Homebuyer Claims S. 80C Deduction for Housing Loan Repayment, Wins Dept Challenge: Know How ITAT Ruled

The Income Tax Appellate Tribunal (ITAT) Panaji recently ruled in favour of a taxpayer who had claimed a deduction under Section 80C of the Income Tax Act, 1961, for repayment of a housing loan taken from a cooperative credit society.

This decision was delivered by the Single Member Bench of Judicial Member Shri Pavan Kumar Gadale in Allavuddin Unmarasab Hurakadli v. National Faceless Assessment Centre, ITA No. 229/PAN/2025 (A.Y. 2016-17), provides clarity and relief to homebuyers who rely on smaller cooperative institutions for financial assistance.

Background

The assessee, Mr. Allavuddin Unmarasab Hurakadli, a resident of Mapusa, Goa, had not filed his income tax return for the assessment year 2016-17. Based on information available in the Income Tax Business Application (ITBA) system, the Assessing Officer (AO) observed that substantial cash deposits were made in his bank accounts during the financial year 2015-16.

On this basis, the AO formed the belief that income had escaped assessment and initiated proceedings under Section 147 ofthe Income Tax Act. A notice under Section 148 was issued, followed by a detailed questionnaire under Section 142(1). In compliance, the assessee filed his return of income on 17 February 2022 through the e-filing portal.

During the course of the assessment, the AO scrutinised the statement of affairs and other submissions furnished by the assessee. Two key issues emerged:

1. Repayment of housing loan amounting to Rs. 4,81,109: The AO noticed that this repayment was not clearly reflected in the statement of affairs and concluded that it must have been made from undisclosed sources. Consequently, an addition was made under Section 69C (unexplained expenditure).
2. Deduction under Section 80C: The assessee claimed a deduction of Rs. 1,50,000 under Section 80C in respect of the housing loan repayment made to The Jana Utkarsh Urban Co-operative Credit Society Ltd. The AO, however, denied the deduction on the ground that the said society was not among the institutions specifically listed under Section 80C(2)(xviii)(c) of the Act.

Your Ultimate Guide to India’s Latest Income Tax Laws, Click Here

Accordingly, the total income of the assessee was assessed at Rs. 10,94,109 by an order passed under Section 147 read with Section 144B on 23 March 2022.

Appeal Before the Commissioner (Appeals)

Aggrieved by the assessment order, the assessee approached the Commissioner of Income Tax (Appeals) [NFAC, Delhi]. The counsel argued that the housing loan repayment was duly made from legitimate business and personal savings, and that the deduction under Section 80C was valid because the cooperative credit society was engaged in providing housing loans to its members.

The Commissioner (Appeals) upheld the Assessing Officer’s order. They confirmed the addition made under Section 69C and also sustained the denial of the deduction under Section 80C. The appeal was dismissed, leading the assessee to approach the Income Tax Appellate Tribunal, Panaji.

Arguments Before the ITAT

Before the Tribunal, the assessee was represented by Shri Shyam Jagannath Kamat submitted that all necessary documents had been filed, including statements of account and a certificate from The Jana Utkarsh Urban Co-operative Credit Society Ltd.

The certificate clearly indicated that the society was authorised to grant housing loans to its members. The repayment of the loan was made through the assessee’s pigmy deposit account, which was funded from his business sales and savings.

The counsel further argued that the authorities below had failed to appreciate these facts and had overlooked the documentary evidence placed in the paper book.

The Departmental Representative, Shri Ish Gupta, argued that the evidence relating to the source of repayment had not been properly verified by the lower authorities and suggested that the matter be remanded to the Assessing Officer for fresh examination.

Tribunal’s Observations

After hearing both parties and reviewing the records, the Tribunal made distinct findings on the two issues.

1. Unexplained Expenditure under Section 69C

The Tribunal noted that the documentary evidence regarding the repayment of the housing loan and the flow of funds from the pigmy deposit account needed proper verification. In the interest of justice, it remanded this issue back to the Assessing Officer for fresh adjudication. The AO was directed to provide adequate opportunity to the assessee to produce all relevant details and to pass an order afresh after examining the evidence.

Your Ultimate Guide to India’s Latest Income Tax Laws, Click Here

Thus, the addition of Rs. 4,81,109 under Section 69C was not deleted outright but was sent back for reconsideration.

2. Deduction under Section 80C

On the deduction issue under Section 80C, the Tribunal observed that The Jana Utkarsh Urban Co-operative Credit Society Ltd. was indeed engaged in the business of providing credit facilities to its members, which included housing loans for construction or purchase of residential property.

The certificate issued by the cooperative society, submitted by the assessee, was accepted as genuine and was not disputed by the Department. Since the repayment of the housing loan was supported by evidence and the institution qualified under the meaning of Section 80C(2)(xviii)(c), the Tribunal held that the assessee was eligible to claim the deduction.

The ITAT directed the Assessing Officer to delete the disallowance of Rs. 1,50,000 made under Section 80C.

The ITAT partly allowed the appeal:

• The claim for deduction under Section 80C was allowed in favour of the assessee.
• The addition under Section 69C was remanded to the Assessing Officer for verification.

Conclusion

This case clarifies that housing loan repayments to cooperative credit societies can qualify for deduction when the institution is engaged in genuine lending activities. For homebuyers who rely on cooperative societies for financing, this judgment provides valuable reassurance.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates