Section 80P Deduction Cannot Be Denied Via Section 143(1) Adjustment For Belated Returns Prior To AY 2021-22

By | November 3, 2026
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Section 80P Deduction Cannot Be Denied Via Section 143(1) Adjustment For Belated Returns Prior To AY 2021-22

Issues

  1. Section 80P / Section 143(1)(a)(v) Adjustment (AY 2019-20): Whether a Section 80P deduction claimed in a belated return filed after the Section 139(1) due date could be disallowed by way of summary adjustment under Section 143(1)(a)(v) for assessment years prior to AY 2021-22.
  2. Section 80P(2)(d) / Interest from Co-operative Banks (AY 2019-20 & AY 2021-22): Whether a co-operative society is entitled to a deduction under Section 80P(2)(d) on interest and dividend income derived from investments/deposits made with co-operative banks and co-operative societies.
  3. Section 80P / Processing Inaccuracies & Schedule Misclassification (AY 2021-22): Whether an otherwise admissible Section 80P deduction can be denied during Section 143(1) processing due to a “lower of” validation error caused by an inter-schedule reporting mismatch when the income is fully disclosed and claimed in Schedule 80P.

Facts

  • Profile & Nature of Income: The assessee is a co-operative commercial premises society that derived interest and dividend income from deposits/investments placed with co-operative banks and co-operative societies.
  • AY 2019-20 Disallowance (Belated Return): The assessee filed its return of income for AY 2019-20 after the extended due date prescribed under Section 139(1). While processing the return under Section 143(1), the Assessing Officer (AO) disallowed the deduction under Section 80P(2)(d) by invoking Section 143(1)(a)(v) due to belated filing.
  • AY 2021-22 Disallowance (Schedule Mismatch): For AY 2021-22, the assessee disclosed ₹81.58 lakhs under “Income from Other Sources” and specifically claimed ₹65.52 lakhs in Schedule 80P. However, it inadvertently entered “nil” in the interest/dividend columns in Part A of the Profit and Loss Account.
  • Appellate Treatment: The AO and the CIT(A) denied the Section 80P deduction for AY 2021-22 under Section 143(1) by applying a automated “lower of” validation rule triggered by the Part A-P&L mismatch, despite recognizing the underlying nature of the income as interest from co-operative banks.

Decision

  • Scope of Section 143(1)(a)(v) Prior to AY 2021-22: Held in favour of the assessee. Prior to the amendment by the Finance Act, 2021 (effective April 1, 2021), Section 143(1)(a)(v) permitted adjustments for belated returns only for specified sections (Sections 10AA, 80-IA, 80-IAB, 80-IB, 80-IC, 80-ID, and 80-IE). Therefore, Section 80P deductions could not be disallowed under Section 143(1)(a)(v) for AY 2019-20. [Paras 5.1 & 5.3]
  • Allowability of Interest Under Section 80P(2)(d): Held in favour of the assessee. Since the status of the assessee as a co-operative society was undisputed and the income was earned from investments with co-operative banks/societies, the assessee was fully entitled to deduction under Section 80P(2)(d) for both AY 2019-20 and AY 2021-22. [Paras 5.8 & 9.3]
  • Hyper-Technical Validation Errors under Section 143(1): Held in favour of the assessee. Substantive entitlement under Section 80P cannot be defeated at the summary processing stage merely due to incorrect inter-schedule column classification, provided the underlying income is disclosed and explicitly claimed in Schedule 80P. The AO was directed to allow the deduction subject to verification of the income source. [Para 9.5]

Key Takeaways

  • Prospective Operation of Section 143(1)(a)(v) Amendment: The expansion of Section 143(1)(a)(v) by the Finance Act, 2021 to cover all Chapter VI-A (Heading C) deductions for belated returns applies only from AY 2021-22 onward and cannot be given retrospective effect to penalize earlier returns.
  • Substance Over Format in CPC Processing: Automated CPC processing under Section 143(1) cannot reject a statutory deduction solely due to structural reporting or inter-schedule classification errors in the return form when the claim and income details are clearly discernable from Schedule 80P.
  • Eligibility of Co-operative Bank Interest: Interest and dividend income earned by a co-operative society from funds deposited with co-operative banks qualifies for deduction under Section 80P(2)(d).
IN THE ITAT MUMBAI BENCH ‘C’
Poonam Chambers B Wing Commercial Premises Co-operative Society Ltd.
v.
Deputy Commissioner Income-tax
Smt. Beena Pillai, Judicial Member
and Jagadish, Accountant Member
IT Appeal Nos. 7043 & 7044 (Mum.) of 2026
[Assessment years 2019-20 and 2021-2022]
OCTOBER  8, 2026
Vishnu Agarwal, AR for the Appellant. Ajay Soneji, SR-Dr for the Respondent.
ORDER
Smt. Beena Pillai, Judicial Member. – Present appeals have been filed by the assessee against two separate orders, both dated 18/03/2026, passed by the Ld. Addl./JCIT(A), Kochi, u/s 250 of the Income-tax Act, 1961 (“the Act”), for A.Ys. 2019-20 and 2021-22 respectively. Since the assessee is common and the principal issue involved in both appeals relates to deduction claimed u/s 80P(2)(d) of the Act, they were heard together and are being disposed of by way of this common order.
ITA No.7043/Mum/2026 – A.Y. 2019-20
2. The assessee has raised the following grounds of appeal:
“1. On the facts and in the circumstances of the case and in law, the Learned CIT(A) has erred in confirming the action of CPC Bengaluru in respect of disallowance of deduction claimed by the appellant under Section 80P(2)(d) amounting to Rs. 91,26,052. The said action of the Ld. A.O. is grossly incorrect, invalid and bad in law.
2. On the facts and circumstances of the case and in law, the action of the Learned CIT(A) in upholding the adjustment made under Section 143(1)(a) of the Act is grossly incorrect, invalid and bad in law, since CPC Bengaluru has no such power for making disallowance of deduction claimed u/s 80P(2)(d) of the I. T. Act, 1961. Such power for disallowing any deduction claimed under Chapter VIA under the heading C Deductions in respect of certain incomes was introduced vide Finance Act 2021 and was applicable for subsequent years.
3. On the facts and circumstances of the case and in law, the Ld. CIT(A) while passing the order at para 5.5 of the order has mentioned that, having failed to comply to the provisions of S.80AC, which is applicable from the A.Y. 2018.19, deduction u/s.80P (2)(d) was rightly denied by the CPC, however such disallowance cannot be made by CPC as such powers deduction could be made by CPC only for assessment year commencing on or after 01/04/2021. In this regard, reliance is placed on the decision of Honble Mumbai ITAT, in case of Vishva Villa Co op Housing Society Ltd.
4. On the facts and circumstances of the case and in law, the return of the appellant was filed on 20/09/2019 i.e. 20 days after the extended due date of 31/08/2019. Further, such delay was due to situation beyond control of the appellant as there were dispute within its managing committee which ultimately led to dissolution of the managing committee and appointment of an Administrator by the Registrar in January 2021. Thus, there was delay in filing the return.
5. On the facts and circumstances of the case and in law, the Ld. CIT(A) without even going into merits of the case that, the interest income earned by the Appellant from investments and deposits with Co-operative Banks is eligible for deduction under Section 80P(2)(d) of the Income-tax Act, 1961.
6. The Appellant craves leave to add, alter, amend or withdraw any of the above grounds at or before the time of hearing.”
3. Brief facts of the case are as under:-
Assessee is a co-operative commercial premises society deriving, inter alia, interest income from deposits/investments with cooperative banks. For the year under consideration, the assessee claimed deduction of Rs.91,26,052/- u/s 80P(2)(d) comprising interest of Rs.89,38,431/- from fixed deposits and Rs.1,87,621/-from savings bank accounts maintained with co-operative banks.
3.1 The return of income was filed on 20/09/2019, whereas the extended due date u/s 139(1) was 31/08/2019. The CPC denied the deduction claimed u/s 80P(2)(d), which was subsequently sustained in the rectification proceedings.
Aggrieved, the assessee preferred appeal before the Ld. CIT(A).
3.2 . The Ld. CIT(A) observed that the return had been filed beyond the prescribed due date and, invoking section 80AC, upheld the denial of deduction u/s 80P(2)(d). The Ld.CIT(A) further observed that the assessee may seek condonation of delay in filing the return u/s 119(2)(b) before the competent authority.
Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before us.
4. The Ld.AR submitted that, for the year under consideration, the CPC had no jurisdiction within the limited scope of section 143(1)(a) to disallow the deduction claimed u/s 80P(2)(d) merely on the ground that the return was filed beyond the due date prescribed u/s 139(1). In this regard, specific reliance was placed upon the decision of the Coordinate Bench in Vishva Villa Cooperative Housing Society Ltd. v. ITO [IT Appeal Nos. 682 to 684 (Mum.) of 2024, dated 27-6-2024], which has also been specifically referred to in Ground No.3 raised before us.
4.1 On merits, the Ld. AR submitted that the interest income was earned from deposits/investments with co-operative banks and was eligible for deduction u/s 80P(2)(d).
4.2 The Ld. DR relied upon the orders passed by the authorities below.
We have perused the submissions advanced by both sides in light of the record placed before us.
5. The first issue that arises for consideration is whether, for A.Y. 2019-20, the CPC could have denied the assessee’s claim of deduction u/s 80P(2)(d) while processing the return u/s 143(1)(a), on the ground that the return was furnished beyond the due date specified u/s 139(1).
5.1. We find that the Coordinate Bench in Vishva Villa Co-operative Housing Society Ltd. v. ITO, ITA Nos.682 to 684/Mum/2024, order dated 27/06/2024 , considered an identical issue and held that prior to A.Y. 2021-22, the scope of section 143(1)(a)(v), as it then stood, permitted adjustment on account of belated filing only in respect of deductions specified therein, namely sections 10AA, 80-IA, 80-IAB, 80-IB, 80-IC, 80-ID and 80-IE. It was only pursuant to the amendment by the Finance Act, 2021, effective from 01/04/2021, that the scope of clause (v) was enlarged to cover deduction claimed under the heading “C.—Deductions in respect of certain incomes” under Chapter VI-A. Thus, for assessment years prior to A.Y. 2021-22, deduction claimed u/s 80P could not be denied by way of an adjustment u/s 143(1)(a)(v) merely because the return had been furnished beyond the due date prescribed u/s 139(1).
5.2. We further find that the Coordinate Bench in Kakad House Co-operative Housing Society Ltd. v. ITO [IT Appeal No. 1188 (Mum.) of 2025, dated 29-8-2025], has thereafter considered the very same controversy specifically for A.Y. 2019-20. In that case also, deduction u/s 80P had been denied on the ground that the return was filed u/s 139(4) and not within the due date prescribed u/s 139(1). After considering, inter alia, Vishva Villa Co-operative Housing Society Ltd. (supra), the Coordinate Bench held that the amendment to section 143(1)(a)(v), enabling disallowance of deduction claimed under Chapter VI-A, was made by the Finance Act, 2021 with effect from 01/04/2021 and accordingly directed the Assessing Officer to allow the deduction u/s 80P for A.Y. 2019-20.
5.3. The factual position in the present case is materially similar. The assessment year before us is also A.Y. 2019-20 and the denial of deduction u/s 80P(2)(d) arose on account of the return having been filed beyond the due date specified u/s 139(1). Respectfully following the decisions of the Coordinate Benches in Vishva Villa Co-operative Housing Society Ltd. (supra) and Kakad House Cooperative Housing Society Ltd. (supra), we hold that the impugned disallowance could not have been made by way of adjustment u/s 143(1)(a)(v) for the year under consideration.
5.4. We therefore do not find merit in the conclusion of the Ld. CIT(A) that the assessee’s claim could be sustained as disallowed merely because the return was furnished beyond the due date u/s 139(1). Once the adjustment itself travelled beyond the permissible scope of section 143(1)(a)(v) applicable to A.Y. 2019-20, the disallowance cannot be sustained in the manner in which it has been made.
5.5. Even otherwise, on the substantive eligibility of the income, the Coordinate Bench of this Tribunal in case of Kaliandas Udyog Bhavan Premises Co-op Society Ltd. v. ITO   (Mumbai), held that although section 80P(4) excludes a co-operative bank from claiming deduction u/s 80P, a co-operative bank continues to be a “co-operative society” within the meaning of section 2(19) of the Act. Consequently, interest income earned by a co-operative society from its investments with a co-operative bank is eligible for deduction u/s 80P(2)(d).
5.6. The same view has been reiterated by the Coordinate Bench of this Tribunal in ITO v. Mittal Court Premises Co-operative Society Ltd. [IT Appeal Nos.1535 to 1537 (Mum.) of 2022, dated 31-10-2022], wherein it was held that interest income derived by a co-operative society from investments made with a co-operative bank is eligible for deduction u/s 80P(2)(d).
5.7. In the present case, the Ld.CIT(A) has himself recorded that the deduction of Rs.91,26,052/- represented interest income earned from investments with co-operative banks. There is no finding in the impugned order disputing either the nature of the assessee as a co-operative society or the fact that the impugned income was earned from investments/deposits with co-operative banks.
5.8. In view of the above, we set aside the order of the Ld. CIT(A) and direct the Ld.AO to verify assessee’s claim of deduction u/s 80P(2)(d) and to consider it according to law based having regard to various settled decisions on this issue. Needless to say that proper opportunity of being heard must be granted to the assesse.
Accordingly, Grounds Nos.1 to 5 raised by the assessee are allowed.
Ground No.6 being general in nature requires no separate adjudication.
ITA No.7044/Mum/2026 – A.Y. 2021-22
6. The assessee has raised the following grounds of appeal:
“1. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in confirming the action of CPC in restricting the deduction claimed under Section 80P(2)(d) of the Income-tax Act, 1961 to NIL as against the claim of the appellant amounting to Rs.65,52,150/-, despite the fact that the Appellant had actually earned and disclosed the corresponding interest/dividend income from investments with cooperative societies.
2. On the facts and circumstances of the case and in law, CPC, Bengaluru and the Ld. CIT(A) has failed to appreciate the fact that, while disclosing income under the head ‘Income from Other Sources’, the appellant has properly disclosed the amount of interest income from cooperative banks/society amounting to Rs.65,52,150/-.
3. On the facts and circumstances of the case and in law, the Ld. CIT(A) has failed to appreciate the fact that, even in the rectification order passed by CPC, Bengaluru has computed the amount of Interest from Investment in cooperative society u/s 80P(2)(d) amounts to Rs.65,52,150/- and still disallowed the deduction claimed by the appellant amounting to Rs.65,52,150/-.
4. On the facts and circumstances of the case and in law, CPC Bengaluru has disallowed such deduction claimed by the appellant merely because the appellant has mistakenly shown income of Rs.81,57,754/- earned by the appellant from bank interest under Any Other Income under the head Other Income in the Profit & Loss Account instead of showing the same under Interest Income under the head Other Income in the Profit & Loss Account.
5. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in upholding the mechanical action of CPC in restricting deduction claimed by the appellant u/s 80P(2)(d) by applying the ‘lower of’ validation formula without appreciating that the corresponding income was otherwise fully disclosed in the return of income and formed part of the total income offered to tax.
6. On the facts and circumstances of the case and in law, the Ld. CIT(A) has failed to appreciate that CPC, Bengaluru while processing the return under Section 143(1), could not have mechanically denied the deduction claimed u/s 80P(2)(d) without proper verification of the books of account and supporting records, especially when the income itself stood disclosed in the return.
7. On the facts and circumstances of the case and in law, the Ld. CIT(A) has failed to appreciate that substantive tax benefits cannot be denied on account of mere technical or clerical defects in the return of income, particularly when there is no dispute regarding the genuineness, taxability, or disclosure of the underlying income. The action of the Department in denying the deduction merely due to incorrect schedule classification is arbitrary, unjustified and contrary to settled principles of substantial justice.
8. The Appellant craves leave to add, amend, alter or withdraw any ground at the time of hearing.”
7. Brief facts for this year are that the assessee filed its return of income on 27/12/2021 declaring total income of Rs.16,05,640/-after claiming deduction of Rs.65,52,150/- u/s 80P(2)(d). The said amount represented interest income stated to have been earned from investments with co-operative banks/co-operative societies. The deduction was denied while processing the return u/s 143(1). Subsequently, the CPC rectified the double consideration of income of Rs.81,57,789/- by an order u/s 154 dated 13/05/2025. Thereafter, another rectification order dated 13/02/2026 was passed wherein the total income was computed at Rs.81,57,790/- and the deduction of Rs.65,52,150/- u/s 80P(2)(d) was not allowed.
7.1 On an appeal, the Ld.CIT(A) noticed that while the assessee had shown dividend and interest income at nil in the relevant columns of Part A-P&L, an amount of Rs.81,57,789/- stood disclosed as income from other sources and Rs.65,52,150/- was specifically disclosed in Schedule 80P as interest/dividend from investment in other co-operative society u/s 80P(2)(d).
7.2 The Ld. CIT(A), upheld the denial on the ground that the CPC validation restricted the deduction to the lower of the amounts appearing in the relevant P&L/BFLA schedules, and as interest/dividend had been shown at nil in Part A-P&L, the deduction was correctly restricted to nil. The Ld. CIT(A) further held that the assessee ought to have furnished the particulars in the correct columns and, upon discovering the error, ought to have filed a revised return.
8. Before us, the Ld.AR submitted that the corresponding income had admittedly been disclosed under the head “Income from Other Sources” and the deduction of Rs.65,52,150/- had also specifically been claimed in Schedule 80P. It is submitted that the denial, arose merely because of an incorrect classification in Part A-P&L and not because the income or the claim had not been disclosed.
8.1 The Ld. DR relied upon the order passed by the Ld. CIT(A).
We have perused the submissions advanced by both sides in light of the record placed before us.
9. The issue before this Tribunal in the present appeal is whether, a substantive deduction that is otherwise admissible u/s 80P(2)(d) to the assesse, could be denied merely because the assessee, while disclosing the corresponding income and specifically claiming the deduction in Schedule 80P, classified the income under an incorrect column in another part of the return.
9.1 It is an admitted position from the impugned order itself that the assessee disclosed Rs.81,57,789/- as income from other sources and separately disclosed Rs.65,52,150/- in Schedule 80P as interest/dividend from investment in other co-operative society u/s 80P(2)(d). Thus, this is not a case where either the income or the claim of deduction was altogether absent from the return.
9.2 The denial arose only because interest/dividend income was reflected at nil in Part A-P&L, resulting in application of the system-generated “lower of” validation. In our considered view, such inter-schedule classification cannot by itself determine the substantive eligibility of the assessee under the provisions of the Act when the corresponding income stands disclosed and the deduction has also specifically been claimed in the prescribed Schedule 80P.
9.3 . Insofar as the substantive eligibility of interest income earned from deposits/investments with co-operative banks u/s 80P(2)(d) is concerned, our findings recorded in paragraphs 5.5. to 5.8 hereinabove shall apply mutatis mutandis to the present assessment year also. Accordingly, following Kaliandas Udyog Bhavan Premises Co-operative Society Ltd. (supra) and Mittal Court Premises Co-operative Society Ltd. (supra), the assessee is entitled to deduction u/s 80P(2)(d) in respect of the eligible interest income earned from investments/deposits with cooperative banks. The Mumbai Bench in Mittal Court Premises Cooperative Society Ltd. specifically reiterated that interest derived by a co-operative society from investment with a co-operative bank qualifies for deduction u/s 80P(2)(d).
9.4 We further observe that even the CPC’s rectification computation recognises the amount of Rs.65,52,150/- against the head “Interest/Dividend from investment in other co-operative society” u/s 80P(2)(d). However, the deduction was reduced to nil merely on account of the validation arising from another schedule. The assessee’s substantive claim cannot, in the peculiar facts before us, be denied merely on account of such erroneous classification when the nature of the income and the claim itself are discernible from the return.
9.5 We accordingly set aside the order of the Ld. CIT(A) on this issue and direct the Ld.AO to allow the deduction of Rs.65,52,150/- u/s 80P(2)(d), subject to verification that the said amount represents interest/dividend income derived from investments with co-operative societies/co-operative banks as disclosed in the return. No further enquiry beyond such verification is warranted.
Accordingly, Grounds Nos.1 to 7 raised by the assesse stands allowed.
Ground No.8 being general in nature requires no separate adjudication.
In the result, both the appeals filed by the assessee stand allowed in terms indicated hereinabove.