HIRA MANEK CO OPERATIVE HOUSING SOCIETY LIMITED ,MUMBAI vs. ITO WARD 34(2)(1), MUMBAI

Further in the earlier A.Y 2019-20 there was no disallowance u/s 80P. However, in A.Y 2020-21 the Appellant Society received Intimation u/s 143(1) wherein there was denial of deduction u/s 80P. This led to recovery proceedings. At this juncture the Appellant Society approached and received proper professional advice and thus the Appellant is now submitting the Appeal. The Appellant Society, therefore prays that the delay of 680 days in filing the present appeal may kindly be condoned as there is no malafide or deliberate inaction on the part of the Appellant Society in filing the Appeal before the ITAT. Further, it is humbly submitted that the Appellant but for grant of condonation would be liable to pay the substantial demand which in the humble opinion of the Appellant is a completely a wrong addition and which would be against the principle of natural justice.”

We find that the reasons stated by the assessee for seeking condonation of delay fall within the parameters for grant of condonation laid down by the Hon’ble Supreme Court in the case of Collector Land Acquisition, Anantnag v/s MST Katiji and others: 1987 SCR (2) 387. It is well established that rules of procedure are the handmaid of justice. When substantial justice and ITAs No.8499 & 8500/Mum/2025 (A.Ys. 2021-22 & 2020-21) 3 technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred. In the present case, the assessee did not stand to benefit from the late filing of the appeals. In view of the above and having perused the application filed by the assessee, we are of the considered view that there exists sufficient cause for not filing the present appeals within the limitation period and therefore, we condone the delay in filing the appeals by the assessee and proceed to decide the same on merits.

Since both appeals pertain to the same assessee, arising out of a similar factual matrix leading to similar issues, these appeals were heard together as a matter of convenience and are being decided by way of this consolidated order. With the consent of the parties, the appeal for the assessment year 2020-21 is considered as a lead case, and the decision rendered therein shall apply mutatis mutandis to the other appeal.

As the grounds raised

Erroneous Interpretation of Section 80P(2)(d): The Learned CIT(A) erred in holding that interest income earned by the Appellant from investments with a co-operative bank/societies is not eligible for deduction u/s 80P(2)(d). The Appellant submits that co-operative banks are also "co-operative societies" within the meaning of Section2(19) of the Income Tax Act and therefore, such income is squarely covered by section 80P(2)(d).

Failure to Consider Jurisprudence: The Learned CIT(A) failed to consider and follow binding judicial precedents, including the decisions of the Hon'ble ITAT and various High Courts holding that interest from cooperative banks is deductible u/s 80P(2)(d).

Erroneous Levy of Interest u/s 234B and 234C: The Learned CIT (A) has erred in upholding the levy of Interest u/s 234B of Rs.14,743 instead of Rs. 3,410 and Interest u/s 234C of Rs. 4,389 instead of Rs. 1,561.”

The sole grievance of the assessee is against the denial of deduction claimed under section 80P(2)(d) of the Act on the interest income earned from deposits maintained with Co-operative Banks.

The brief facts of the case are that the assessee is a co-operative housing society duly registered under the Maharashtra State Co-operative Society Act. For the assessment year 2020-21, the assessee filed its return of income on 12/02/2021, declaring a total income of INR 1,38,160. The return

We have considered the submissions of both sides and perused the material available on record. In the present case, the assessee is a co- operative housing society collecting money from its members for the maintenance of the society and spending it on the same. As per the assessee, the surplus funds collected from its members are kept from time to time in Deposits with Co-operative Banks, and the interest earned thereon is recognised as income of the society. Thus, during the assessment year 2020- 21, the assessee earned interest income of INR 1,79,222 from its deposits maintained with the Co-operative Banks, viz. Mumbai District Central Cooperative Bank Ltd and Saraswat Cooperative Bank Ltd, and the same was claimed as a deduction under section 80P(2)(d) of the Act, which was denied by the lower authorities.

We find that while deciding a similar issue, the Coordinate Bench of the Tribunal in Pathare Prabhu Co–operative Housing Society v/s ITO, reported in (2023) 202 ITD 464 (Mum-Trib), held that interest income earned from investment with Co-operative Bank is eligible for deduction under section ITAs No.8499 & 8500/Mum/2025 (A.Ys. 2021-22 & 2020-21) 6 80P(2)(d) of the Act. The relevant findings of the coordinate bench, in the aforesaid decision, are reproduced as follows: – “8. We have considered the submissions of both sides and perused the material available on record. The only dispute raised by the assessee is against the disallowance of deduction under section 80P(2)(d) of the Act in respect of interest income received from the Co-operative Banks. The assessee is a registered Co-operative Housing Society and during the assessment year 2018-19 earned interest income of Rs. 50,39,861 from the investments made in various Co-operative Banks.

Before proceeding further, it is relevant to note the provisions of section 80P of the Act under which the assessee has claimed the deduction in the present case. As per the provisions of section 80P(1) of the Act, the income referred to in sub-section (2) to section 80P shall be allowed as a deduction to an assessee being a Co-operative Society. Further, section 80P(2)(d) of the Act, reads as under: "80P. Deduction in respect of income of co-operative societies. (1) ** ** ** (2) The sums referred to in sub-section (1) shall be the following, namely:- (a) to (c) ** ** ** (d) in respect of any income by way of interest or dividends derived by the co- operative society from its investments with any other co-operative society, the whole of such income;"

Thus, for the purpose of provisions of section 80P(2)(d) of the Act, two conditions are required to be cumulatively satisfied- (i) income by way of interest or dividend is earned by the Co-operative Society from the investments, and (ii) such investments should be with any other Co-operative Society. Further, the term “co-operative society” is defined under section 2(19) of the Act as under: "(19) "co-operative society" means a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies ;"

In the present case, there is no dispute that the assessee is a Co-Operative Housing Society. Thus, if any income as referred to in sub-section (2) to section 80P of the Act is included in the gross total income of the assessee, the same shall be allowed as a deduction. It is pertinent to note that since the assessee is registered under the Maharashtra Co-operative Societies Act, 1960, it is required to invest or deposit its funds in one of the modes provided in section 70 of the aforesaid Act, which includes investment or deposit of funds in the District Central Co-operative Bank or the State Co-operative Bank. Accordingly, the assessee kept the deposits in Co-operative Banks registered under the Maharashtra Co-operative Societies Act and earned interest, which was claimed as a deduction under section 80P(2)(d) of the Act. The AO denied the deduction under section 80P(2)(d) of the Act on the basis that the Co- operative Bank is covered under the provisions of section 80P(4) of the Act. We find that the Hon’ble Supreme Court in Mavilayi Service Co-operative Bank

As regards the claim of deduction under section 80P(2)(d) of the Act, it is also pertinent to note that all Co-operative Banks are Co-operative Societies but vice versa is not true. We find that the coordinate benches of the Tribunal have consistently taken a view in favour of the assessee and held that even the interest earned from the Co-operative Banks is allowable as a deduction under section 80P(2)(d) of the Act. In Kaliandas Udyag Bhavan Premises Co- op Society Ltd. v. ITO [2018] 94 taxmann.com 15 (Mum.)/[ITA No. 6547/Mum./2017, dated 25-4-2018], while dealing with the provisions of section 80P(2)(d) vis-à-vis section 80P(4) of the Act, the coordinate bench of the Tribunal observed as under: "7. ……Thus, from a perusal of the aforesaid sec. 80P(2)(d) it can safely be gathered that income by way of interest income derived by an assessee co- operative society from its investments held with any other cooperative society, shall be deducted in computing the total income of the assessee. We may herein observe, that what is relevant for claim of deduction under sec. 80P(2)(d) is that the interest income should have been derived from the investments made by the assessee co-operative society with any other cooperative society. We though are in agreement with the observations of the lower authorities that with the insertion of sub-section (4) of sec. 80P, vide the Finance Act, 2006, with effect from 1-4-2007, the provisions of sec. 80P would no more be applicable in relation to any co-operative bank, other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank, but however, are unable to subscribe to their view that the same shall also jeopardise the claim of deduction of a co-operative society under sec. 80P(2)(d) in respect of the interest income on their investments parked with a co-operative bank. We have given a thoughtful consideration to the issue before us and are of the considered view that as long as it is proved that the interest income is being derived by a co-operative society from its investments made with any other co-operative society, the claim of deduction under the aforesaid statutory provision, viz. sec. 80P(2)(d) would be duly available. We may herein observe that the term 'co-operative society' had been defined under sec. 2(19) of the Act, as under:- '(19) "Co-operative society" means a cooperative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any state for the registration of co-operative societies;' We are of the considered view, that though the co-operative bank pursuant to the insertion of Sub-section (4) of sec. 80P would no more be entitled for claim of deduction under sec. 80P of the Act, but however, as a co-operative bank continues to be a co-operative society registered under the Co-operative

We find that the learned CIT(A) has placed reliance upon the decision of the Hon'ble Karnataka High Court in Pr. CIT v. Totagars Co-operative Sales Society [2017] 83 taxmann.com 140/395 ITR 611, wherein it was held that interest earned by the assessee, a Co-operative Society, from surplus deposits kept with a Co-operative Bank, was not eligible for deduction under section 80P(2)(d) of the Act. We find that in an earlier decision the Hon'ble Karnataka High Court in Pr. CIT v. Totagars Co-operative Sale Society [2017] 78 taxmann.com 169/392 ITR 74 held that according to section 80P(2)(d) of the Act, the amount of interest earned from a Co-operative Society Bank would be deductable from the gross income of the Co-operative Society in order to assess its total income. Thus, there are divergent views of the same Hon'ble High Court on the issue of eligibility of deduction under section 80P(2)(d) of the Act in respect of interest earned from Co-operative Bank. No decision of the Hon'ble jurisdictional High Court was brought to our notice on this aspect. We have to, with our highest respect to both the views of the Hon'ble High Court, adopt an objective criterion for deciding as to which decision of the Hon'ble High Court should be followed by us. We find guidance from the judgment of the Hon'ble Supreme Court in CIT v. Vegetable Products Ltd. [1973] 88 ITR 192. In the aforesaid decision, the Hon'ble Supreme Court has laid down a principle that "if two reasonable constructions of a taxing provisions are possible, that construction which favours the assessee must be adopted".

Therefore, in view of the above, we uphold the plea of the assessee and direct the AO to grant the deduction under section 80P(2)(d) of the Act to the assessee in respect of interest income earned from investment with Co- operative Banks. Accordingly, we set aside the impugned order passed by the learned CIT(A) for the assessment year 2018-19. As a result, grounds raised by the assessee are allowed.”

Therefore, respectfully following the decision of the Coordinate Bench of the cited supra, we direct the AO to grant a deduction under section 80P(2)(d) of the Act to the assessee in respect of the interest income earned from deposits made with the Co-operative Banks. Accordingly, the impugned order is set aside, and the Grounds No.1, 3 and 4 raised in the assessee’s appeal for the assessment year 2020-21, pertaining to this issue, are allowed.

In view of the aforesaid findings, Ground No.2, raised in the assessee’s appeal, is rendered academic. Further, Ground No.5, raised in the assessee’s appeal, pertains to the levy of interest under section 234B and 234C of the Act, which is consequential in nature, and therefore needs no separate adjudication.

In the result, the appeal by the assessee for the assessment year 2020- 21 is allowed.

Since the assessee in its appeal for the assessment year 2021-22 has raised similar grounds, our findings/conclusions as rendered in the appeal for the assessment year 2020-21 shall apply mutatis mutandis. The grounds of appeal for the assessment year 2021-22 are decided accordingly.

In the result, the appeal by the assessee for the assessment year 2021- 22 is allowed.

To sum up, both appeals by the assessee are allowed.