Deduction under 80P(2)(D): interest from cooperative bank investments held allowable; appeal admitted after condonation of delay.

Condonation of delay was granted where appellate filing followed a rectification application and the reasons for delay were accepted, admitting the appeal. On the substantive tax point, disallowance made during return processing was held impermissible because the limit on adjustments during processing does not extend to Chapter VI-A deductions where the return was filed within time. Cooperative banks were treated as co-operative societies for purpose of the statute, and interest received from investments with such societies falls within the deduction permitted by the provision; accordingly the specific disallowance in the intimation was reversed.

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Issues: (i) Whether the delay in filing the appeal against the intimation under section 143(1) should be condoned. (ii) Whether the assessee is entitled to deduction of interest income from investments with cooperative banks under section 80P(2)(D) of the Income-tax Act, 1961.

Issue (i): Whether the delay in filing the appeal should be condoned.

Analysis: The intimation under section 143(1) was issued on 25/10/2022 and the appeal before the appellate authority was filed beyond the statutory time limit. A rectification application under section 154 was filed on 20/12/2022 and the assessee submitted that the rectification order could be viewed only on 20/02/2023, following which the appeal was filed on 02/03/2023. The appellate authority declined to condone the delay. The reasons given for the delay were examined in the context of the statutory timeline and the facts surrounding the rectification filing and its outcome.

Conclusion: The delay in filing the appeal is condoned and the appeal is admitted for adjudication.

Issue (ii): Whether the assessee is entitled to deduction under section 80P(2)(D) for interest income from investments with cooperative banks.

Analysis: The disallowance was effected while processing the return under section 143(1)(a). The permissible adjustments under section 143(1)(a) were examined and it was found that disallowance of a deduction under Chapter VI-A is permissible under section 143(1)(a)(v) only where the return was furnished beyond the due date, which is not the case. The definition of "co-operative society" was reviewed and cooperative banks were found to fall within that definition as societies engaged in banking business. Section 80P(2)(D) allows deduction of income by way of interest derived by a co-operative society from its investments with any other co-operative society. The facts show the assessee received interest from cooperative banks that qualify as co-operative societies; therefore the deduction is covered by the provision.

Conclusion: The assessee is entitled to deduction of Rs. 604,396 under section 80P(2)(D) of the Income-tax Act, 1961 and the disallowance made in the intimation is not sustainable.

Final Conclusion: The appeal is allowed on both grounds - the delay in filing the appeal is condoned and the claimed deduction under section 80P(2)(D) is held allowable, resulting in reversal of the disallowance made in the intimation under section 143(1).

Ratio Decidendi: Disallowance of a deduction under Chapter VI-A cannot be effected under section 143(1)(a) unless the return was furnished beyond the due date; cooperative banks qualify as co-operative societies and interest income from investments with such cooperative societies is allowable as deduction under section 80P(2)(D) of the Income-tax Act, 1961.

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