2025 (2) TMI 165 - AT - Income Tax

Denial of deduction u/s 80P(2)(d) - assessee filed a rectification petition u/s 154 as rejected - Whether order u/s 154 is not appealable u/s 246A? - HELD THAT - The interest income received by the assessee from cooperative banks has not been disputed by the revenue. The appeal was rejected solely on legal grounds. The Ld. CIT(A) erred in dismissing the appeal holding that an order under section 154 is not appealable despite the clear provision under section 246A(c) of the Act allowing such an appeal. In view of the established judicial precedents and statutory provisions we set aside the impugned appeal order and the addition is deleted. Appeal filed by the assessee is allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

1. Whether an order passed under Section 154 of the Income Tax Act, 1961 is appealable under Section 246A of the Act.

2. Whether the assessee, a Cooperative Housing Society, is entitled to claim a deduction under Section 80P(2)(d) of the Act for interest income earned from investments in cooperative banks.

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Appealability of an Order under Section 154

- Relevant Legal Framework and Precedents: Section 154 of the Income Tax Act, 1961 allows for rectification of mistakes apparent from the record. Section 246A(c) specifies the orders that can be appealed before the Commissioner (Appeals), including orders under Section 154 that affect assessment or refund claims.

- Court's Interpretation and Reasoning: The Tribunal interpreted Section 246A(c) to mean that orders under Section 154 are indeed appealable if they have the effect of enhancing the assessment, reducing a refund, or refusing a claim. The Tribunal found that the CIT(A) erred in dismissing the appeal on the grounds that an order under Section 154 is not appealable.

- Key Evidence and Findings: The Tribunal noted that the CIT(A) dismissed the appeal without considering the clear provisions of Section 246A(c), which explicitly allows appeals against certain orders under Section 154.

- Application of Law to Facts: The Tribunal applied the statutory provisions to the facts, concluding that the CIT(A) had a duty to hear the appeal as the order under Section 154 was appealable.

- Treatment of Competing Arguments: The Tribunal considered the arguments of the revenue authorities but found them unconvincing in light of the statutory language and judicial precedents.

- Conclusions: The Tribunal concluded that the CIT(A) should have entertained the appeal and thus set aside the impugned order.

Issue 2: Entitlement to Deduction under Section 80P(2)(d)

- Relevant Legal Framework and Precedents: Section 80P(2)(d) provides deductions for income earned by cooperative societies from investments in other cooperative societies. Relevant precedents include ITAT Mumbai's decision in M/s Solitaire CHS Ltd. and other cases where similar deductions were allowed.

- Court's Interpretation and Reasoning: The Tribunal referred to previous judicial pronouncements, which clarified that interest income earned by a cooperative society from investments in cooperative banks is eligible for deduction under Section 80P(2)(d). The Tribunal emphasized that cooperative banks are considered cooperative societies under the Act.

- Key Evidence and Findings: The Tribunal noted that the interest income from cooperative banks was not disputed by the revenue, and previous cases supported the deduction claim under Section 80P(2)(d).

- Application of Law to Facts: The Tribunal applied the legal principles established in prior cases to the facts, supporting the assessee's claim for deduction.

- Treatment of Competing Arguments: The Tribunal addressed the revenue's reliance on contrary judgments but found them distinguishable and not applicable to the present facts.

- Conclusions: The Tribunal concluded that the assessee was entitled to the deduction under Section 80P(2)(d) for the interest income earned from investments in cooperative banks.

SIGNIFICANT HOLDINGS

- Verbatim Quotes of Crucial Legal Reasoning: "An order under Section 154 is appealable, and the assessee has the right to challenge such an order before the Ld. CIT(A)." "The interest income derived by a cooperative society from its investments held with a cooperative bank would be entitled for claim of deduction under Sec.80P(2)(d) of the Act."

- Core Principles Established: Orders under Section 154 that affect assessments or refunds are appealable under Section 246A. Cooperative societies are entitled to deductions under Section 80P(2)(d) for interest income from investments in cooperative banks.

- Final Determinations on Each Issue: The Tribunal determined that the CIT(A) erred in dismissing the appeal, and the assessee was entitled to the deduction under Section 80P(2)(d). Both appeals filed by the assessee were allowed.