DURGAMATHA HOUSE BUILDING CONSTRUCTION CO OPERATIVE HOUSING SOCIETY LIMITED,HYDERABAD vs. INCOME TAX OFFICER, WARD-11(1), HYDERABAD

The grounds raised by the assessee read as under :

The learned Commissioner of Income-tax (Appeals) erred in passing an order without considering the fact that the amount of Rs. 6,62,116/- was received as interest from the State Bank of India.

The order of the learned Commissioner of Income-tax (Appeals) is erroneous both on facts and in law, particularly in sustaining the disallowance of Rs. 6,62,116/-.”

The brief facts of the case are that the assessee is a Co- operative Society, filed its return of income on 30.12.2020 admitting income of Rs.Nil on 30.12.2020. The case of the assessee was selected for complete scrutiny through CASS and notice u/s 143(2) as well as Section 142(1) of the Act were issued by the learned Assessing Officer (“Ld. AO”). The assessment was completed by the Ld. AO u/s 143(3) r.w.s. 144B of the Act, on 19.09.2022 making addition of Rs.43,06,861/- on account of interest received from co-operative bank and Rs.6,62,116/- on account of interest received from nationalized banks.

Aggrieved with the order of Ld. AO, assessee filed appeal before the Ld.CIT(A). The Ld.CIT(A) deleted the addition made by the Ld. AO on account of interest form co-operative bank at Rs.43,06,861/-. However, he sustained the addition made by the Ld. AO on account of interest from nationalized banks amounting to Rs.6,62,116/-.

Aggrieved with the order of Ld.CIT(A), the assessee is in appeal before us. The Ld. AR submitted that, the assessee is eligible for deduction u/s 80P(2)(d) on account of interest received from nationalized banks for Rs.6,62,116/-. The Ld. AR further submitted that, under identical issue, in assessee’s own case in dt.25.03.2024, the co-ordinate of bench of ITAT has decided the issue in favour of the assessee.

Per contra, Ld.DR submitted that, the interest received from nationalized bank cannot be allowed as deduction u/s 80P(2)(d) as, only interest received from Co-operative Bank are only allowable as deduction under the said Section. In support of their submissions, the Ld.DR relied on the decision of hon'ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd Vs. Income Tax Officer, Karnataka reported in (2010) 188 Taxmann. 282 (SC). Finally, the Ld.DR prayed before the Bench to uphold the order of Ld.CIT(A).

We have heard the rival submissions and gone through the record in view of the submissions made by both the parties. There is no dispute with regard to the fact that, the interest of Rs.6,62,116/- was received from nationalized bank. The only question before us is to decide whether the assessee is eligible for deduction u/s 80P(2)(d) of the Act or not on receipt of such interest from nationalized bank. The Ld.AR relied on the decision of co- ordinate Bench of ITAT in its own case (supra), wherein the ITAT relied on the decision of Hon'ble High Court of Andhra Pradesh in case of The Vavveru Co-operative Rural Bank Ltd., Vs. CCIT reported in (2017) 396 ITR 371 (AP) and decided the issue in favour of the assessee. The relevant portion of the decision of the co- ordinate Bench of ITAT in assessee’s own case (supra) is reproduced as under :

In the cases of Ashoka Palace Co-op. Hsg. Soc. Ltd., and Hilla Heights Co-operative Housing Society Limited (supra), the claim for deduction under section 80P(2)(d) of the Act was disallowed through intimation under section 143(1) of the Act and the rectification application filed by the assessee under section 154 of the Act was rejected. Appeal filed against the order under section 154 of the Act was also rejected on the ground that the disallowance under section 80P(2) of the Act in the original assessment order under section 143(1) of the Act, but not under section 154 of the Act and, therefore, the assessee cannot challenge the order under section 154 of the Act, directly without challenging the order under section 143(1) of the Act.

In the case of Hilla Heights Co-operative Housing Society Limited (supra), since the disallowance was made under section 143(1) of the Act assessee filed a rectification application before Centralized Processing Centre, Bangalore, however, the same was denied without giving any proper reasons and assessee filed the appeal before the learned CIT(A) and learned CIT(A) did not decide the issue on merits, however, he proceeded to decide the issue on technical ground whether assessee should file the appeal under section 143(1) or 154 of the Act, the Tribunal proceeded to decide the issue on merits in the light of the decided case law.

Since the case on hand is squarely covered by the decision of the jurisdictional High Court in the case of The Vavveru Co-operative Rural Bank Ltd. vs. CCIT (supra), while following the decision of the Co- ordinate Bench of the Tribunal in the case of Hilla Heights Co-operative Housing Society Limited (supra), I am of the considered opinion that the assessee is entitled to claim deduction under section 80P(2)(d) of the Act, if the interest is earned on the deposits of its own funds in the nationalized banks. 10. With this view of the matter, I set aside the orders of the Revenue authorities and restore the issue to the file of learned Assessing Officer to cause verification as to whether the interest in question was earned by the assessee in respect of its own amounts deposited in the nationalized banks, and if it is so, to allow the deduction under section 80P(2)(d) of the Act. Assessee should produce all the relevant material before the learned Assessing Officer and get the matter disposed of on merits.”

We have gone through the decision of Hon'ble High Court of Andhra Pradesh in the case of the Vavveru Co-operative Rural Bank Ltd (supra), where the Hon'ble High Court in a different issue at Para Nos.36 and 37 has held as under :

On perusal of the order of the Hon'ble High Court of Andhra Pradesh in the case of The Vavveru Co-operative Rural Bank Ltd (supra), it is abundantly clear that if original source of funds, which is invested in nationalized bank is from the activities listed in (i) to (vii) of clause (a) of Section 80P(2), then only the interest received from nationalized bank shall be treated as income attributable to the activities listed in sub-section (i) to (vii) of clause (a) of Section 80P(2) and accordingly, will be eligible for deduction u/s 80P(2)(a) of the Act. However, in the case of the assessee, the funds deposited in the nationalized bank are not out of surplus funds from the activities listed in (1)(2) of (vii) of clause (a) of Section 80P(2) of the Act. Further, the assessee has claimed deduction u/s 80P(2)(d) and not under Section 80P(2)(a) of the Act. Therefore, reliance made by the Ld.AR in the case of co-ordinate Bench of the Tribunal(Supra) and Hon'ble High Court’s decision in the case of The Vavveru Co-operative Rural Bank Ltd. (supra) are not applicable in the present case.

Further, for the sake of clarity, it is crucial to reproduce here the provisions of Section 80P(2)(d) of the Act, which is to the following effect :

On going through the aforesaid provisions, it is abundantly clear that the interest or the dividend received from co-operative society is only eligible for such deduction u/s 80P(2)(d) of the Act. However, in the case of the assessee, interest is not received from Co-operative Society. Therefore, in our considered opinion, the interest received by the assessee from nationalized bank is not eligible for deduction u/s 80P(2)(d) of the Act. Hence, we dismiss the appeal of the assessee.

In the result, the appeal of the assessee is dismissed.