JAIHIND NAGARI SAHKARI PATSANSTHA MARYADIT,NASHIK vs. INCOME TAX OFFICER, WARD- MALEGAON, NASHIK

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “SMC”, PUNE BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER आयकर अपील सं. / ITA No.135/PUN/2023 िनधा�रण वष� / Assessment Year : 2017-18 Jaihind Nagari Sahkari Vs. ITO, Ward-1, Malegaon. Patsanstha Maryadit, Main Road, Raunaqabad, Malegaon, Nashik- 423203. PAN : AAAAJ8229M Appellant Respondent Assessee by : Shri Sanket Joshi Revenue by : Shri Rajesh Gawali Date of hearing : 20.06.2023 Date of pronouncement : 04.07.2023 आदेश / ORDER PER INTURI RAMA RAO, AM: This is an appeal filed by the assessee directed against the order of the National Faceless Appeal Centre, Delhi [‘NFAC’] dated 28.11.2022 for the assessment year 2017-18. 2. Briefly, the facts of the case are that appellant is a Co- operative Society registered under the Maharashtra Co-operative Societies Act, 1960. It is engaged in the business of providing credit facilities to its members and accepting the deposits from its members. The Return of Income for the assessment year 2017-18

2 ITA No.135/PUN/2023 was filed on 06.08.2018 declaring Rs.Nil income. Against the said return of income, the assessment was completed by the Income Tax Officer, Ward-1, Malegaon (‘the Assessing Officer’) vide order dated 21.11.2019 passed u/s 143(3) of the Income Tax Act, 1961 (‘the Act’) denying the exemption u/s 80P on the ground that the appellant had not filed the return of income within due date prescribed under the provisions of section 139(1) of the Act placing reliance on the provisions of section 80A(5) of the Act. 3. Being aggrieved by the above assessment order, an appeal was filed before the NFAC contending that the Assessing Officer had wrongly invoked the provisions of section 80A(5) or section 80C of the Act, inasmuch as, the assessee made a claim in the return of income, therefore, the provisions of section 80A(5) have no application. Similarly, section 80C have no application, as the section 80C was amended only with effect from the assessment year 2018-19 providing that for claiming deduction u/s 80P, the return of income should be filed within due date prescribed under the provisions of section 139(1) of the Act. However, the NFAC confirmed the action of the Assessing Officer by holding that the

3 ITA No.135/PUN/2023 appellant society violated the provisions of section 80A(5) of the Act. 4. Being aggrieved, the appellant is in appeal before this Tribunal in the present appeal. 5. The ld. Counsel placing reliance on the decision of the Hon’ble Kerala High Court in the case of Chirakkal Service Co- Operative Bank Ltd. Kannur vs. CIT, 384 ITR 490 (Kerala) submits that a return of income filed by the assessee beyond the period stipulated under the provisions of section 139(1), but filed u/s 139(4), can also be accepted and acted upon in such situations, it cannot be treated as return of income filed at any stage of such proceedings could be treated as non-obstante law or invalid for the purpose of deciding the exemption under the provisions of section 80P of the Act. He also placed reliance on the decision of Nagpur Bench of the Tribunal in the case of Krushi Vibhag Karmchari Vrund Sahakari Pat Sanstha Maryadit vs. ITO in ITA No.182/NAG/2019 for A.Y. 2009-10 dated 07.10.2022. 6. On the other hand, ld. Sr. DR placed reliance on the orders of the lower authorities.

4 ITA No.135/PUN/2023 7. Heard the rival submissions and perused the material on record. The issue in the present appeal is no longer res-integra, as it stands settled by the Hon’ble Kerala High Court in the case of Chirakkal Service Co-Operative Bank Ltd. Kannur (supra), wherein, the Hon’ble High Court found that the Tribunal denied the exemption u/s 80P merely on the ground that the assessee filed the return of income belatedly. The relevant paragraphs of the judgment of the Hon’ble Kerala High Court in the case of Chirakkal Service Co-Operative Bank Ltd. Kannur (supra) are as under :- “18. Questions B and C relate to denial of exemption on ground referable to belated filing of return, that is to say, returns filed beyond the period stipulated under section 139(1) or section 139 (4), as the case may be, as well as section 142 (1) or section 148, as the case may be. There are no cases among these appeals where returns were not filed. There are cases where claims have been made along with the returns and the returns were filed within time. Still further, there are cases where returns were filed belatedly, that is to say, beyond the period stipulated under sub-section 1 or 4 of section 139; and, there are also returns filed after the period with reference to sections 142(1) and 148 of the IT Act. 19. Section 80A(5) provides that where the assessee fails to make a claim in his return of income for any deduction, inter alia, under any provision of Chapter VIA under the heading "C.-Deductions in respect of certain incomes", no deduction shall be allowed to him thereunder. Therefore, in cases where no returns have been filed for a particular assessment year, no deductions shall be allowed. This embargo in section 80A(5) would apply, though section 80P is not included in section 80AC. This is so because, the inhibition against allowing deduction is worded in quite similar terms in sections 80A(5) and 80AC, of which section 80A(5) is a provision inserted through the Finance Act 33/2009 with effect from 1.4.2013 after the insertion of section 80AC as per the Finance Act of 2006 with effect from 1.4.2006. This clearly evidences the legislative intendiment that the inhibition

5 ITA No.135/PUN/2023 contained in sub-section 5 of section 80A would operate by itself. In cases where returns have been filed, the question of exemptions or deductions referable to section 80P would definitely have to be considered and granted if eligible. 20. Here, questions would arise as to whether belated returns filed beyond the period stipulated under section 139(1) or section 139(4) as well as following sections 142(1) and 148 proceedings could be considered for exemption. If those returns are eligible to be accepted in terms of law, going by the provisions of the statute and the governing binding precedents, it goes without saying that the claim for exemption will also stand effectuated as a claim duly made as part of the returns so filed, for due consideration. 21. When a notice under section 142(1) is issued, the person may furnish the return and while doing so, could also make claim for deduction referable to section 80P. Not much different is the situation when pre-assessment enquiry is carried forward by issuance of notice under section 142 (1) or when notice is issued on the premise of escaped assessment referable to section 148 of the IT Act. This position notwithstanding, when an assessment is subjected to first appeal or further appeals under the IT Act or all questions germane for concluding the assessment would be relevant and claims which may result in modification of the returns already filed could also be entertained, particularly when it relates to claims for exemptions. This is so because the finality of assessment would not be achieved in all such cases, until the termination of all such appellate remedies. Under such circumstances, the Tribunal was not justified in denying exemption under section 80P of the IT Act on the mere ground of belated filing of return by the assessee concerned. A return filed by the assessee beyond the period stipulated under section 139(1) or 139(4) or under section 142(1) or section 148 can also be accepted and acted upon provided further proceedings in relation to such assessments are pending in the statutory hierarchy of adjudication in terms of the provisions of the IT Act. In all such situations, it cannot be treated that a return filed at any stage of such proceedings could be treated as non est in law and invalid for the purpose of deciding exemption under section 80P of the IT Act. We thus answer substantial questions of law B and C formulated and enumerated above. With the aforesaid, we remit all these matters for reconsideration by the Income Tax Appellate Tribunal in the light of the answers rendered herein on substantial questions of law A, B and C. The Tribunal will thereupon consider the issues relating to the bad and doubtful debts and the claim of the assessee in that regard by treating that in all cases where exemptions are claimed under section 80P and such matters were pending before the assessing authority or before the appellate

6 ITA No.135/PUN/2023 authority, including in these appeals, the question of exemption available under section 80P was still available for decision.” 8. The Nagpur Bench of the Tribunal in the case of Krushi Vibhag Karmchari Vrund Sahakari Pat Sanstha Maryadit (supra) has held as under :- “5. I have heard both the sides and scanned through the relevant material on record. It is an undisputed fact that the assessee did not file return of income for the year under consideration either originally or pursuant to notice u/s 148. Computation of income was filed during the course of assessment proceedings in which the deduction u/s 80P was claimed. Whereas, the authorities below have canvassed a view that the assessee violated section 80A(5) and hence the deduction was not available; the assessee has made out a case that section 80A(5) does not apply where no return is furnished and rather it is section 80AC which would govern the case and because of omission of section 80P in the list of sections given in section 80AC, the deduction should be granted. In order to appreciate the contention of the ld. AR, it would be apposite to reproduce section 80AC, before its substitution by the Finance Act, 2018 w.e.f 1.4.2018, which reads as under: “Where in computing the total income of an assessee of any previous year relevant to the assessment year commencing on the 1st day of April, 2006 or any subsequent assessment year, any deduction is admissible under section 80-IA or section 80- IAB or section 80-IB or section 80-IC or section 80-ID or section 80-IE, no such deduction shall be allowed to him unless he furnishes a return of his income for such assessment year on or before the due date specified under sub-section (1) of section 139.” 6. On going through the above provision, it is crystallized that the requirement of filing return before the time u/s 139(1) is sine qua non for claiming deduction under the six sections (80-IA or 80- IAB or 80- IB or 80-IC or 80-ID or 80-IE). In other words, if a return is filed belatedly u/s 139(4) or under any other section, claiming deduction under any of the six sections, the writ of the section 80AC will operate to prevent its granting. This section does not deal with granting or non- granting of deduction under any other sections of Part C of Chapter VI-A, including section 80P. Thus, to infer that since section 80AC does not cover section 80P, the latter section is immune from any other

7 ITA No.135/PUN/2023 statutory requirement, is wholly incorrect. In fact, section 80AC is alien to deduction under any section except the specified six sections. 7. Now, I turn to section 80A(5), which has been pressed into service by the AO for denying the benefit of deduction u/s 80P of the Act, which runs as under: `Where the assessee fails to make a claim in his return of income for any deduction under section 10A or section 10AA or section 10B or section 10BA or under any provision of this Chapter under the heading "C.—Deductions in respect of certain incomes", no deduction shall be allowed to him thereunder.’ 8. This section provides that where an assessee fails to make a claim in his return of income for any deduction, amongst others, the sections enshrined in Part C to Chapter VI-A (including section 80P and six sections as given in section 80AC), then the deduction shall not be allowed. A perusal of the mandate of section 80A(5) divulges that the claiming of deduction under various sections of part C of Chapter VI-A in the return of income is essential. The reference in this provision is only to return of income, without any further qualification. The return may be u/s 139(1) or 139(4) or any other relevant section. 9. On a conjoint reading of sections 80A(5) and 80AC, it gets manifest that claiming of deduction under various sections of Part C of Chapter VI-A in the return of income is essential. However, an additional requirement for claiming deduction under sections 80-IA or 80-IAB or 80-IB or 80-IC or 80-ID or 80-IE is that such deduction must be claimed in a return filed u/s 139(1) of the Act. In one sense, section 80AC is an exception to section 80A(5), making the mandate of the latter section more stringent in the prescribed cases. Whereas other deductions of Part C of Chapter VI-A, including section 80P, can be claimed in the return filed under any section, including section 139(4); the six deductions as referred to in section 80AC must necessarily be claimed in the return filed u/s 139(1) only. Ex consequenti, the contention that since section 80P is not covered under section 80AC, the deduction under this section becomes automatically allowable without adhering to the requirement of section 80A(5), is bereft of force and hence dismissed. 10. Now I advert to the requirements of section 80A(5), which stipulates that no deduction under other sections including 80P shall be allowed if the assessee fails to make such a claim in the return of income. Thus, there are twin conditions, viz., first, claiming deduction u/s 80P and second, claiming such deduction in the return of income. There is no dispute on the first condition, which has been satisfied in this case as the assessee did claim the deduction albeit during the course of assessment proceedings. The whole controversy revolves

8 ITA No.135/PUN/2023 around the second condition, which says that the claim should be made in the return of income. The assessee in the extant case did not file any return of income, but made a claim of the deduction in computation of income filed during the course of the assessment proceedings. The moot question is whether the requirement of making a claim in the return of income is a mandatory or a directory requirement. If it is held as mandatory, then the claim must be made in the return of income, failing which the benefit of deduction would be lost. Au contraire, if it is held as directory, then the claim made either in the return of income or in any manner before the conclusion of assessment proceedings, as is the case under consideration, would validate the entitlement. 11. The Hon'ble Supreme Court in CIT vs. G.M. Knitting Industries (P.) Ltd. (2015) 376 ITR 456 (SC) came across a situation in which the assessee claimed additional depreciation in Form 3AA but the Form was not furnished along with the return of income. Such Form was submitted during the course of assessment proceedings. The AO denied the claim on the ground that the Form 3AA was required to be statutorily filed along with the return of income. The view of the AO was reversed by the Tribunal as well as the Hon’ble High Court by holding that even if the Form was filed during the course of assessment proceedings, it amounted to sufficient compliance. The Hon'ble Supreme Court, taking note of the judgment in CIT Vs. Shivanand Electronics (1994) 209 ITR 63 (Bom), approved the view of the Hon’ble High Court having the effect that the requirement of filing Form 3AA was a necessary ingredient for claiming additional depreciation, but the timing of filing the Form was a directory requirement, which was fulfilled on filing it even during the course of assessment proceedings. The Hon’ble Bombay High Court in Shivanand Electronics (supra) dealt with the requirement of filing audit report for the purpose of claiming deduction u/s 80J, which required that the report should be filed "along with return of income'' under s. 80J(6A). It held that such requirement of filing the audit report along with the return of income was not mandatory, but directory in the sense that if assessee complied with the same before completion of assessment, deduction under s. 80J, on the basis of such report, was allowable. 12. Recently, the Hon'ble Supreme Court was confronted with the claim of benefit u/s 10B in Pr.CIT vs. Wipro Limited (2022) 446 ITR 1 (SC). The assessee furnished original return taking the benefit of section 10B and did not carry forward the loss. Thereafter, a revised return was filed foregoing the claim of deduction u/s 10B. The AO rejected the withdrawal of exemption under Section 10B by holding that assessee did not furnish the necessary declaration in writing before due date of filing return of income, which was an essential requirement for not claiming the benefit of section 10B. The Hon’ble

9 ITA No.135/PUN/2023 High Court decided the issue in favour of the assessee by holding that the requirement of filing the declaration was mandatory but filing it along with the return of income u/s 139(1) was a directory requirement. The matter was brought by the Revenue before the Hon'ble Supreme Court. The assessee, inter alia, relied on the judgment of the Apex Court in G.M. Knitting Industries (supra). Their Lordships held that the requirement of filing the report in support of deduction u/s 10B was not a directory but a mandatory requirement. It further held that both the conditions of - filing the declaration and filing it before the time limit u/s 139(1) - were mandatory and had to be cumulatively satisfied. Rejecting the reliance on G.M. Knitting Industries (supra), the Hon'ble Supreme Court held that that decision was relevant in the context of deduction provisions and not the exemption provisions as given under Chapter III of the Act. As the Hon’ble Summit Court in Wipro Limited (supra) was dealing with section 10B, falling under Chapter III of the Act, it held qua G.M. Knitting Industries (supra) that: `Therefore, the said decision shall not be applicable to the facts of the case on hand, while considering the exemption provisions. Even otherwise, Chapter III and Chapter VI-A of the Act operate in different realms and principles of Chapter III, which deals with "incomes which do not form a part of total income", cannot be equated with mechanism provided for deductions in Chapter VI-A, which deals with "deductions to be made in computing total income". Therefore, none of the decisions which are relied upon on behalf of the assessee on interpretation of Chapter VI-A shall be applicable while considering the claim under Section 10B (8) of the IT Act.’ 13. On going through the judgments in G.M. Knitting Industries (supra) in juxtaposition to Wipro Limited (supra), the principle which emerges is that the fulfillment of requirement of making a claim for exemption under the relevant sections of Chapter III in the return of income is mandatory, but when it comes to the claim of a deduction, inter alia, under the relevant sections of Chapter VI-A, such requirement becomes directory. In the latter case, the making of a claim even after the filing of return but before completing the assessment, meets the directory requirement of making a claim in the return of income. The instant case involves deduction u/s 80P and hence, would be governed by the principle laid down in G.M. Knitting Industries (supra), as per which the making of a claim of deduction is mandatory but the timing is directory. Even if the claim is made during the course of assessment proceedings, such a claim has to be allowed. In view of the foregoing discussion, I am satisfied that the authorities below were not justified in rejecting the assessee’s claim of deduction u/s 80P only on the ground that such a claim was not made in the return but during the course of assessment proceedings. The

10 ITA No.135/PUN/2023 impugned order is ergo set aside and the matter is remitted to the file of the AO for examining the claim of deduction u/s 80P on merits.” 9. Respectfully following the above settled position of law on the issue in hand, we set-aside the orders of the lower authorities and remit the matter to the file of the Assessing Officer for examining the claim of deduction u/s 80P of the Act on merits. Thus, the grounds of appeal filed by the assessee stand partly allowed for statistical purposes. 10. In the result, the appeal filed by the assessee stands partly allowed for statistical purposes. Order pronounced on this 04th day of July, 2023. Sd/- Sd/- (S. S. VISWANETHRA RAVI) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; �दनांक / Dated : 04th July, 2023. Sujeet आदेश क� �ितिलिप अ�ेिषत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The Pr. CIT concerned. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “SMC” ब�च, 4. पुणे / DR, ITAT, “SMC” Bench, Pune. गाड� फ़ाइल / Guard File. 5. आदेशानुसार / BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune.