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

Brief facts of the case are that the assessee is a House Building Construction Co-Operative Housing Society, filed its return of income on 04/01/2022 for the assessment year 2021-2022 disclosing a net taxable income as NIL under the status of Co-operative Society. During this assessment year, assessee earned interest income from investments in nationalised banks. Accordingly, assessee claimed deduction under section 80P(2)(d) of the Act in respect of the above said income earned from co-operative banks while filing the return of income. While processing the assessment under section 143(1) of the Income Tax Act, 1961 (for short “the Act”) Centralized Processing Centre, Bangalore disallowed the claim of the assessee under section 80P(2)(d) of the Act. Aggrieved, assessee filed an application under section 154 of the Act, seeking rectification of the above order. However, Centralized Processing Centre, Bangalore has rejected the rectification application.

Aggrieved, assessee preferred appeal before the learned CIT(A) and filed a detailed written submissions during the course of the appellate proceedings. After considering the submissions of the assessee learned CIT(A) observed that the disallowance under section 80P(2) was made in the original assessment order under section 143(1) of the Act and not under section 154 of the Act. He, therefore, dismissed the appeal on the ground that the assessee cannot challenge the denial of deduction under section 80P under the order of section 154 by relying on certain decisions and assessee should have challenged the same under section 143(1) of the Act.

Assessee is, therefore, before me in this appeal contending that the issue in no longer res integra and is squarely covered by the decision of the Hon'ble Andhra Pradesh High Court in the case of The Vavveru Co- operative Rural Bank Ltd. vs. CCIT (2017) [396 ITR 371] (AP), Ashoka Palace Co-op. Hsg. Soc. Ltd., vs. ITO, in dated 31/10/2022 and Hilla Heights Co-operative Housing Society Limited vs. ADIT in ITA No. 2850/Mum/2022, dated 03/04/2023.

Learned DR placed heavy reliance on the orders of the Revenue authorities.

I have gone through the record in the light of the submissions made on either side. Issue involved in this matter is no longer res integra and the Hon’ble jurisdictional High Court considered the same in extenso in the case of The Vavveru Co-operative Rural Bank Ltd. (supra). On a threadbare analysis of the provisions under section 80P of the Act in the light of various decisions including the decision of the Hon’ble Apex Court in the case of Totgars Co-operative Sale Society Ltd. vs. ITO [2010] 188 Taxman 282 (SC) and the decision of jurisdictional High Court in the case of CIT vs. Andhra Pradesh State Co-operative Bank Ltd [2011] 12 taxmann.com 66 (Andhra Pradesh), the Hon’ble High Court reached a conclusion that if the investment is made in fixed deposits in nationalised banks from out of the own funds of the assessee, the interest derived from such investment would be from the activities listed in clause (i) to (vii) of section 80P(2)(a) of the Act and would be eligible for deduction.

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.

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.

In the result, appeal of the assessee is treated as allowed for statistical purposes.