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Facts
The assessee, a cooperative society, failed to file its return of income within the prescribed time for AY 2013-14. A belated return was filed after a notice under Section 148, disclosing NIL income after claiming deduction under Section 80P. The AO disallowed the deduction on interest income from bank deposits, treating it as income from other sources and not eligible for deduction under Section 80P.
Held
The Tribunal held that the assessee was not entitled to claim deduction under Section 80P of the Act as the return was filed belatedly, failing to meet the statutory pre-condition. The interest income from bank deposits was also not eligible for deduction under Section 80P(2)(a)(i) or Section 80P(2)(d).
Key Issues
Whether a belatedly filed return of income allows for a claim of deduction under Section 80P? Whether interest income from bank deposits is eligible for deduction under Section 80P for a cooperative society?
Sections Cited
148, 142(1), 80P(2)(a)(i), 56, 80P(2)(d), 80A(5), 139(1), 139(4), 143(3), 147, 80P(2)(c), 263, 144, 80P, 80AC
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Income Tax Appellate Tribunal, ‘A’ BENCH, BANGALORE
Before: SHRI WASEEM AHMED & SHRI KESHAV DUBEY
PER WASEEM AHMED, ACCOUNTANT MEMBER:
These appeals filed by the assessee are against the order passed by the NFAC, Delhi both dated 01/03/2024 for the assessment year 2013-14.
At the outset, we note both the appeals being & 818/Bang/2018 by the assessee pertain to single assessment year i.e. A.Y. 2013-14 and the dispute therein is interconnected. Hence, we decide to club both the appeals and proceed to adjudicate the dispute in the following paragraphs.
The facts in brief are that the assessee is cooperative society and claimed to be engaged in the business of providing credit facilities to the members. The assessee for the year under consideration i.e. A.Y. 2013- 14 has not filed return of income. However, there were transactions aggregating to Rs. 1,12,75,000/- in the saving bank account of the assessee.
Accordingly, a notice under section 148 of the Act was issued as on 24th March 2018 requiring the assessee to file return of income but the assessee failed to file return within the prescribed time limit. Thereafter, a notice under section 142(1) of the Act was issued calling for certain information which also remained unanswered. Hence, the final show cause notice was issued to which the assessee replied along with return of income dated 05th December 2018 disclosing income at NIL after claiming deduction under section 80P(2)(a)(i) of the Act for Rs. 20,65,491/- only.
On the verification of details furnished by the assessee, the AO observed that the profit and loss account of the assessee includes interest income from FD with cooperative and other bank at Rs. 23,10,146/- and a sum of Rs. 3,32,481/- respectively. These receipts were included in the profit claimed as deduction under section 80P(2)(a)(i) of the Act. The AO held that interest income from the deposit with bank does not amount profit earned from the business activity of providing credit facility to the members. Therefore, the same is not eligible for deduction under section 80P(2)(a)(i) of the Act, but taxable as income from other sources under section 56 of the Act. The AO also held that impugned interest income is also not eligible for . deduction under section 80P(2)(d) of the Act as it was not earned from deposit or investment with another cooperative societies.
Besides above the AO found that section 80A(5) of the Act provides that the no deduction under section 80P of the Act shall be allowed in case where the assessee fails to claim the same in the return of income. In this case, the assessee has not filed return of income with the prescribed time allowed under section 139(1), 139(4) or within the time allowed in the notice issued under section 148 of the Act. Therefore, the return filed by the assessee after expiry of such time limit is not a return of income for the purpose the Act. Hence, the assessee is not entitled to claim deduction under section 80P of the Act.
Furthermore, the AO found that the assessee in profit & loss account claimed deduction of Rs. 1 lakh on account of provision for audit fee. Thus, the AO held that the provision is not ascertained liability and disallowed the same.
Hence, the AO vide order dated 14th December 2018 passed order 8. under section 143(3) r.w.s. 147 of the Act and assessed the gross total income of the assessee at Rs. 21,95,592/- (Rs. 20,95592 + 100000). Thereafter the AO provided deduction of Rs. 50,000/- under section 80P(2)(c) of the Act and assessed total income at Rs. 21,45,592/- only.
Subsequently the learned PCIT noticed that the assessee has claimed interest expenses of Rs. 1,26,51,677/- which included a sum of Rs. 14,56,187/- being provision for interest but the same was not disallowed. Furthermore, the AO has allowed deduction of Rs. 50000/- .
Page 4 of 10 under section 80P(2)(c) of the Act whereas the assessee is not eligible for deduction under section 80P of the Act. Hence, the learned PCIT vide order under section 263 of the Act directed the AO make fresh assessment.
Accordingly, the AO passed fresh assessment order under section 144 r.w.s. 263 of the Act dated 30-03-2022 wherein again held that the assessee is not eligible for deduction under section 80P of the Act and thereby disallowed the deduction of Rs. 50000/- provided under section 80P(2)(c) in earlier order.
The AO also made additional addition of Rs. 14,56,187/- on account of provision for interest. Hence, assessed the total income at Rs. 36,51,779/- was assessed.
12. The aggrieved assessee preferred an appeal to the learned CIT(A) against both the assessment orders passed by the AO under section 143(3) r.w.s. 147 of the Act and under section 144 r.w.s. 263 of the Act respectively of the Act. However, the learned CIT(A) rejected both the appeals filed by the assessee vide order dated 1st March 2024. The findings of the learned CIT(A) in both the appeals are identically worded except for the appeal numbers. Thus, we are reproducing the finding of the learned CIT(A) in the appeal number CIT(A), Mangalore/10348/2018-19 which will also be applicable for the other appeal number being NFAC/2012-13/10169899. The relevant finding of the learned CIT(A) extracted as under: “7.7 I have gone through the Assessment Orders, statement of facts. grounds of appeal and submissions filed by the appellant during appellate stage and material facts of the case as on record. The fact is that the appellant had not filed ROI u/s 139 of the Act. Even after the case was .
Page 5 of 10 reopened u/s 147 of the Act and the appellant was issued notice dated 24.03.2018 u/s 148 of the Act for filing ROI within 30 days of service of notice (which was served on 24.03.2018 itself), it filed ROI for the year only belatedly (in response to the notice) on 05.12.2018, declaring gross total income of Rs. 20,65,491/- and total income as nil after claiming deduction u/s 80(2)(a)(i) of the Act. Section 80A(5) of the Act clearly states that — 'Where the assesse fails to make a claim in his return of income for any deduction under section 10A or section 1OAA or section 10B or section 1OBA 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.'
7.8 Clearly, at the very outset the appellant was not eligible/entitled for any deduction for the year u/s 80P of the Act on account of this default.
7.9 Without prejudice to this fact, even on merits the appellant was not eligible for deduction u/s 80P(2)(a)(i) / 80P(2)(d) of the Act as seen from facts on record.
7.10 The sums referred to for deduction from total income in the case of cooperative societies in section 80P(1) includes in section 80P(2)(a)(i) of the Act: '(a) in the case of a co-operative society engaged in - (i) carrying on the business of banking or providing credit facilities to its members, or... …… the whole of the amount of profits and gains of business attributable to any one or more of such activities.'
7.11 As held by various Hon'ble Courts of the land, if an assessee being a registered Co-operative Credit Society is providing credit facility to its members, accepting deposits from non-members as well does not disqualify it from claiming benefits under section 80P. However, the attributability of the income to activities failing under the ambit of provisions of deduction is a different matter which will be have to be examined. The appellant Society had received interest amounting to Rs. 23,10,146/- from fixed deposits (FDs) and investments made with banks banks, viz., SCDCC Bank, Golainganga, Kundapur, Kandlur, Hebri, Voderhobli, Hunsemakki, Koteshwar, Siddapur, Naoor, Vandse, Mangalore branches and Vijay Bank and Nagoor claimed the same as deduction u/s 80P(2)(a)(i) of the Act which could not be allowed under that section as w as u/s 80P(2)(d) of the Act for detailed reasons mentioned in the Order.
7.12 As observed by th3 ' 0, since the interest was not earned from credit facilities advanced to members and was not earned from business operations, it had to be taxed under the head income from other sources (Section 56 of the Act). Section 80P(2)(d) of the Act would also not be applicable on this income as the section dealt with income received by way of interest or dividend, derived by the Society from investments with any other Co-operative Society did not banks whereas in the instant case the .
Page 6 of 10 appellant had derived interest from Bank. Reliance was placed on the decision of the Hon'ble Karnataka High Court in the case of Pr. CIT, Hubbali v. Totagars Co-operative Sale Society (2017) 83 taxmann.com 140 (Karnataka).”
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX “7.22 The interest income earned from deposits with banks could not qualify for deduction u/s 80P(2)(d) of the Act for the express reason that deduction can be claimed under this section only in respect of income by way of interest or dividends earned by a Co-operative society / from its investments with any other co-operative society, which was not the case here.
7.23 As regards the deduction claimed u/s 80P(2)(C) on income from PDS, the same is not allowable as deduction for the reason that ROI was not filed (within time allowed) thereby disentitling the appellant u/s 80A(5) of the Act. As for the provisions made by the appellant (discussed supra) and claimed as deduction, they are in the nature of unascertained liabilities and thus not allowed by the AO. I find no infirmity in the addition made by the AO on this account.
7.24 In view of the facts and findings summarized hereinabove, the findings of the AO in the Assessment Order as well as legal precedents of Hon'ble Courts on the subject matter discussed hereinabove, I see no reason to interfere with the Order of the AO and these grounds of appeal raised by the appellant are dismissed.”
13. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us.
The learned AR before us submitted that the issue on hand is covered by the order of this Tribunal in the case of M/s Prathamika Krishi Pattina Sahakara Sangha vs. ITO in vide order dated 13th June 2022.
On the other hand, the learned DR submitted that the issue on hand is covered against the assessee by the subsequent orders of this Tribunal after placing reliance on the judgment of the Hon’ble Kerala High Court of a later date i.e. Nileswar Rangekallu Chethu Vyavasaya Thozhilali Sahakarana Sangham Vs. CIT reported in 459 ITR 730.
We have heard the rival contentions of both the parties and perused the materials available on record. It is an undisputed fact that the assessee did not file the return of income in response to the notice issued under section 148 of the Act within the time provided therein. As such, the return was filed belatedly after claiming the deduction under section 80P of the Act. The controversy arises for our adjudication whether the assessee is entitled to the deduction under section 80P of the Act in the belatedly filed return. This query has been answered by Hon’ble Kerala High Court of a later date i.e. Nileswar Rangekallu Chethu Vyavasaya Thozhilali Sahakarana Sangham Vs. CIT reported in 459 ITR 730. The ratio laid down by the Hon’ble Kerala High Court also followed by this tribunal in case in the case of Madhu Souharda Pathina Sahakari Niyamitha vs. ITO in ITA No. 969/Bang/2023. The relevant observation of Hon’ble Kerala High Court is extracted as under: 11. On a consideration of the rival submissions and on a perusal of the statutory provisions, we find that a reading of section 80A(5) and Section 80AC of the IT Act as they stood prior to 1-4-2018, when the latter provision was amended by Finance Act 2018, would reveal that the statutory scheme under the IT Act was to admit only such claims for deduction under section 80P of the IT Act as were made by the assessee in a return of income filed by him. That return can be under sections 139(1), 139(4), 142(1) or section 148, and to be valid, had to be filed within the due date contemplated under those provisions. Under section 80A(5), the claim for deduction under section 80P could be made by an assessee in a return filed within the time prescribed for filing such returns under any of the above provisions. The amendment to Section 80AC with effect from 1-4-2018, however, mandated that for an assessee to get a deduction under section 80P of the IT Act, he had to furnish .
Page 8 of 10 a return of his income for such assessment year on or before the due date specified in section 139(1) of the IT Act. In other words, after 1-4-2018, even if the assessee makes his claim for deduction under section 80P in a return filed within time under sections 139(4), 142(1) or section 148, he will not be allowed the deduction, unless the return in question was filed within the due date prescribed under section 139(1). Thus, it is clear that the statutory scheme permits the allowance of a deduction under section 80P of the IT Act only if it is made in a return recognised as such under the IT Act, and after 1- 4-2018, only if that return is one filed within the time prescribed under section 139(1) of the Act. As the return in these cases, for the assessment years 2009- 10 and 2010-11, were admittedly filed after the dates prescribed under sections 139(1) and 139(4) or in the notices issued under section 142(1) and section 148, the returns were indeed non-est and could not have been acted upon by the Assessing Officer even though they were filed before the completion of the assessment.
There is yet another aspect of the matter. The requirement of making the claim for deduction in a return of income filed by the assessee can be seen as a statutory pre-condition for claiming the benefit of deduction under the IT Act. It is trite that a provision for deduction or exemption under a taxing Statute has to be strictly construed against the assessee and in favour of the Revenue. Thus viewed, a failure on the part of an assessee to comply with the pre- condition for obtaining the deduction cannot be condoned either by the statutory authorities or by the courts.
It is in the backdrop of the aforesaid discussion that we must consider the findings of a Division Bench of this Court in Chirakkal Service Co-operative Bank Ltd. [supra]. The findings therein, that appear to suggest that a claim for deduction under section 80P can be entertained even if it is made in a return filed beyond the time permitted under the IT Act, ignores the perspective that sees the requirement of the claim for deduction being made in a valid return as a pre-condition for obtaining the benefit of the statutory deduction. The said findings also fly in the face of the express statutory provisions that requires the claim to be made in a return filed by the assessee, by which term is meant a valid return under the Act, and therefore have necessarily to be seen as per incuriam. We also find that the subsequent amendments to section 80AC by the Finance Act 2018 fortifies the view that we have taken for, it makes the claim for deduction under section 80P conditional on filing a return within the due date prescribed under section 139(1) of the IT Act. In other words, the pre-condition for claiming the deduction under section 80P of the IT Act has now been made more stringent by reducing the time available to an assessee for making the claim.
16.1 It is pertinent to deal with the case law relied on by the assessee through the learned AR of the assessee, i.e., M/s Prathamika Krishi Pattina Sahakara Sangha vs. ITO (supra) dated 13th June 2022. In this regard, we note that the coordinate bench of this Tribunal in the said . order has followed the judgment of Hon’ble Kerala High Court in the case of Chirakkal Service Co-operative Bank Ltd. v. CIT dated 15th February 2016 reported in [2016] 68 taxmann.com 298/384 ITR 490. However, we find that ratio of laid down in Chirakkal Service Co- operative Bank Ltd (supra) has been reversed in the subsequent judgment of Hon’ble Kerala High Court in case of Nileshwar Rangekallu Chethu Vyavasaya Thozhilali Sahakarana Sangham v. CIT (supra) which has been reproduced in the above paragraph. Accordingly, we hold that the case law relied by the learned AR will not support the case of the assessee. Accordingly, we hold that the assessee is not entitled to the deduction under section 80P of the Act in the given facts and circumstances.
16.2 The second controversy arises for our adjudication whether the provision towards the audit fee and the interest expenses by the assessee are allowable deductions while calculating the taxable income of the assessee. In this regard, we find that there is no finding given by the learned CIT(A) despite the fact that the issue was raised by the assessee before the learned CIT(A). In the absence of any finding by the learned CIT(A), we are inclined to set aside the issue to the file of the learned CIT(A) for the limited purpose of fresh consideration as per the provisions of law. Hence, the ground of appeal of the assessee is partly allowed for statistical purposes.
In the result, both the appeals of the assessee are partly allowed for statistical purposes.
Order pronounced in court on 2nd day of June, 2025