The Income Tax Appellate Tribunal (ITAT), Mumbai, has held that a co-operative society’s deduction under Section 80P(2)(d) cannot be denied merely because the corresponding income was entered in an incorrect column of the income tax return, when both the income and the deduction claim were otherwise disclosed.

The bench of Beena Pillai (Judicial Member) and Jagadish (Accountant Member) directed the Assessing Officer to allow a deduction of ₹65,52,150 for Assessment Year 2021–22, subject to verification that the amount represented eligible interest or dividend income from investments with co-operative societies or co-operative banks. It expressly limited the exercise to this verification, observing that no further enquiry was warranted.

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The bench held that, for Assessment Year 2019–20, the Centralised Processing Centre (CPC) could not disallow a Section 80P deduction through an adjustment under Section 143(1)(a)(v) merely because the return was filed after the prescribed due date. The statutory amendment expanding that adjustment power took effect only from April 1, 2021.

For Assessment Year 2021–22, the society filed its return on December 27, 2021, declaring total income of ₹16,05,640 after claiming a deduction of ₹65,52,150 under Section 80P(2)(d).

The deduction related to income stated to have been earned from investments with co-operative banks and co-operative societies. However, while completing Part A–P&L of the return, the society showed interest and dividend income as nil in the relevant columns.

The return nevertheless disclosed ₹81,57,789 as income from other sources. It also specifically disclosed ₹65,52,150 in Schedule 80P as interest or dividend income from investments in other co-operative societies.

The CPC denied the deduction during processing under Section 143(1). A subsequent rectification order dated May 13, 2025, corrected the double consideration of income of ₹81,57,789. However, another rectification order dated February 13, 2026, computed total income at ₹81,57,790 without allowing the Section 80P(2)(d) deduction.

The appellate authority upheld the denial on the basis of the CPC’s validation mechanism. That mechanism restricted the deduction to the lower of the amounts appearing in the relevant P&L/BFLA schedules. Since the interest and dividend entries in Part A–P&L were nil, the deduction was reduced to nil.

The appellate authority also held that the society should have entered the particulars in the correct columns and filed a revised return after discovering the error.

Before the tribunal, the society argued that the denial resulted from an incorrect classification in Part A–P&L, even though the underlying income and the deduction claim were both disclosed in the return.

The Revenue relied on the appellate authority’s order.

The tribunal noted that the disclosure of ₹81,57,789 as income from other sources and the separate claim of ₹65,52,150 in Schedule 80P were admitted features of the record. Consequently, this was not a case in which either the income or the deduction claim was absent from the return.

It held that an inconsistency between return schedules could not, by itself, determine substantive eligibility under the Income-tax Act when the corresponding income was disclosed and the deduction was specifically claimed in the prescribed schedule.

The tribunal further observed that the CPC’s own rectification computation recognised ₹65,52,150 under the heading relating to interest or dividend from investments in other co-operative societies. Despite this recognition, the deduction had been reduced to nil because of the validation arising from another schedule.

In these circumstances, the tribunal concluded that the society’s substantive claim could not be rejected merely because of the erroneous classification, as the nature of the income and the deduction claim were ascertainable from the return.

It set aside the appellate order and directed an allowance of ₹65,52,150 under Section 80P(2)(d), subject to verification of the source and nature of the income. 

The appeal for Assessment Year 2019–20 concerned a deduction of ₹91,26,052 under Section 80P(2)(d). This comprised ₹89,38,431 in interest from fixed deposits and ₹1,87,621 in interest from savings bank accounts maintained with co-operative banks.

The society filed its return on September 20, 2019, after the extended due date of August 31, 2019.

The CPC denied the deduction, and the disallowance was subsequently sustained in rectification proceedings. The appellate authority upheld the denial by invoking Section 80AC because the return had been filed beyond the due date. It also observed that the society could seek condonation of the delay under Section 119(2)(b) before the competent authority.

In its grounds of appeal, the society attributed the delay to disputes within its managing committee. It stated that those disputes ultimately led to the committee’s dissolution and the appointment of an administrator by the Registrar in January 2021.

The tribunal’s decision, however, turned on the scope of the CPC’s statutory adjustment power for the assessment year concerned.

The tribunal examined whether Section 143(1)(a)(v), as applicable to Assessment Year 2019–20, permitted the CPC to deny a Section 80P deduction solely because the return was belated.

It relied on the co-ordinate bench decision in Vishva Villa Co-operative Housing Society Ltd. v. ITO, decided on June 27, 2024.

Under the provision as it stood before the amendment, adjustments for belated filing covered deductions under Sections 10AA, 80-IA, 80-IAB, 80-IB, 80-IC, 80-ID and 80-IE. The Finance Act, 2021, expanded the provision, with effect from April 1, 2021, to cover deductions under the heading “C.—Deductions in respect of certain incomes” in Chapter VI-A.

The tribunal also relied on Kakad House Co-operative Housing Society Ltd. v. ITO, decided on August 29, 2025, which addressed the same controversy for Assessment Year 2019–20.

Following these decisions, it held that the Section 80P(2)(d) disallowance could not have been made through an adjustment under Section 143(1)(a)(v) for Assessment Year 2019–20 merely because the return was filed late.

The appellate authority’s reliance on the belated filing could not sustain an adjustment that exceeded the permissible scope of the processing provision applicable to that year. 

The tribunal also considered the substantive eligibility of interest earned by a co-operative society from deposits or investments with co-operative banks.

It relied on Kaliandas Udyog Bhavan Premises Co-operative Society Ltd. v. ITO, reported in (2018) 94 taxmann.com 15. That decision held that, although Section 80P(4) excludes a co-operative bank from claiming deduction under Section 80P, the bank continues to be a co-operative society within the meaning of Section 2(19).

Accordingly, interest earned by another co-operative society from investments with a co-operative bank qualifies for deduction under Section 80P(2)(d), following that precedent.

The tribunal noted that the same position had been reiterated in ITO v. Mittal Court Premises Co-operative Society Ltd., decided on October 31, 2022.

For Assessment Year 2019–20, the appellate authority had itself recorded that the ₹91,26,052 claim represented interest income from investments with co-operative banks. There was no finding disputing either the society’s status or the source of the income.

The tribunal therefore set aside the appellate order and directed the Assessing Officer to verify the claim and consider it according to law, having regard to the cited decisions. It also required that the society receive a proper opportunity of being heard.

The tribunal allowed both appeals in the terms specified in its order.

For Assessment Year 2019–20, the ₹91,26,052 deduction claim was restored to the Assessing Officer for verification and consideration according to law after the tribunal rejected the CPC adjustment made on the ground of belated filing.

For Assessment Year 2021–22, the tribunal directed an allowance of ₹65,52,150, subject only to verification that the amount represented eligible interest or dividend income from investments with co-operative societies or co-operative banks.

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