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Facts
The assessee, a co-operative housing society, filed appeals against CIT(A) orders for AYs 2015-16, 2016-17, and 2017-18, challenging the disallowance of Section 80P deduction for interest income from co-operative banks. The CIT(A) had dismissed these appeals due to a delay in filing, without adjudicating on merits. The assessee attributed the delay to fraudulent activities by a former treasurer, unavailability of their tax consultant, subsequent civil and criminal proceedings, and the time taken for forensic audits and appointing a new CA.
Held
The ITAT found sufficient and reasonable cause for the delay in filing the appeals before both the CIT(A) and the Tribunal, condoning the delay. It set aside the CIT(A)'s orders for de novo adjudication on merits, emphasizing that substantial justice outweighs procedural delays. The CIT(A) was directed to provide the assessee with an opportunity to present all necessary documents for fresh consideration.
Key Issues
1. Whether there was sufficient cause to condone the delay in filing appeals before the CIT(A) and ITAT. 2. Whether the CIT(A) erred in disallowing Section 80P deduction for interest income earned by a co-operative housing society from deposits in co-operative banks.
Sections Cited
250, 147, 144B, 80P, 80P(2)(d), 80P(4), 271(1)(c), 7(1) of the Banking Regulation Act, 1949
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Income Tax Appellate Tribunal, PUNE BENCHES “SMC” :: PUNE
Before: MS.ASTHA CHANDRA & DR.DIPAK P. RIPOTE
ORDER
PER DR. DIPAK P. RIPOTE, AM:
This bunch of three appeals filed by the Assessee against the separate orders of ld.Commissioner of Income Tax(Appeal)[NFAC] passed under section 250 of the Income Tax Act, 1961 for the A.Y.2015-16, 2016-17 and 2017-18 all dated 26.08.2024 emanating from the separate Assessment Orders passed under section 147 r.w.s , 2386 & 2387/PUN/2025 [A] – (03 Appeals) 144B of the Act, all dated 26.03.2022. For the sake of convenience, these three appeals were heard together and are being disposed of by this common order. The Assessee in for A.Y.2015-16 has raised the following grounds of appeal :
1. Erroneous Non-Consideration by the Ld. CIT(A) of the Order Upholding Section 80P Deduction for AY 2018-19.
1.1 BECAUSE the Ld. CIT(A) failed to adjudicate the appeal on merits and restricted the decision solely to the delay condonation issue, thereby ignoring the assessee's entitlement already allowed under Section 80P for AY 2018-19.
1.2 BECAUSE the Ld. CIT(A) rejected the delay condonation petition without giving due weight to the genuine reasons for delay, which warranted indulgence in the interest of justice.
1.3 BECAUSE such approach disregarded the orders of the CIT(A), NFAC, Delhi dated 03.03.2025 and the consequential order giving effect thereto dated 20.05.2025, which had already upheld the assessee's entitlement to Section 80P deduction for AY 2018-19, resulting in undue prejudice to the assessee and defeating the principle of adjudication on merits.
Disallowance of deduction under Section 80P of the Income Tax Act, 1961:
2.1 BECAUSE the Ld. CIT(A) has erred in disallowing the deduction of without Rs.71,254/- being interest income earned from deposits placed with Co-operative Banks, appreciating that under Section 80P(2)(d) read with Explanation 4 to Section 80P(4) of the Income-tax Act, 1961, any income received by a co-operative society from another co-operative society is expressly exempt.
2.2 BECAUSE the Appellant, being a Co-operative Housing Society 2 registered under the Maharashtra Co-operative Societies Act, had are invested its statutory reserves in Co-operative Banks which recognized , 2386 & 2387/PUN/2025 [A] – (03 Appeals) as co-operative societies under Section 7(1) of the Banking Regulation Act, 1949, and therefore the interest earned on such deposits is fully eligible for exemption.
2.3 BECAUSE the CIT(A) erred in disallowing the claimed deduction by misconstruing the provisions of the Act. The Appellant bank's income is indisputably from a co-operative bank and cannot be excluded from the benefit granted to co-operative housing societies under Section 80P.
Misinterpretation of Section 80P(4) excluding Co-operative Banks for denying deduction Society: to Housing 3.1 BECAUSE Section 80P(4) excludes co-operative banks themselves from claiming deduction under Section 80P However, this exclusion applies only to the banks directly and is not intended to cover income of other co-operative societies from deposits placed with such banks. The authorities below incorrectly applied this exclusion to the Appellant society, thereby depriving it of its rightful deduction.
3.2 BECAUSE this interpretation runs counter to the legislative purpose of Section 80P, which is to encourage inter-cooperative society business and income sharing. The exclusion clause protects banks from claiming exemption but does not deny income earned by housing societies from such banks.
4. Erroneous distinction between credit co-operative society and co- operative society:
4.1 BECAUSE the learned CIT(A) has failed to distinguish between credit co-operative society and co-operative society. The Appellant, being a housing society. primarily conducts maintenance and allied activities for members and deposits statutory reserves with cooperative banks, which is fundamentally different from the functioning of a credit co-operative society. Hence, the income is allowed as a deduction from taxation.
Material facts regarding fraudulent activities of former Treasurer: 3 5.1 BECAUSE the former treasurer's fraudulent activities resulted in financial loss and failure to respond timely to the Income Tax , 2386 & 2387/PUN/2025 [A] – (03 Appeals) authorities, materially affecting the assessment and appeal process, despite the appellant having acted promptly by initiating civil and criminal proceedings to safeguard its interests.
5.2 BECAUSE the pendency of such proceedings, along with the complaint before the ICAI, demonstrates that the burden of non- cooperation was entirely beyond the Appellant's control, thereby justifying relief both on facts and in equity.
6. Violation of Principles of Natural Justice and non-consideration of critical evidence:
6.1 BECAUSE the CIT(A) failed to provide a fair hearing on merit basis instead dismissed the appeal without considering substantial legal and factual questions raised. warranting intervention by this Hon'ble Tribunal.
7. Penalty under Section 271(1)(c) is unjustified and bad in law:
7.1 BECAUSE there was no malafide intention, concealment of income, or furnishing of inaccurate particulars by the Appellant. The claim for deduction was made in good faith, supported by judicial pronouncements and an honest interpretation of the law.
7.2 Penalty proceedings initiated are therefore baseless, proceed without justification, and offend principles of natural justice and fairness. The same deserves to be quashed.
CIT(A) has erred in law in not granting Condonation of Delay in filing the Appeal:
8.1 BECAUSE the delay in filing the Appeal occurred due to unavoidable circumstances beyond the control of the Appellant, arising from fraudulent acts committed by the former treasurer which caused financial disruption, non-cooperation, and compelled the society to initiate civil and criminal proceedings, thereby affecting timely compliance with income tax proceedings. 4 8.2 BECAUSE the tax consultant engaged by the Appellant also failed in professional responsibilities, with a complaint pending before , 2386 & 2387/PUN/2025 [A] – (03 Appeals) the ICAI Disciplinary Committee, and hence the delay is bona fide and deserves to be condoned in the interest of substantial justice, in line with the settled principle that procedural delays should not defeat adjudication on merits.” Findings & Analysis : 2. We have heard both the parties and perused the records. In this case, Assessee is a Co-operative Housing Society. Assessee filed its Return of Income for A.Y.2015-16 on 29.09.2015 declaring income at Rs.2,31,530/-. Assessee has claimed deduction u/s.80P of the Act. A notice u/s.148 was issued on 31.03.2021. Assessee filed Return of Income in response to notice u/s.148 on 29.04.2021 declaring total income at Rs.2,31,530/- and claiming deduction u/s.80P of Rs.1,21,254/-. Assessing Officer disallowed assessee’s claim of deduction of Rs.71,254/- which was interest received from Co-operative Bank. Aggrieved by the assessment order, Assessee filed an appeal before ld.CIT(A). There was a delay in filing appeal before the ld.CIT(A). It was submitted before ld.CIT(A) that Assessee’s Tax Consultant was not available due to the ill health of his father. However, ld.CIT(A) dismissed the appeal on account of delay stating that no evidence has been filed.
3. Aggrieved by the order of the ld.CIT(A), Assessee has filed appeal before this Tribunal. It is noticed that there is a delay of 5 filing appeal before this Tribunal. The Secretary of the Assessee , 2386 & 2387/PUN/2025 [A] – (03 Appeals) Society has filed an Affidavit requesting for condonation of delay. The reason mentioned in the Affidavit as under: “5. The delay in filing is bona fide and arose from the following circumstances beyond the control of the Appellant: a. The former treasurer of the Appellant society indulged in fraudulent activities resulting in grave financial loss and disrupting proper compliance which only came in the knowledge of the Appellant upon Audit of financial statements. This severely hindered the Appellant's ability to collate records and prepare the Appeal within time. b. The tax consultant, who handled the Appellant's tax matters, was abroad and unavailable for a substantial period during the relevant timeline, further causing unavoidable delay Subsequent to the CIT(A) order, civil and criminal proceedings were initiated against the tax consultant, of which the Appellant became aware only recently, necessitating renewed legal interventions and delaying Appeal preparations. Details of civil & criminal proceedings against tax consultants are annexed hereto and marked as "Annexure B". d. A Forensic Audit Report of the transactions of the Appellant for the period from 1st April 2019 to 30th September 2024 was conducted, and the report was handed over to the Appellant on 31st March 2025. Upon perusal of the said audit report, it was revealed that there were several unauthorized transactions, instances of grave negligence on the part of the former CA, and multiple lapses in the handover process. These matters are further evidenced by the police complaint filed against the former CA, a complaint submitted to the ICAI, and a complaint filed before the Consumer Forum, all of which contributed to the delay 6 Copies of the police complaint, ICAI complaint, and Consumer Forum complaint are annexed hereto and marked as "Annexure C", , 2386 & 2387/PUN/2025 [A] – (03 Appeals) e. The appointment of a new CA took place in May 2025 by the newly constituted Managing Committee of the Society. Upon perusal of the Income Tax Portal by the newly appointed CA, the Appellant came to know about the demands raised against various Assessment Years and further discovered that the order of the CIT (A) had already been passed, with no subsequent action taken in respect thereof. Immediately thereafter, the preparation of the present Appeal commenced diligently. A copy of the letter evidencing the appointment of the new CA is annexed hereto and marked as "Annexure D".
The above facts and accompanying documentary evidence such as police FIR, ICAI complaint, forensic audit reports, appointment letters which demonstrate that the delay was entirely beyond the control and was not due to any negligence or willful default by the Appellant
7. It is respectfully submitted that the Appellant has exercised utmost due diligence and has a genuine and substantial case on merits for the subject Appeal. It is admitted for adjudication rather than dismissed on technical grounds of delay.”
We have studied the Affidavit and accompanying documents. We are convinced that there was sufficient and reasonable cause for delay. Accordingly, the delay is condoned.
5. It was pleaded before us that ld.CIT(A) for A.Y.2018-19 on identical facts has allowed assessee’s appeal. Assessee has filed copy of the order passed by ld.CIT(A) for A.Y.2018-19 dated 03.03.2025. 7 , 2386 & 2387/PUN/2025 [A] – (03 Appeals) 6. It is observed that there was a delay of 4 months 14 days in filing appeal before ld.CIT(A). It is also noted that there was a valid reason for delay in filing appeal before the ld.CIT(A). Substantial justice is more important than procedural delay. Assessee is not going to gain anything by delaying the filing of appeal. Accordingly, we direct the ld.CIT(A) to condone the delay. In these facts and circumstances of the case, we set-aside the order of ld.CIT(A) to ld.CIT(A) for denovo adjudication. The ld.CIT(A) shall grant opportunity to the Assessee. The Assessee shall file necessary documents before the ld.CIT(A). Accordingly, grounds of appeal raised by the Assessee are allowed for statistical purpose.
In the result, appeal of the assessee in is allowed for statistical purpose.
8. Since we have set-aside the Lead Appeal in to ld.CIT(A) for denovo adjudication, therefore, our order therein passed shall apply mutatis mutandis to both these appeals also. Accordingly, Grounds of appeal raised by the Assessee in both the appeals are allowed for statistical purpose.
, 2386 & 2387/PUN/2025 [A] – (03 Appeals) 9. To sum up, three appeals of the assessee in are allowed for statistical purpose. Order pronounced in the open Court on 12 December, 2025.