SWARUP CO-OPERATIVE HOUSING SOCIETY LIMITED,MUMBAI vs. ASST. DIRECTOR OF INCOME TAX, CPC, BENGALURU

The solitary issue arising in both the appeals relates to the denial of deduction claimed by the assessee under section 80P(2)(d) of the Act in respect of interest income earned from deposits maintained with co- operative banks. The deduction so claimed amounts to ₹1,96,592 for Assessment Year 2020-21 and ₹2,10,560 for Assessment Year 2021-22. The CPC, while processing the returns under section 143(1), disallowed the aforesaid deduction and the subsequent rectification applications preferred by the assessee under section 154 also came to be rejected. The learned CIT(A), NFAC has confirmed the action of the CPC, against which the assessee is now in further appeal before us.

Briefly stated, the assessee is a Co-operative Housing Society which, during the relevant previous years, had earned interest income from deposits maintained with co-operative banks and claimed deduction thereof under section 80P(2)(d) of the Act. While processing the returns under section 143(1), the CPC treated the said claim as inadmissible and consequently made an adjustment by disallowing the deduction claimed under section 80P(2)(d). According to the CPC, after insertion of sub-section (4) to section 80P, interest earned from co-operative banks was not eligible for deduction under section 80P(2)(d). The assessee thereafter preferred applications under section 154 pointing out that the adjustment made under section 143(1) was contrary to law and that the issue itself was highly debatable and incapable of being rectified under section 154. However, the rectification applications were rejected.

While affirming the disallowance, the learned CIT(A) extensively relied upon the judgment of the Hon’ble Karnataka High Court in the case of Principal Commissioner of Income Tax v. Totagars Co-operative Sale Society (395 ITR 611) and observed that the subsequent judgment of the Hon’ble Karnataka High Court had explained the legal position that interest earned from investments with co-operative banks would not qualify for deduction under section 80P(2)(d). The learned CIT(A) also observed that deduction provisions are required to be construed strictly and, therefore, the adjustment made by the CPC could not be faulted.

The learned CIT(A) further rejected the assessee’s contention that such an adjustment could not have been made while processing the return under section 143(1) or sustained in proceedings under section 154. According to him, section 143(1)(a) specifically empowers the CPC to disallow an incorrect claim apparent from the information contained in the return of income and, therefore, the adjustment made by the CPC was within the statutory framework. Since the claim itself was held to

Before us, the learned Counsel for the assessee reiterated that the authorities below have proceeded on an erroneous interpretation of section 80P(2)(d). It was submitted that the assessee is admittedly a co- operative housing society and the interest income has been received from investments made with co-operative banks, which themselves are registered as co-operative societies. It was further submitted that several judicial authorities have consistently held that such interest qualifies for deduction under section 80P(2)(d). It was also contended that, at the highest, the issue is admittedly debatable and, therefore, no adjustment could have been made while processing the return under section 143(1), much less could such a debatable issue be brought within the limited jurisdiction of section 154. The learned Departmental Representative, on the other hand, strongly relied upon the orders of the authorities below and submitted that the learned CIT(A) has correctly appreciated the statutory provisions as well as the judicial precedents and, therefore, the impugned orders deserve to be upheld.

We have carefully considered the rival submissions, perused the impugned orders and the entire material placed before us. Upon a thoughtful consideration of the controversy involved, we find that the issue arising in the present appeals is no longer res integra and stands squarely covered by the decision of the Co-ordinate Bench of the Tribunal in Ekta Bhoomi Garden III (ITA No. 3638/Mum/2026), wherein an identical issue relating to denial of deduction under section 80P(2)(d) by way of adjustment under section 143(1), followed by rejection of rectification under section 154, came up for consideration. After an elaborate examination of the statutory provisions, legislative intent and

The scheme of section 143(1) is extremely limited in its scope. The jurisdiction vested with the CPC while processing a return is confined only to making prima facie adjustments which are apparent from the return itself and do not require any process of reasoning, investigation or interpretation. The provision does not authorise the CPC to embark upon adjudication of contentious legal issues involving interpretation of statutory provisions or examination of competing judicial precedents. Equally, the jurisdiction under section 154 is circumscribed by the well settled principle that only an obvious and patent mistake apparent from the record can be rectified. A question on which two reasonable views are possible can never constitute a mistake apparent from the record. This principle has been consistently recognised by the Hon’ble Supreme Court and various High Courts and has now become an integral part of the jurisprudence governing sections 143(1) and 154.

In the present case, the very fact that different High Courts and various Benches of the Tribunal have examined the interplay between section 80P(2)(d) and section 80P(4), and have expressed judicial opinions on the eligibility of deduction in respect of interest earned from co-operative banks, itself demonstrates beyond any pale of doubt that

We further find considerable force in the contention of the assessee that a co-operative bank is, in law, nothing but a co-operative society carrying on the business of banking. The insertion of section 80P(4) was intended to deny deduction to co-operative banks claiming deduction in respect of their own income. It did not provide that a co-operative society investing its funds with a co-operative bank would stand deprived of deduction available under section 80P(2)(d). This distinction has been consistently recognised in several judicial pronouncements relied upon before various Benches of the Tribunal. Therefore, the view adopted by the CPC and affirmed by the learned CIT(A) represents only one possible interpretation of the provision and certainly not such an indisputable proposition of law which could justify an adjustment under section 143(1).

In Ekta Bhoomi Garden III (supra), after analysing the entire legal position, this Tribunal had categorically held that denial of deduction under section 80P(2)(d) by way of adjustment under section 143(1) is unsustainable in law and that the consequential rectification proceedings under section 154 are equally without jurisdiction. Since the facts before us are admittedly identical and no distinguishing feature has been pointed out by the Revenue, judicial discipline

Accordingly, we set aside the impugned orders of the learned CIT(A) for both the assessment years and direct the Assessing Officer/CPC to delete the disallowance made under section 80P(2)(d) amounting to ₹1,96,592 for Assessment Year 2020-21 and ₹2,10,560 for Assessment Year 2021-22, and consequently grant the deduction claimed by the assessee in accordance with law. The consequential levy of interest, being merely incidental and consequential, shall also stand recomputed while giving effect to this order.

In the result, both the appeals of the assessee are allowed.