ITAT Mumbai on Section 80P(2)(d): Belated Return and Interest from Co‑operative Bank Deposits

Background of the Dispute

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) recently dealt with an important issue concerning:

  • Allowability of deduction under Section 80P(2)(d) in cases where the return of income is filed after the due date under Section 139(1) for pre‑2018 assessment years; and
  • Eligibility of interest income earned from deposits with a co‑operative bank (specifically Saraswat Co‑operative Bank) for Section 80P(2)(d) deduction.

The assessee, Sterling Court F Wing CO-OP Hsg Socy Limited, challenged three appellate orders passed by the CIT(A) for Assessment Years (AYs) 2012–13, 2013–14 and 2014–15. All three appeals arose out of rectification orders issued under Section 154 by the Assessing Officer (AO).

As the legal controversy and facts were common across all years, the Tribunal decided the matters through a consolidated order, treating AY 2012–13 as the lead year and applying the same reasoning to AYs 2013–14 and 2014–15.

Core Facts for AY 2012–13

Return Filing and Processing

  • The assessee filed its return of income for AY 2012–13 on 27.09.2012.
  • Total income was declared at ₹89,650 after claiming deduction under Section 80P(2)(d) in respect of interest income.
  • The Centralized Processing Centre (CPC) processed the return under Section 143(1) on 27.02.2013.
  • In this processing, the deduction of ₹2,66,556 claimed under Section 80P(2)(d) was disallowed.

Rectification under Section 154

  1. The assessee moved a rectification application under Section 154 before the Jurisdictional Assessing Officer, contending that denial of Section 80P(2)(d) deduction was a clear error apparent from the record.
  2. The AO, however, rejected the rectification application by order dated 28.04.2023, stating that:
    • There was no “mistake apparent from the record” within the meaning of Section 154.
    • Hence, no rectification was permissible.

First Appeal before CIT(A)

Aggrieved by the rectification rejection, the assessee approached the CIT(A).

The CIT(A) dismissed the appeal on two main grounds:

  1. Belated return and Chapter VI‑A bar

    • The return had been filed after the due date prescribed under Section 139(1).
    • Relying on Section 80A(5) read with Section 139(1), the CIT(A) held that deduction under Chapter VI‑A, including Section 80P, was not available when the return was not filed within the statutory due date.

  2. Nature of interest from Saraswat Co-operative Bank

    • The interest income was earned from deposits with Saraswat Co‑operative Bank, which holds an RBI licence to conduct banking business.
    • The CIT(A) concluded that such a bank does not qualify as a “co‑operative society” for the purposes of Section 80P(2)(d).
    • On this reasoning, it was held that the case attracted Section 80AC, and the assessee was not eligible for deduction under Section 80P at all.

Against this consolidated adverse view, the assessee carried the matter to the ITAT.

Grounds Raised before the Tribunal

While there were minor variations in figures for each year, the substantive grounds for AY 2012–13 were representative and can be summarised as follows:

  • The rectification application under Section 154 ought to have been allowed because disallowance of ₹2,65,526 under Section 80P was a mistake apparent from the record.
  • The authorities erred in law and on facts in holding that a bank/co‑operative bank cannot be regarded as a “co‑operative society” and in sustaining the denial of Section 80P deduction.
  • No adjustment disallowing Section 80P could legally be made under Section 143(1)(a) because the issue is debatable and outside the limited scope of prima facie adjustments.

Assessee’s Submissions before ITAT

1. Belated Return and Section 80P for Pre‑2018 Years

The assessee’s authorised representative submitted that:

  • For AYs 2012–13, 2013–14 and 2014–15, the law did not mandate filing of the return within the due date under Section 139(1) as a pre‑condition for claiming deduction under Section 80P.
  • Reliance was placed on:
    • The decision of ITAT Mumbai in Sterling Court E Wing Co-op Housing Society Ltd Vs ITO in ITA Nos. 72 to 75/M/2024 for AYs 2012–13 to 2015–16 (order dated 28.06.2024), and
    • CBDT Circular No. 13/2023 dated 26.07.2023.

CBDT Circular No.