Co-operative society interest deduction allowed where issue was debatable; prima facie adjustment and rectification were unsustainable.

Interest earned by a co-operative housing society from deposits with a co-operative bank was treated as deductible under section 80P(2)(d), because section 80P(4) was read as denying relief only to co-operative banks on their own income, not to a society receiving interest from them. The claim was also held too debatable for prima facie disallowance under section 143(1) or rectification under section 154, since those provisions apply only to apparent mistakes and not to issues requiring interpretation or conflicting precedent. The disallowance was therefore deleted with consequential relief.

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Issues: (i) Whether interest earned by a co-operative housing society from deposits with a co-operative bank was eligible for deduction under section 80P(2)(d) of the Income-tax Act, 1961. (ii) Whether disallowance of the claim could be made while processing the return under section 143(1) and sustained by rectification under section 154 of the Income-tax Act, 1961.

Issue (i): Whether interest earned by a co-operative housing society from deposits with a co-operative bank was eligible for deduction under section 80P(2)(d) of the Income-tax Act, 1961.

Analysis: The controversy was treated as covered by the coordinate bench decision in a similar matter. The distinction between a co-operative bank and a co-operative society was recognised, and section 80P(4) was understood as denying deduction to co-operative banks on their own income, not as disabling a co-operative society from claiming deduction on interest earned from deposits with such banks. The issue was also noted to have divergent judicial views, which reinforced its debatable character.

Conclusion: The deduction under section 80P(2)(d) was held to be allowable on the interest income from deposits with co-operative banks.

Issue (ii): Whether disallowance of the claim could be made while processing the return under section 143(1) and sustained by rectification under section 154 of the Income-tax Act, 1961.

Analysis: The scope of section 143(1) was held to be confined to prima facie adjustments apparent from the return and not to contentious questions requiring interpretation of law or examination of competing precedents. Likewise, section 154 was held to apply only to an obvious mistake apparent from the record. Since the claim depended on a debatable legal issue, it could not be treated as an incorrect claim apparent from the return or as a mistake capable of rectification.

Conclusion: The adjustment under section 143(1) and the rectification under section 154 were held to be unsustainable.

Final Conclusion: The assessee succeeded, and the disallowance of deduction was directed to be deleted with consequential relief.

Ratio Decidendi: A debatable claim involving interpretation of section 80P cannot be disallowed as a prima facie adjustment under section 143(1) or corrected as a mistake apparent from the record under section 154.

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