THE KOVUR PODUPULAKSHMI MUTUALLY AIDED CO-OPERATIVE THRIFT SOCIETY, NELLORE vs. ITO, WARD-1, NELLORE

The brief facts of the case are that, the assessee, M/s. Kovur Podupulakshmi Mutually Aided Cooperative Thrift Society, had not filed return of income on or before the due date provided under Section 139(1) of the Income Tax Act, 1961 for the Assessment Year 2015-16. In this case, specific information was flagged as per Risk Management Strategy formulated by the CBDT through Insight Portal under the head ‘NMS’ and the assessee has entered into various transactions, including depositing cash aggregating to Rs. 2,00,000/- or more with the State Bank of Hyderabad and depositing cash aggregating to Rs. 10,00,000/- or more in the same bank account. Based on the information, the assessment has been reopened and notice under Section 148 of the Act, dated 05.04.2022 was issued and served on the assessee. In response to notice issued under Section 148 of the Act, the assessee has filed return of income for A.Y. 2015-16 on 07.12.2023 declaring nil total income after claiming deduction under Section 80P(2)(a)(i) of the Act, for Rs. 12,05,128/-. The case was selected for scrutiny and during the course of assessment proceedings, the A.O. called upon the assessee to file relevant evidence with respect to various cash transactions and also justify cash transactions and deduction claimed under Section 80P(2)(a)(i) of the Income Tax Act, 1961 in light of provisions of Section 139(1) r.w.s. 80AC of the Income Tax Act, 1961. In response, the assessee submitted that, it is a mutually aided cooperative society engaged in the business of providing credit facilities to its members and transactions with the bank in respect of cash deposits are day-to-day business transactions of the assessee. The assessee also submitted that, for claiming deduction under Section 80P(2)(a)(i) of the Act, filing of return on or before the due date provided under Section 139(1) of the Act, is mandatory w.e.f. Assessment Year 2018-19 onwards and before that, the provisions of Section 80AC are not applicable.

The A.O., after considering relevant submissions of the assessee, accepted the explanation of the assessee with regard to cash deposits in the bank accounts. However, disallowed deduction claimed under Section 80P(2)(a)(i) of the Income Tax Act, on the ground that, as per the provisions of Section 80AC, in order to claim deduction under Section 80P(2)(a)(i) of the Act, the assessee needs to file return on or before the due date under Section 139(1) of the Income Tax Act, 1961. Since the assessee has filed the return of income in response to notice under Section 148 of the Act, on 07.12.2023, which is beyond the due date provided under Section 139(1) of the Act, the deduction claimed under Section 80P(2)(a)(i) of the Act cannot be allowed. Therefore, the A.O. disallowed deduction claimed under Section 80P(2)(a)(i) for Rs. 12,05,128/-.

Aggrieved by the assessment order, the assessee preferred appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee has reiterated the submissions made before the A.O. and claimed that, the only requirement for deduction under Section 80P of the Act, is to make such claim in the relevant return of income and filing return of income on or before the due date provided under Section 139(1) of the Act, for claiming deduction is made mandatory only from Assessment Year 2019-20 onwards and therefore, for the assessment year under consideration, the A.O. cannot disallow the provided under Section 139(1) of the Act.

The Ld. CIT(A), after considering the submissions of the assessee and also taking note of the provisions of Section 80AC of the Act, observed that, the A.O. has failed to understand that the amended provisions of Section 80AC as per which deduction under Section 80P is eligible only if the assessee files return of income, as per the provisions of Section 139(1) of the Act are applicable from A.Y. 2019- 20 onwards. Therefore, the Ld. CIT(A) rejected the reasons given by the A.O. for disallowance of deduction under Section 80P(2)(a)(i) of the Act. However, the Ld. CIT(A) upheld the addition made by the A.O. towards deduction claimed under Section 80P(2)(a)(i) of the Act on the ground that, the assessee had failed to prove its eligibility for claiming deduction by filing relevant details, including relevant certificate to prove that, it is a cooperative society registered under the State Act, and is engaged in carrying on business of providing credit facilities to its members. Therefore, the Ld. CIT(A) upheld the disallowance of deduction under Section 80P(2)(a)(i) of the Act, for Rs. 12,05,128/-.

Aggrieved by the order of the Ld. CIT(A), the assessee is now in appeal before the Tribunal.

The learned counsel for the assessee, Shri K.A. Sai Prasad, C.A. for Shri S. Prasad Rao, C.A. submitted that, the only reason given by the A.O. for disallowance of deduction under Section 80P(2)(a)(i) of the Act, is non-filing of return of income under Section 139(1) of the Act. However, the condition for filing of return of income on or before the due date provided under Section 139(1) is made applicable from Assessment Year 2019-20 onwards and therefore, for the impugned assessment year, the A.O. ought not to have disallowed the deduction for not filing of return of income within the due date. Although the Ld. CIT(A) has admitted the fact that the A.O. was wrong in disallowing the claim on that ground, but erred in confirming the addition on the ground that the assessee has not proved the claim, even though, it was not the case of the A.O. Further, the assessee is a mutually aided credit cooperative society and engaged in providing credit facilities to its members and income derived from its business activity is eligible for deduction under Section 80P of the Income Tax Act, 1961. Therefore, he submitted that, the addition made by the A.O. and sustained by the Ld. CIT(A) should be deleted.

The learned Senior A.R. for the Revenue, Ms. Adithi Goyal, on the other hand, supporting the order of the Ld. CIT(A), submitted that no doubt the provisions of Section 80AC are not applicable for the year under consideration, however, fact remains that the assessee had failed to file relevant details to prove its eligibility for deduction under Section 80P of the Act. Therefore, the Ld. CIT(A) has rightly upheld the addition made by the A.O. and the order of Ld. CIT(A) should be upheld or in the alternative, the matter may be remitted back to the file of the A.O. for further verification.

I have heard both parties, perused the material available on record and had gone through the orders of the authorities below. The A.O. disallowed deduction under Section 80P(2)(a)(i) of the Act, for Rs. 12,05,128/- solely on the ground that, the assessee has furnished the return of income beyond the due date provided under Section 139(1) of the Act, and in view of Section 80AC, the assessee is not eligible for deduction under Section 80P(2)(a)(i) of the Act. I find that, the provisions of Section 80AC has been amended w.e.f. 2019-20 onwards and made it mandatory for any cooperative society to file return of income on or before the due date provided under Section 139(1) of the Act, for claiming deduction under Section 80P of the Act. Since the assessment year involved in the present appeal is prior to the amendment, in my considered view, the reasons given by the A.O. to disallow deduction under Section 80P(2)(a)(i) of the Act, is contrary to law and cannot be upheld. Although the Ld. CIT(A) has rightly held that, the A.O. misunderstood the provisions and wrongly disallowed deduction under section 80P of the Act, but denied the deduction under Section 80P(2)(a)(i) of the Act, on the ground that the assessee has not proved its eligibility for claiming deduction under Section 80P of the Act. In my considered view, the A.O. has not disputed the eligibility of the assessee for claiming deduction under Section 80P of the Act. Further, the assessee being a mutually aided cooperative society engaged in the business of providing credit facilities to its members, is eligible for claiming deduction under Section 80P of the Act, in respect of profit derived from its business. Since the A.O. has disallowed deduction only on the ground of non-filing of return of income on or before the due date provided under Section 139(1) of the Act, and further, the assessee has proved its claim of deduction under Section 80P of the Act, in my considered view, the Ld. CIT(A) has erred in sustaining the addition on the ground of non-eligibility of the assessee for claiming such deduction, even though, it is not the case of the A.O. and further, the assessee is eligible for claiming deduction under Section 80P of the Act. Therefore, in my considered view, the Ld. CIT(A) completely erred in sustaining the addition made by the A.O. towards disallowance under Section 80P(2)(a)(i) of the Act, for Rs. 12,05,128/-. Thus, I set aside the order of the Ld. CIT(A) and direct the A.O. to allow deduction under Section 80P(2)(a)(i) of the Act, for Assessment Year 2015-16. 10. In the result, the appeal filed by the assessee is allowed.

The facts and issues involved in the appeal filed by the assessee for Assessment Year 2016-17 are exactly identical to the facts and issues which we have considered in assessee’s own case for Assessment Year 2015-16 hereinabove. The reasons given by me in the preceding paragraph No.9 shall mutatis mutandis apply to this appeal, as well. Therefore, for similar reasons, I set aside the order of the Ld. CIT(A) and direct the A.O. to allow deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961, for the Assessment Year 2016-17 also. Thus, the appeal filed by the assessee for Assessment Year 2016-17 is allowed.

In the result, the appeal filed by the assessee for A.Y. 2016-17 is allowed.

To sum up, both the appeals filed by the assessee are allowed.

The Principal Commissioner of Income Tax, Tirupati. 4. नवभधगीयप्रनतनिनर्, आयकर अपीलीय अनर्करण, हैदरधबधद / DR, ITAT, Hyderabad 5. गधर्ाफ़धईल / Guard file