ITAT Mumbai: Pending Rectification Application Justifies Delay Condonation; Section 80P(2)(d) Deduction Restored for Co-operative Housing Society

Background and Overview

The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, recently delivered a significant ruling in the case of Rushabh Apartment Co-op. Housing Society Limited Vs ITO (ITAT Mumbai) concerning Assessment Year 2012-13. The matter revolved around two critical issues — whether the delay of nearly a decade in filing an appeal before the Commissioner of Income-tax (Appeals) deserved to be condoned, and whether the Central Processing Centre (CPC), Bengaluru, was legally empowered to disallow a deduction claimed under Section 80P(2)(d) of the Income Tax Act, 1961 while processing the return under Section 143(1).

The Tribunal's ruling carries considerable weight for co-operative housing societies across Maharashtra and other states that have faced similar summary disallowances at the CPC level without being afforded any opportunity to present their case.

Facts of the Case

The assessee, a co-operative housing society duly registered under the Maharashtra Co-operative Societies Act, had filed its income tax return for AY 2012-13 declaring a total income of Rs. 79,910/- after claiming a deduction of Rs. 3,30,305/- under Section 80P(2)(d) of the Income Tax Act, 1961. The said deduction pertained to interest income received from Maharashtra District Co-operative Bank Ltd., which was earned on deposits maintained with the co-operative bank.

CPC Disallowance Without Notice

While processing the return under Section 143(1), the CPC, Bengaluru, vide its order dated 26.02.2013, summarily disallowed the entire deduction claimed under Section 80P. No reasons were communicated to the assessee, nor was any opportunity granted to respond before the disallowance was effected. The total interest income earned during the relevant year stood at Rs. 4,10,218/-, of which Rs. 3,30,305/- was received from Maharashtra District Co-operative Bank Ltd. and thus eligible for the deduction.

Rectification Applications Filed

Aggrieved by the arbitrary disallowance, the assessee filed a rectification application on 06.06.2013 under the relevant provisions. The CPC disposed of this application without granting the required relief, directing the assessee to file a fresh online rectification request by selecting a different rectification category and uploading a corrected XML file.

Acting on this guidance, the assessee filed a second rectification application on 23.08.2013. However, this second application was never disposed of and continued to remain pending without any resolution, even as of 20.06.2024 — more than eleven years after its submission.

Delay in Filing Appeal Before CIT(A)

Since no order was passed on the second rectification application, the assessee remained under the reasonable belief that the matter would be resolved administratively. Eventually, when no disposal was forthcoming, the assessee filed an appeal before the Commissioner of Income-tax (Appeals) on 27.03.2023.