The society had earned ₹4,69,229 as interest income from deposits made with cooperative banks and claimed 100% deduction under Section 80P(2)(d) of the Income Tax Act. The claim was rejected by the CPC, Assessing Officer, and later by CIT(Appeals).

The ITAT did not pass a final order allowing or disallowing the deduction. Instead, it set aside the previous orders and restored the matter to the Assessing Officer for fresh examination.

Key Takeaway from the ITAT Order

Cooperative housing societies can claim tax deduction under Section 80P(2)(d) only on interest earned from deposits kept with eligible cooperative societies or cooperative banks that are not engaged in regular banking business.

If the bank is carrying out normal banking activities (as explained by the Supreme Court in its 2023 Kerala State Co-operative Bank judgment), the interest income will not qualify for 80P(2)(d) deduction and will be taxed as “Income from Other Sources”.

Important Message for All Housing Societies

This order is very relevant for thousands of cooperative housing societies in Maharashtra and across the country. Simply parking funds in any bank that has “Co-operative” in its name is no longer sufficient. Societies will now have to prove the exact legal status and nature of the bank/entity to successfully claim the deduction.

The ITAT has directed the Assessing Officer to verify all documents submitted by the society and strictly follow the Supreme Court ruling before deciding the claim. The society has been given a fresh opportunity to present its case.

This development is likely to impact how housing societies manage their surplus funds and claim tax benefits going forward.

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The order was passed in the case of Horizon Co-operative Housing Society Ltd. Worli, for Assessment Years 2013-14 and 2018-19.

The Core Issue

The dispute revolved around whether interest income earned by a co-operative housing society from fixed deposits kept with co-operative banks qualifies for deduction under Section 80P(2)(d).

The Assessing Officer had denied the deduction, arguing that:

• Section 80P(4) excludes co-operative banks from the benefit of Section 80P.
• Therefore, interest earned from co-operative banks should not qualify for deduction.

The CIT(A), NFAC, upheld the disallowance, relying on certain judicial precedents.

What the Tribunal Held

The ITAT disagreed with the lower authorities and ruled in favour of the assessee.

The Bench observed:

• Section 80P(2)(d) allows deduction for interest income earned by a co-operative society from investments made with “any other co-operative society”.
• A co-operative bank is still legally registered as a co-operative society under the relevant State Co-operative Societies Act.
• Section 80P(4) only restricts co-operative banks from claiming deduction on their own income.
• It does not remove their status as a co-operative society for the purpose of Section 80P(2)(d).

The Tribunal emphasized that reading Section 80P(4) as restricting 80P(2)(d) would amount to adding a limitation that the legislature never intended.

Consistency in Earlier Decisions

The Bench also noted that:

• In the assessee’s own case for AY 2017-18, the Tribunal had already allowed similar deduction.
• Multiple coordinate benches have consistently held that interest from co-operative banks is eligible for deduction under Section 80P(2)(d).
• In case of conflicting judicial views, the interpretation favourable to the assessee must be adopted (as per Supreme Court principle in Vegetable Products case).

Accordingly, the ITAT directed the Assessing Officer to delete the disallowance and allow the deduction for both assessment years.

Why This Matters for Housing Societies

This ruling is particularly important because:

• Most housing societies park surplus maintenance funds in co-operative bank FDs.
• Interest income often becomes a taxable dispute area.
• The decision provides clarity that such interest can qualify for full deduction under Section 80P(2)(d), subject to facts.

For co-operative housing societies across Mumbai and Maharashtra, this judgment could significantly reduce tax exposure on interest income from co-operative bank deposits.

Outcome

Both appeals filed by the assessee were allowed.
Order pronounced on 25 February 2026.

Also Read: Metros continue to dominate residential real estate market in CY22 over other cities

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Vissanji A-1 Friends Co-operative Housing Society Ltd, consisting entirely of senior citizens (most aged 68–80+), has been ordered to pay income tax (plus interest) for assessment years 2011-12 to 2015-16 on interest earned from co-operative bank fixed deposits — an income that was fully exempt under the law prevailing at that time.

Ironically, the society was 100% correct on merits.

The Centralised Processing Centre (CPC) Bengaluru had wrongly disallowed the society’s claim of deduction under Section 80P(2)(d) in 143(1) intimations issued between 2013 and 2016 merely because the returns were filed belatedly. The provision that makes timely filing of return mandatory for Chapter VI-A deductions (Section 80AC) was inserted only from AY 2018-19 — it did not apply to the years in question.

Yet, because of inexplicable lethargy:

• The society took no action for 7–8 years after receiving the 143(1) demands.
• First appeals before CIT(Appeals) were filed only in November 2023 — delayed by 2,500+ days.
• Even after CIT(Appeals) dismissed the appeals in June 2024 on limitation grounds, the society waited another 342 days before approaching ITAT.

In two contradictory affidavits, the society’s 75-year-old secretary blamed a former accountant who “never informed us” and “suddenly left in 2023/2024”. The bench, comprising Judicial Member Sandeep Gosain and Accountant Member Girish Agrawal, was unimpressed.

Dismissing all five appeals on 19 November 2025, the ITAT observed:

“The conduct does not inspire confidence… This is nothing but exploiting the process of law… Phrases like ‘liberal approach’ and ‘substantial justice’ cannot be used to revive dead matters after seven years.”

The tribunal refused to condone even the 342-day delay in filing the present appeals, holding that senior citizenship or ignorance of procedure does not constitute “sufficient cause” when the delay is of such magnitude.

A rough estimate shows the total tax + interest liability across the five years is likely to be ₹4–5 lakh — a significant amount for a small 15-flat society whose members are all senior citizens living on pensions and savings.

Tax practitioners have termed the verdict “technically correct but harsh”, pointing out that thousands of small co-operative societies across Maharashtra suffered similar wrongful 143(1) adjustments during that period, but those who acted within time got full relief.

One senior chartered accountant, speaking anonymously, remarked: “On pure law, this society should have won hands down. But tax litigation is not charity — if you sleep over your rights for eight years, no court will wake you up.”

The order once again underlines the Supreme Court’s repeated dictum: “Law of limitation may harshly affect a particular party, but it has to be applied with all its rigour when the statute so mandates.”

Also Read: ₹60 Lakh Plot Bought in 2005 Sold for ₹8 Crore in 2022 – Income Tax Sends ₹1.6 Crore Demand

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