed the deduction for interest income claimed by the cooperative housing society under Section 80P(2)(d).
6. Conclusion: In the ITAT case, Navrang Basant Co-operative Housing Society Limited successfully argued that interest income received from cooperative banks by a cooperative housing society is eligible for deduction under Section 80P(2)(d) of the Income Tax Act. The ITAT’s decision was based on the clarification provided by the Supreme Court in a similar case. This ruling provides clarity on the eligibility of cooperative societies for this deduction, highlighting the importance of legal definitions in tax matters.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
01. This appeal is filed by the Navrang Basant Co-operative Housing Society Limited (the assessee/ appellant) against the appellate order passed by the National Faceless Appeal Centre, Delhi [the learned CIT (A)] for A.Y. 2017-18 on 30th November, 2022 wherein the assessee’s appeal before him against the assessment order passed under section 143 (3) of the Income-tax Act, 1961 (the Act) dated 6th December, 2019 by the Income Tax Officer, Ward 17(2)(4), Mumbai was dismissed. Therefore, the assessee is aggrieved by that appellate order has preferred this appeal before us as per the grounds of appeal as under:-
“1) The Learned Commissioner of Income Tax (Appeals) National Faceless centre erred in confirming the action of the Assessing Officer in not allowing deduction u/s 80P(2)(d) of Rs. 15,89,3985 in respect of interest earned from Co-operative Banks.
2) The Learned Commissioner of Income Tax (Appeals) National Faceless centre failed to appreciate that deduction was not claimed u/s 80P (4) but u/s 80P(2)(d).
3) The Learned Commissioner of Income Tax (Appeals) National Faceless centre erred in ignoring the written submissions filed, the decision of the CIT(A) for A. Y. 2015-16 in the assessee’s own case on the same grounds and facts and decisions of the jurisdictional Tribunal wherein deduction u/s 80P(2)(d) has been allowed in respect of interest income earned from Co-operative
4) The appellant prays that:
4.1 Deduction u/s 80p(2)(d) in respect of interest income from co- operative banks be allowed.
4.2 Interest charged u/s. 234B may be deleted/ reduced;
4.3 Personal hearing may be granted;
4.4 Any other relief your honours may deem fit.
5. The above grounds of appeal are without prejudice to each other and the Appellant craves leave to add, alter, amend or delete any of the above grounds of appeal.”
02. The brief fact of the case shows that assessee is a cooperative housing society. It filed its return of income for A.Y. 2017-18 on 28thAugust, 2017, declaring total income at nil, wherein it claimed deduction under Section 80P of ₹ 1,589,385/–. This return of income was picked up for scrutiny. During the course of assessment proceedings the learned Assessing Officer noted that assessee has received interest of ₹ 1,589,385/- from cooperative bank and deduction under section 80P (2) (d) of the same amount is claimed against the said income. The assessee was asked to explain that how the above sum is deductible as deduction under section 80P (2) (d). The learned Assessing Officer took the explanation of the assessee on record and it was rejected. The claim of the learned Assessing Officer is that as per sub-section 4 of section 80P of the Act such deduction is not allowable. It was noted that assessee has deposited funds in various cooperative banks as fixed deposits and has earned interest income thereon. In nutshell, the claim of the learned Assessing Officer is that interest received by the assessee from cooperative banks are not eligible for deduction under section 80P as they are not the cooperative societies. Accordingly, the assessment order under section 143 (3) of the Act was passed by the learned Assessing Officer on 6th December, 2019 wherein the total income of the assessee was assessed at ₹ 1,589,385/- denying deduction u/s 80P (2) (d) of the Act.
03. Aggrieved by that assessee preferred an appeal before the learned CIT (A), who passed an order on 30thNovember, 2022 dismissing the appeal of the assessee. The main reason for dismissal of the appeal was with respect to the decision of the honorable Supreme Court in case of Mavilayi Service Co-operative Bank Ltd. vs. CIT reported in 123 com 161 (SC) on 12th January, 2021. Aggrieved by that order of the learned CIT (A), assessee is in appeal before us.
04. The appeal of the assessee is filed late. The order of the CIT (A) was passed on 30thNovember, 2022 whereas the appeal was filed on 21st April, 2023, late by 82 days. The assessee has filed an application for condemnation of delay which is supported by the affidavit wherein it has been stated that assessee did not receive a copy of the order either by post or by email and therefore, he was not aware of the order passed by the National Faceless Appeal Centre. The assessee came to know only on 11 March 2023 regarding outstanding demand wherein the order passed by the appellate authority came into the knowledge of the assessee. As soon as that order was put to the knowledge of the assessee, it was forwarded to the chartered accountant to file the appeal and immediately the appeal was filed on 21st April 2023. The due date for filing of the appeal was 31st January, 2023 whereas it has been filed late on 21st April, 2023. It was submitted that the delay is due to non-receipt of the order of the learned CIT (A) supported by the affidavit, the assessee does not derive any benefit by not filing the appeal in time before the coordinate bench and further, whenever the condonation of delay is required to be considered, pedantic approach should not be taken. Accordingly, it was prayed that as delay is nominal, same May be condoned.
05. The learned Departmental Representative vehemently objected to the same.
06. We find that assessee does not derive any benefit by filing the appeal Subsequently, the assessee has received the communication for the recovery of the demand, wherein it has come to its knowledge that the learned CIT (A) has passed an order against the cooperative society. As far as this argument is concerned we are not with the assessee, as such orders would always be available on portal with alert to the assessee on registered mobile number and registered email id. Further assessee does not deny that due to not taking cognizance of email and mobile alert, delay has occurred. However, after receipt of demand notice, assessee approached chartered accountant immediately and filed the appeal before us. It is also supported by an affidavit. Therefore respectfully following the decision of the honorable Supreme Court in case of Collector of Land Acquisition V. MST Khatiji & Others 167 ITR 471, wherein it has been held that in condonation of delay prayer, pedantic approach should not be adopted and the appeal should be decided on the merits of the case. Accordingly, we condone the delay.
07. At the time of hearing the assessee made an application for adjournment of hearing stating that Council of the assessee is not available and therefore the matter may be adjourned. Looking to the facts of the case, we reject the application for the adjournment.
08. On hearing the parties we find that assessee is a cooperative society more precisely a housing society and not a cooperative bank therefore the provision section 80P(4) does not apply to assessee and therefore assessee is eligible for deduction u/s 80P (2) of the Assessee has invested in saraswat Cooperative bank, shamrao Vithal cooperative bank and Maharashtra District cooperative bank limited. There is no doubt that assessee is not a cooperative bank. Section 80P (4) denies deduction to cooperative banks only. Now this view is upheld by the honourable supreme court in case of Kerala State Co-Operative Agricultural & Rural Development Bank Ltd. V Assessing Officer  154 taxmann.com305 (SC)[14-09-2023]. In view of this, we direct the ld AO to allow deduction to assessee cooperative housing society deduction on interest income. We reverse the order of the ld CIT (A) and allow solitary issue in appeal.
09. In the result, appeal of assessee is allowed.
Order pronounced in the open court on 11.10.2023.