Galaxy Co–op HSG Society Ltd Vs ITO (ITAT Mumbai)
ITAT Mumbai Addresses Appeal Dismissal on Limitation and Merits in Galaxy Co-op HSG Society Case
Mumbai: The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, recently adjudicated on appeals filed by Galaxy Co–operative Housing Society Ltd (the assessee) against orders of the Addl./Joint Commissioner of Income Tax (Appeals) [CIT(A)] concerning the Assessment Years (A.Y.) 2014-15 and 2015-16. The core issues revolved around the disallowance of deductions claimed under sections 80P(2)(d) and 80P(2)(c) of the Income Tax Act, 1961, and the procedural validity of the CIT(A)’s order which, after dismissing an appeal on grounds of limitation, proceeded to decide the case on its merits.
The dispute originated when the assessee claimed deductions amounting to Rs. 2,28,408 for A.Y. 2014-15 (taken as the lead case). This included Rs. 1,78,418 as interest income from co-operative banks, claimed as exempt under section 80P(2)(d), and Rs. 49,990 as income from house property, claimed under section 80P(2)(c). The Centralized Processing Center (CPC) disallowed these claims through an intimation dated May 20, 2015, under section 143(1) of the Act.
Aggrieved by the CPC’s intimation, the assessee filed a first appeal before the CIT(A). However, this appeal was lodged with a substantial delay of 7 years and 6 months. The CIT(A) declined to condone this delay, stating that the assessee had not provided any petition with reasonable and sufficient cause nor submitted evidence to justify the delay. Consequently, the CIT(A) held the appeal to be invalid and non-maintainable as it was out of time.
Despite this dismissal on the point of limitation, the CIT(A) proceeded to examine the merits of the case and ultimately dismissed the assessee’s appeal on merits as well.
The assessee then approached the ITAT, challenging the CIT(A)’s order. This appeal to the ITAT was also delayed, by 146 days. The assessee submitted an affidavit from its previous Secretary, attributing the delay to the Secretary’s preoccupation with his mother’s illness. The ITAT, considering the claim as bonafide, genuine, and unintentional, condoned this delay subject to a deposit of Rs. 1100 by the assessee.
The primary procedural question before the ITAT was whether the CIT(A) was correct in deciding the case on merits after refusing to condone the delay in filing the appeal. The ITAT observed that this issue was not novel and referred to several judicial precedents.
The Tribunal cited the Hon’ble Gauhati High Court’s decision in Williamson Financial Services Ltd. vs. CIT (2004) 140taxman.com 246 (Gauhati). In this case, the High Court held that once an appellate body concludes an appeal is barred by limitation, it lacks jurisdiction to entertain the appeal on its merits.
Further reliance was placed on the Hon’ble Madras High Court’s ruling in Centre for Individual & Corporate Action (CICA) vs. Assistant Commissioner of Income Tax (2016) 66 taxmann.com 346 (Madras). The Madras High Court opined that if an appeal is not entertained due to delay, the question of deciding the issues raised in the appeal on merits does not arise. It emphasized that an appeal must be admitted before an order is passed on its merits, as mandated by section 253(5) of the Income Tax Act. Deciding an appeal on merits after dismissing it on the question of delay was deemed an error apparent on the face of the record and an act without jurisdiction.
Another judgment from the Hon’ble Madras High Court, in All Angels Educational Society vs. Chief Commissioner of Income Tax (2016) 72 taxmann.com 251 (Madras), was also noted. This decision reiterated that if an application is rejected on the ground of limitation, examining the merits becomes a “superseded exercise.”
Based on these precedents, the ITAT concluded that once an appellate authority declines to condone a delay and dismisses an appeal in limine (at the outset) for want of limitation, it should not proceed to adjudicate on the merits of the case. Therefore, the CIT(A)’s order, which decided the appeal on merits after dismissing it on limitation, was deemed liable to be set aside.
However, the ITAT, considering the “peculiar facts and circumstances” and noting that the issue regarding the deduction claimed under section 80P(2)(d) was “not res-integra” (an issue not new or already decided), proceeded to examine the merits of the assessee’s claim.
The ITAT referred to its own coordinate bench decision in Pathare Prabhu Co-operative Housing Society Ltd. vs. ITO (2023) 153 taxmann.com 714 (Mum. – Trib.). In Pathare Prabhu, the Tribunal had allowed a similar deduction under section 80P(2)(d). The reasoning was that section 80P(2)(d) allows a co-operative society a deduction for interest or dividend income derived from its investments with any other co-operative society. The term “co-operative society” is defined under section 2(19) of the Act. The Pathare Prabhu order clarified that while section 80P(4) of the Act (inserted by Finance Act, 2006, w.e.f. 01.04.2007) denies the benefit of section 80P to co-operative banks (other than primary agricultural credit societies or primary co-operative agricultural and rural development banks), this does not affect the claim of a different co-operative society earning interest from its investments parked with such a co-operative bank. A co-operative bank, despite being ineligible for section 80P benefits itself under section 80P(4), still qualifies as a “co-operative society.” Thus, interest income derived by an assessee co-operative society from its investments with a co-operative bank remains eligible for deduction under section 80P(2)(d).
The Pathare Prabhu decision also referenced the Supreme Court’s judgment in Mavilayi Service Cooperative Bank Ltd. vs CIT, Calicut [2021] 431 ITR 1 (SC), which explained that section 80P(4) is a proviso excluding co-operative banks functioning at par with commercial banks from the benefits of section 80P. This, the ITAT noted, is relevant when the assessee claiming the deduction is itself a co-operative bank, which was not the situation in the present case.
Addressing the reliance by the revenue authorities on the Karnataka High Court’s decision in Pr.CIT v/s Totagars Co-operative Sales Society, [2017] 395 ITR 611 (Karn.) (which held against the assessee on a similar issue), the Pathare Prabhu bench had noted an earlier divergent view from the same High Court in Pr.CIT v/s Totagars Co-operative Sales Society, [2017] 392 ITR 74 (Karn.) (which was in favour of the assessee). In light of these conflicting High Court views, and in the absence of a jurisdictional High Court ruling, the Tribunal in Pathare Prabhu applied the principle laid down by the Supreme Court in CIT v. Vegetable Products Ltd., [1972] 88 ITR 192 (SC), which states that if two reasonable constructions of a taxing provision are possible, the construction that favours the assessee must be adopted.
Following the reasoning in Pathare Prabhu, the ITAT allowed Galaxy Co-operative Housing Society’s claim for deduction under section 80P(2)(d) for the interest income earned from co-operative banks. Additionally, the deduction claimed under section 80P(2)(c) of the Act, amounting to Rs. 49,990, was also allowed as it was within the prescribed limit of Rs. 50,000.
Consequently, the appeals filed by the assessee for both A.Y. 2014-15 and 2015-16 were allowed. The ITAT also acknowledged the assistance provided by Mr. Shri Dhaval Shah, who acted as Amicus Curiae. The order was pronounced on April 29, 2025.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
