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Facts
The assessee, a co-operative housing society, claimed deduction under Section 80P(2)(d) for interest earned on deposits with co-operative banks. The Assessing Officer (AO) and the Commissioner of Income-Tax (Appeals) [CIT(A)] disallowed this deduction, primarily relying on Section 80P(4) and the Supreme Court's decision in Totagar's case. The assessee appealed to the Income-Tax Appellate Tribunal (ITAT).
Held
The ITAT noted that the assessee is a co-operative housing society and that the issue of deduction on interest income from co-operative banks under Section 80P(2)(d) is a debatable one. The Tribunal found that the lower authorities did not adequately consider the submissions and evidence, and that the applicability of Section 80P(4) and the distinction with the Totagar's case needed further examination.
Key Issues
Whether interest income earned by a co-operative housing society from deposits with co-operative banks is eligible for deduction under Section 80P(2)(d) of the Income-tax Act, 1961.
Sections Cited
80P(2)(d), 80P(4), 250, 143(1)(a), 154, 156, 220(1)
AI-generated summary — verify with the full judgment below
Before: SHRI RAHUL CHAUDHARY & SHRI BIJAYANANDA PRUSETH
O R D E R PER BIJYANANDA PRUSETH, AM:
These three appeals filed by the assessee emanate from the orders passed under section 250 of the Income-tax Act, 1961 (in short, ‘Act’), all dated 06.11.2025, by the Addl/JCIT Commissioner of Income-Tax (Appeals)-2, Coimbatore [in short, ‘CIT(A)’] for the assessment years (AY) 2018-19, 2020-21 and 2021-22. Since facts and grounds for three appeals are similar, with the consent of both parties, the appeals were clubbed and heard together and a 9070, 9071 /MUM/2025 (AY 2018-19, 2020-21, 2021-22) Marigold Meridian Co-operative Housing Society Limited common order is passed for the sake of convenience and brevity. ITA No.
9071/Mum/2025 for AY 2021-22 is taken “lead case”.
The grounds of appeal raised by the assessee in are as under:
“1. Erroneous Finding That Co-operative Banks Are Not Co-operative Societies for Section 80P(2)(d) The Learned CIT(A) erred in holding that interest earned from deposits with The Mumbai District Central Co-operative Bank Ltd. and The Thane District Central Co-operative Bank Ltd. is not eligible for deduction u/s 80P(2)(d), failing to appreciate that a Co-operative Bank continues to be a "Co-operative Society" registered under the State Co-operative Societies Act and, therefore, squarely falls within the ambit of Section 80P(2)(d)
Misapplication of Section 80P(4) The Learned CIT(A) erred in applying Section 80P(4) to deny deduction u/s 80P(2)(d). Section 80P(4) restricts deduction only in relation to Section 80P(2)(a)(i) and does not restrict or override the independent deduction available under Section 80P(2)(d). The extension of the exclusion beyond legislative intent is unjustified and illegal.
Incorrect Reliance on Totagar's Co-operative Sale Society Ltd. (SC) The Learned CIT(A) erred in relying on Totagar's judgment, which pertains to Section 80P(2)(a)(i) and classification of income, not to Section 80P(2)(d). Judicial authorities - including Bombay High Court and Karnataka High Court rulings have held that interest from Co-operative Banks is eligible for deduction u/s 80P(2)(d). Failure to apply this distinction renders the order unsustainable.
Failure to Consider Binding Jurisdictional High Court Judgments The CIT(A) erred in ignoring the binding jurisdictional law laid down by the Hon'ble Bombay High Court in PCIT v. Totagars Co-operative Sale Society Ltd. and other decisions holding that interest earned from Co-operative Banks is deductible under Section 80P(2)(d).
Incorrect Assumption That Interest From Co-operative Bank Is Not From Another Co-operative Society The Learned CIT(A) erred in concluding that interest income of Rs. 6,69,161/-was not derived from "investments with another Co-operative Society," contrary to the statutory definition under Section 2(19) and judicial interpretation affirming that a Co-operative Bank is also a Co-operative Society.
Mischaracterisation of Interest as Surplus Funds 2 , 9070, 9071 /MUM/2025 (AY 2018-19, 2020-21, 2021-22) Marigold Meridian Co-operative Housing Society Limited
The CIT(A) erred in treating the invested funds as "surplus" without appreciating that Reserve Fund, Sinking Fund, and Repairs Fund are statutorily mandated under the Maharashtra Co-operative Societies Act, 1960. Investment of such funds in Co-operative Banks does not affect eligibility for deduction u/s 80P(2)(d).
Erroneous Invocation of Section 143(1)(a)(ii) The Learned CIT(A) erred in upholding the adjustment made u/s 143(1)(a)(ii) by CPC on the ground of "incorrect claim apparent from return," ignoring the fact that eligibility of deduction u/s 80P(2)(d) is a debatable and adjudicatory issue, which cannot be adjusted in an intimation under Section 143(1).
Failure to Consider Disclosures and Supporting Evidence The CIT(A) erred by failing to appreciate that the assessee had duly disclosed the interest income, TDS details, and Fixed Deposit statements. All material facts were available on record, and no concealment or misreporting existed.
Incorrect Disallowance of Interest Allocated to Specific Funds The Learned CIT(A) erred in sustaining addition of Rs. 6,69,161/- on the ground that interest was allocated to various funds, ignoring that such allocation is a generally accepted accounting practice in the co-operative sector and has no bearing on the allowability of deduction u/s 80P(2)(d).
Disallowance of Deduction u/s 80P(2)(d) is Contrary to Law and Facts On facts and in law, the CIT(A) erred in confirming disallowance of deduction u/s 80P(2)(d) of Rs.6,69, 161/- for AY 2021-22, despite clear statutory support, judicial precedents, and full disclosure by the assessee.
Violation of Principles of Natural Justice The order is bad in law as it was passed without properly considering the evidence and submissions, including FD statements from Co-operative Banks, rendering the appellate process incomplete and violative of principles of natural justice.
Order is Perverse and Legally Unsustainable The findings of the CIT(A) are perverse, contrary to settled judicial position, and ignore material facts on record. The order therefore deserves to be set aside.
Premature Recovery Proceedings The Ld. CIT(A) has erred in law and on facts in not adjudicating upon illegality of recovery proceedings initiated by the AO, wherein a recovery notice was issued on 21-11-2025 and coercive recovery was effected on 16-12-2025 without serving a valid demand notice u/s 156 and within the statutory period available to the appellant for filing of appeal before the Hon'le ITAT, thereby rendering the recovery action arbitrary, premature and void-ab-inito. Such coercive recovery action is contrary to section 156, 220(1) and settled judicial principles.
9070, 9071 /MUM/2025 (AY 2018-19, 2020-21, 2021-22) Marigold Meridian Co-operative Housing Society Limited
The appellant craves leave to add, amend, modify, or withdraw any ground of appeal at the time of hearing.”
Facts of the case, in brief, are that the assessee filed its return of income for the AY 2021-22 on 17.02.2022 declaring total income at Rs. Nil after claiming deduction u/s. 80P(2)(d) of the Act of Rs.6,69,161/- on interest earned on deposits with co-operative banks namely, The Mumbai District Central Co- operative Bank Ltd. and the Sarswat Co-operative Bank Ltd. The return was processed by the CPC, Bangalore which disallowed the deduction and computed the total income at Rs. 6,69,160/-. The assessee filed rectification application u/s 154 of the Act, which was rejected by the CPC vide order dated 08.12.2022.
Aggrieved by the order of CPC, the assessee filed appeal before the CIT(A), who confirmed the disallowance on the ground that interest from Co-operative Banks is not eligible for deduction u/s 80P(2)(d) of the Act; that section 80P(4) excludes co-operative bank; that adjustment u/s 143(1)(a) was valid and that the Hon’ble Supreme Court in case of Totagar’s Co-operative Sale Society Ltd. Vs. ITO, 322 ITR 283 (SC) held that interest income earned from deposit of co-operative bank is assessable as “income from other sources” and not business income, and not eligible for deduction u/s 80P(2)(a)(i) of the Act. The CIT(A) held that the impugned interest income of Rs. 6,69,168/- is not derived from investments with another co-operative society within the meaning of section 80P(2)(d) of the Act.
, 9070, 9071 /MUM/2025 (AY 2018-19, 2020-21, 2021-22) Marigold Meridian Co-operative Housing Society Limited The CPC rightly disallowed the deduction in line with provisions of section 80P(4) of the Act. Accordingly, the CIT(A) confirm the order u/s 154 of the Act.
Aggrieved by the order of CIT(A), the appellant has filed appeal before the ITAT and raised the grounds of appeal which are extracted at para 2 above. The Ld.AR of the assessee has filed a paper book and submitted that co-operative bank is fundamentally a co-operative society registered under the respective State Co-operative Societies Act and is squarely covered within the meaning of co-operative society u/s 2(19) of the Act. Hence, interest from investment with co-operative bank is interest derived from another co-operative society and is fully eligible for deduction u/s 80P(2)(d) of the Act. The Ld.AR submitted that the CIT(A) incorrectly invoked section 80P(4) to deny the deduction. The said section excludes co-operative banks from claiming deduction u/s 80P for their own income. It does not bar other co-operative societies from claiming deduction u/s 80P(2)(d) on interest received from co-operative bank. He submitted that decision of Totagar’s Co-Operative Sale Society Ltd. (Supra) pertains to deduction u/s 80P(2)(a)(i) and not to deduction u/s 80P(2)(d). The Ld.AR also submitted that the adjustment u/s 143(1)(a) by the CPC is on a debatable issue, which could not be disallowed while processing the return. Only the prima facie and apparent errors can be adjusted u/s 143(1)(a). Therefore, the disallowance was not warranted and rejection of petition u/s 154 of the Act is liable to be deleted. The Ld.AR relied on 5 , 9070, 9071 /MUM/2025 (AY 2018-19, 2020-21, 2021-22) Marigold Meridian Co-operative Housing Society Limited the decisions of the jurisdictional ITAT in the following cases : (i) Lands End Co- operative Housing Society Ltd. Vs. ITO in (ii) Kaliandas Udyog Bhavan Premises Co-op Society Ltd. Vs. Income Tax Officer Mumbai (2018)
94 taxmann.com 15 (Mum.-Trib.) (iii) Anant Co-op Hsg Society Ltd. Vs ITO 20(1)(1), Mumbai CIT(A) 32/IT-468/ITO20(1)(1)/2016-17 and (iv) Sea Grren Co-op HSG Soc Ltd V/s ITO 21(3)(2) ITA No 13443/Mum/2017. The Ld.AR also submitted that the order is bad in law because it was passed without considering the submission and evidences including the FD statements, thereby rendering the order incomplete and violative of the principles of natural justice. He requested that the appellant may be given another chance to explain its case before the AO.
On the other hand, the Ld. SR AR of the revenue supported the orders of lower authorities. However, he has no objection if the matter is set aside to the AO for verification of the claim of the assessee and decision thereon as per law.
We have heard both parties and perused the materials on record. We have also deliberated on the decisions relied upon by both sides. We have also carefully perused provisions of section 80P of the Act. There is no dispute that the appellant is a co-operative housing society registered under the Maharashtra Co- operative Societies Act, 1960. In the return of income filed for AY 2021-22, it had claimed deduction of Rs. 6,69,161/- u/s 80P(2)(d) of the Act in respect of interest earned from the FD’s with The Mumbai District Central Co-operative Bank Ltd. 6 , 9070, 9071 /MUM/2025 (AY 2018-19, 2020-21, 2021-22) Marigold Meridian Co-operative Housing Society Limited and the Sarswat Co-operative Bank Ltd. The CPC disallowed the same u/s 143(1) of the Act. The appellant filed rectification u/s 154 of the Act, which was rejected by the CPC by observing as under :
“The above return was processed u/s 143(1) vide DIN CPC/2122/A5/310699176 dated
19/10/2022. The assessee vide rectification request No 807901970171122 dated
17/11/2022 has stated that there is a mistake(s) in the said Intimation u/s 143(1) which was apparent from record within the meaning of Section 154 of Income Tax Act, 1961.
The details of the mistake(s) as per the assessee is as under. Particulars of mistake(s) Reprocess”
The Ld.AR submitted that the details filed by the assessee was not at all considered by the lower authorities while disallowing the claim of deduction. In the rectification proceeding u/s 154 of the Act also, the details also the submission and evidence including the FD statements on the Co-operative Banks were not properly considered. The Ld.AR also submitted that the decision in case of Totagar’s Co-operative Sale Society was pertain to 80P(2)(a)(i) and not 80P(2)(d)
of the Act. On the other hand, there are several decisions of the jurisdictional ITAT and Hon’ble High Courts in favour of assessees on similar issue. Therefore, he requested that the matter may be set aside and the assessing authority may be directed to verify the submission and evidence and decide the matter as per law.
The Ld.Sr. AR of the revenue has also no objection if the order of CIT(A) is set aside , 9070, 9071 /MUM/2025 (AY 2018-19, 2020-21, 2021-22) Marigold Meridian Co-operative Housing Society Limited and the matter is restored back to AO for verification and decision afresh.
Considering the facts of the case discussed above and the submissions of the parties, we consider it appropriate in the interest of justice to set aside the order of CIT(A) and restore the matter to the file of AO for fresh consideration in the light of the submission and evidences made by the assessee. The AO may call for further details and explanation to arrive at a proper and logical conclusion as per law. The assessee is directed to file necessary explanation and details as may be required by the AO.
In the result, the appeal of the assessee is allowed for statistical purpose.
Since we have set aside the order of CIT(A) for fresh order by the AO, the other grounds become academic in nature and do not require adjudication.
We make it clear that we have not expressed any opinion on the subject issue and the AO shall decide the matter independently in accordance with law.
The facts and grounds of these two appeals are similar to those of ITA No.
9071/Mum/2025 (supra). Following the reasons given therein, these appeals are also set aside to the file of AO for fresh order in accordance with law after allowing adequate and reasonable opportunity of being heard to the appellant.
, 9070, 9071 /MUM/2025 (AY 2018-19, 2020-21, 2021-22) Marigold Meridian Co-operative Housing Society Limited
In combined result, the appeals of the assessee are allowed for statistical purposes.
Order is pronounced on 05.03.2026.
Sd/- Sd/- (RAHUL CHAUDHARY) (BIJYANANDA PRUSETH) JUDICIAL MEMBER ACCOUNTANT MEMBER