The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has held that interest income earned from a co-operative bank is eligible for deduction under Section 80P(2)(d), even if the income tax return (ITR) was filed late, in certain older assessment years.
The ruling came in the case of Sterling Court F Wing Co-operative Housing Society Ltd., where the Tribunal also pulled up the tax department for denying the deduction during automated processing.
What was the case about?
The housing society had filed its ITR for AY 2012-13 on September 27, 2012, declaring income of ₹89,650 after claiming deduction under Section 80P.
However, when the return was processed under Section 143(1) in February 2013, the Central Processing Centre (CPC) disallowed deduction of around ₹2.66 lakh claimed on interest income earned from Saraswat Co-operative Bank.
The society then filed a rectification application under Section 154, arguing that the disallowance was a mistake. But this was rejected by the Assessing Officer in April 2023, and later upheld by the CIT(A) in September 2025.
The key reasons cited by the tax authorities were:
The ITR was filed after the due date, so deduction should not be allowed
A co-operative bank should not be treated as a co-operative society for Section 80P benefits
What did the ITAT say?
In its order dated January 12, 2026, the ITAT reversed the lower authorities’ decisions and ruled in favour of the taxpayer.
The Tribunal made two key observations:
- Late filing does not block deduction (for old years)
The ITAT noted that for AYs 2012-13, 2013-14 and 2014-15, the law did not mandate timely filing for claiming Section 80P deduction. It also relied on CBDT Circular No. 13/2023.
- Co-operative bank interest is eligible
Even though co-operative banks have RBI licences, they continue to be co-operative societies, and hence interest earned from them qualifies for deduction under Section 80P(2)(d).
- CPC cannot decide debatable issues
The Tribunal also said that such a disallowance cannot be made through automated processing under Section 143(1), as the issue is debatable.
Accordingly, the ITAT directed the tax department to allow the deduction, and extended the relief to AY 2013-14 and 2014-15 as well.
What experts say
Rohit Garg, Partner Tax, Shardul Amarchand Mangaldas & Co., says: “This is definitely a welcome ruling. It may be noted that the ITAT has provided relief, relying on another bench decision which uphold the claim of deduction under section 80P(2)(d) on interest earned from investments held with co-operative banks.
However, it may be noted that there have been judgements from various High Courts as well which have taken a view favourable to the taxpayers on this very issue.
Having said that, this issue is still extremely litigative, and will be settled once, there is a definitive Supreme Court ruling, crystallising the interpretation of Section 80P(2)(d) read with Section 80P(4). Until that time, risk of litigation continues.”
On compliance, he adds: “Despite favourable decisions from various High Courts and Tribunals, including this decision, it is strongly recommended that co-operative societies should file their returns in a timely manner. In case they opt to file a belated return, whether or not such delay can be condoned is entirely at the discretion of the higher tax authorities.
That apart, in order to justify their claims of deduction under Section 80P(2)(d) societies should have the relevant underlying documents to substantiate their claims. This includes retaining the relevant registration certificates of the co-operative banks and ensuring their financial statements and bank documents clearly identify the institution as a registered cooperative bank.
Despite these safeguards, if the claim is rejected after filing of returns, the concerned co-operative society should ensure the relevant appeal/litigation measures are availed in a timely manner.”
Why this ruling matters
This ruling is important because it:
Gives relief to housing societies earning interest from co-op banks
Clarifies confusion around late ITR filing and Section 80P claims
Limits the scope of automatic disallowances by CPC
Reinforces a taxpayer-friendly interpretation in case of ambiguity
At the same time, as experts point out, the issue is not fully settled and may continue to see litigation until the Supreme Court lays down a final position.
It is important to note that this is a ruling of the Income Tax Appellate Tribunal (ITAT). ITAT decisions can be challenged before the High Court and, thereafter, the Supreme Court. Therefore, legal positions may evolve depending on further appeals.
Disclaimer: This article is for informational purposes only and does not constitute professional tax advice. Tax laws and regimes are subject to frequent changes by the government. Readers should verify details with official Income Tax Department notifications or consult a Chartered Accountant before making any financial decisions.