NEW SEAGULL CO OPERATIVE HOUSING SOCIETY LIMITED,C/O, R C RESHAMWALA AND CO, CHARTERED ACCOUNTANTS vs. ITO 19(2)(4), MUMBAI

On the facts and circumstances of the case, the learned Commissioner of Income Tax Appeals has erred in confirming the order of the Assessing Officer and not allowing a sum of Rs.24,03,333/- as deduction/income exempt under Section 80 P(2)(d) of the Act and thus making an addition of Rs.24,03,333/- to the income of the assessee.

On the facts and circumstances of the case, the learned Commissioner of Income Tax Appeals has erred in confirming the order of the Assessing Officer to allow re-opening u/s. 148 of the Act where the said facts were available and on record in earlier assessment. Thus, the order passed u/s. 147 read with Section 144B of the Act be considered bad in law.

Briefly stated facts of the case are that original return in this case was filed declaring „Nil‟ income. The same was subsequently assessed u/s 143(3) of the Act,determining total incomeof Rs. 60,30,000/-. Later, the case was reopened by issue ofnotice u/s 148 of the Act and the AO during the assessment proceedings, noted that the assessee is a cooperative housing society which during the year, earned interest income of Rs. 24,03,333/- which was claimed exempt u/s 80P of the Act. According to him, deduction u/s 80P of the Act was allowable on the income generated from the activities of the society as per its aims and objects. In this case, the interest income was generated on the surplus funds parked in bankdeposits and not from the activities of the P a g e | 3 A.Y. 2014-15 New Seagull Cooperative Housing Society Limited society. The assessee contended that interest from cooperative bank had been claimed exempt u/s 80P(2)(d)amounting to Rs. 21,71,354/- arguing that such deduction was available on any income by wayof interest earned by a cooperative society from its investment withanother cooperative society. It was further submitted that similar addition made as per order u/s 143(3) of earlier assessment yearwas deleted by the CIT(A). The AO concluded that the assessee was not entitled to deduction u/s 80P on the income from other sources at Rs. 24,03,333/-. Hence, AO added the amount of Rs.24,03,333/- to the total income of the assessee determining the assessed income of Rs.24,03,333/-.

In the subsequent appeal before the ld.CIT(A) the assessee agitated the addition claiming the impugned sum as exempt contending that the interest was received from deposits placed with co-operative banks which, though carrying on banking business, continue to be registered under the Co-operative Societies Act. Hence, they were “co- operative societies” for purposes of section 80P(2)(d). Section 80P(4) merely denies deduction to co-operative banks in their own assessments; it does not withdraw deduction for other co-operative societies earning interest from them. Therefore, a housing society investing its funds with P a g e | 4 A.Y. 2014-15 New Seagull Cooperative Housing Society Limited a co-operative bank remained entitled to deduction u/s 80P(2)(d). The assessee also relies on the legislative intent explained in CBDT Circular No. 14/2006, emphasizing that only co-operative banks were excluded from claiming the benefit of section 80P, not other co-operative societies dealing with them. It was therefore argued that the interest earned from such deposits is squarely covered by section 80P(2)(d) and ought to be allowed in full.

1 The ld.CIT(A), however, rejected the contentions of the assessee with the observations that although co-operative banks are registered as co-operative societies, the legislature has consciously carved them out of the benefit of section 80P owing to their distinct character and regulatory framework under the Banking Regulation Act, 1949. They operate as banking entities under licence from the Reserve Bank of India, engage in commercial banking with the public, and hence cannot be equated with ordinary co-operative societies formed for mutual benefit of members. He placed reliance on the decision on the case of decision of the Supreme Court in Totgar‟s Co-operative Sale Society Ltd. v. ITO (322 ITR 283) wherein it was held that interest income arising from the investment of surplus funds, not immediately

None appeared for the assessee while the ld.DR relied on the orders of the authorities below.

We heard the rival submissions and considered the documents available on the record. We find that the issue is well settled by the Hon'ble Apex Court and by the ITAT, Mumbai Benches that a co- operative bank is in the nature of co- operative society. So the interest and dividend earned by the assessee from the co-operative bank is P a g e | 6 A.Y. 2014-15 New Seagull Cooperative Housing Society Limited eligible for deduction under section 80P(2)(d) of the Act. The same issue was dealt by the co-ordinate bench of ITAT-Mumbai, F-Bench in the case of Jaimuni Sahkari Patpedhi Maryadit in ITA Nos. 332 to 334/Mum/2025 order dated 06/03/2025, wherein it has been held as follows:- "

We heard the rival submissions and considered the documents available on record. The only issue as agitated by the assessee society related to interest and dividend from co-operative banks which is claimed as deduction under section 80P(2)(d) of the Act.The Ld. CIT(A) in his order had referred the judgement of Hon'ble High Court of Gujarat in the matter of Katlary Kariyana Merchant Sahkari Sarafi Mandali Ltd v. ACIT [2022] 140 taxmann.com 602 (Gujarat) wherein the deduction of 80P(2)(d) were not allowed to the appellant.The Ld. AR distinguished that inference drawn in the instant matter as compared to the matter relied upon by Ld.CIT(A) in pronouncement of his Order.In the matter of Katlary Kariyana Merchant Sahkari Sarafi Mandali Ltd (supra) the facts were that the Appellant had received interest income from both Co-operative Banks as well as Nationalised Bank and the same was claimed as deduction u/s 80P(2)(d).Whereas in the instant case, the assessee has received interest only from Co operative Banks. Section 80P(2)(d) provides for deduction of interest received by a Co-operative Society from another Co- operative Society. A Co-operative Society being a Co-operative Society fits into the permissible provisions of the deductions.Thus the case referred by the Ld. CIT(A) in his judgement is not applicable or relatable to the facts of the instant case. The Ld. AR argued that the two judgements passed by same Hon'ble Gujarat High Court in which the Ld. CIT(A) had relied onare distinguishable pertaining to the claim of deduction u/s 80P(2)(d).”

The Hon'ble Gujrat High Court in PCIT v. Ashwinkumar Arban Co Operative Society Ltd [2024] 168 taxmann.com 314 (Gujarat) has allowed the deduction claimed by the appellant u/s P a g e | 7 A.Y. 2014-15 New Seagull Cooperative Housing Society Limited 80P(2)(d) taking into consideration the judgement passed by Hon'ble Apex Court in the case of Kerala State Cooperative Agricultural and Rural Development Bank Ltd v. Assessing Officer [2023] 154 taxmann.com 305/295 Taxman 675/458 ITR 384 (SC). The relevant extract is as follows- "

Having heard learned advocates for the respective parties and considering the controversy arising in these tax appeals, we are of the opinion that the controversy sought to be canvassed with regard to deduction under section 80P(2)(d) of the Act is no more res integra in view of the decision of this Court in case of Katlary Kariyana Merchant Sahkari Sarofi Mandali Ltd. (supra) as well as in case of State Bank of India (supra) wherein it was held that the deduction of under section 80P(2)(d) of the Act is available to the cooperative societies on the income earned as the interest on the investment made with the cooperative bank which in turn, is a cooperative society itself. In the matter of PCIT v. Shree Madhi Vighag Khand Udyog Sahakari Mandli Ltd [2025] 171 tomann.com 22 (Gujarat), wherein it was held that the appellant being a cooperative society, earning interest on investment made with a cooperative bank and claiming deduction under section 80P(2)(d), deduction was to be allowed under section 80P(2)(d).

The Hon'ble Jurisdictional Bombay High Court in the case of Quepem Urban Co-operative Credit Society Ltd. vs. ACIT reported in (2015) 58 taxmann.com 113 (Bom) and various decisions of the co- ordinate benches of the Tribunal have consistently held that interest earned from investments made with co-operative banks qualifies for deduction u/s 80P(2)(d) of the Act.

1 The issue is no longer res integra in view of the consistent decisions of the co-ordinate benches of the Tribunal including Kaliandas Udyog Bhavan Premises Co-op Society Ltd. vs. ITO (ITA No.6547/Mum/2017), Pathare Prabhu Co-operative Housing Society Ltd. vs. ITO reported in 202 ITD 464 (Mum), and Marvwanjee Cama Park Co-operative Housing Society Ltd. vs. ITO reported in 145 taxmann.com 415 (Mum), wherein it has been held that interest income earned by a co-operative society from investments/deposits with co-operative banks is eligible for deduction u/s 80P(2)(d) of the Act.

2 We further note that the reliance placed by the authorities below on the decision of the Hon'ble Supreme Court in the case of Totgar's Co-operative Sale Society Ltd. (supra) is misplaced in the facts of the present case. In the said decision, the Hon'ble Supreme Court was dealing with deduction claimed u/s 80P(2)(a)(i) in respect of surplus funds invested in short term deposits by a co-operative sale society engaged in marketing agricultural produce. The issue relating to deduction u/s 80P(2)(d) in respect of investments made with co-

Accordingly, in our considered view, the disallowance of deduction under section 80P(2)(d) is unjustified and the assessee is eligible for deduction under section 80P(2)(d) of the Act related to interest earned from co-operative bank. Respectfully following the consistent view taken by the Hon'ble Jurisdictional ITAT Mumbai and considering the fact that the investments were made with co-operative banks which are co- operative societies, we hold that the interest income earned by the assessee from such co-operative banks is eligible for deduction u/s 80P(2)(d) of the Act. Accordingly, the disallowance made by the AO and sustained by the ld.CIT(A) is directed to be deleted subject to the verification of the fact that the impugned deposits were made with co-operative banks which are co- operative societies.Accordingly, ground raised by the assessee is allowed.

Since we have allowed the claim of the assessee u/s 80P(2)(d) of the Act, ground no.2 raised by the assessee regarding the validity of the reopening u/s 147 of the Act become academic and therefore, require no adjudication.

Mumbai 5. गार्ड फाईल / Guard file. सत्यादपि प्रदि //// आदेशानुसार/ BY ORDER,