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Facts
The assessee, a cooperative society, failed to file its return of income for AY 2017-18 within the stipulated time. Despite notices, a return was eventually filed belatedly. The Assessing Officer disallowed the claim for deduction under section 80P.
Held
The Tribunal held that a claim for deduction under section 80P must be made in a valid and timely filed return of income. Since the assessee failed to meet this mandatory pre-condition, the deduction cannot be allowed.
Key Issues
Whether a cooperative society is eligible for deduction under section 80P when it fails to file a valid and timely return of income.
Sections Cited
80P, 80A(5), 139(1), 139(4), 142(1), 144
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Income Tax Appellate Tribunal, ‘SMC’ BENCH, BANGALORE
Before: SHRI WASEEM AHMED
PER WASEEM AHMED, ACCOUNTANT MEMBER:
This is an appeal filed by the assessee against the order passed by the ld. CIT(A) Jaipur for the assessment year 2017-18.
The effective issue raised by the assessee is that the learned CIT(A) erred in not allowing the deduction under section 80P of the Act on the interest income earned from mandatory deposit as well as erred in denying the 80P deduction by invoking the provision section 80A(5) of the Act.
The facts in brief are that the assessee is a cooperative society engaged in the business of providing credit facility to its members and supply of fertilizers to its members. The assessee for the year under dispute (A.Y. 2017-18) has not filed return of income.
Subsequently, the AO based on the information received about the cash deposit during the demonetization period i.e. 9th November 2016 to 31st December 2016 amounting Rs. 21,64,440/- in the bank, issued several notices under section 142(1) of the Act, requiring assessee to file the return of income but the assessee failed. Finally show cause noticed was issued proposing to assess the income considering the entire cash deposit during the year under consideration for Rs. 1,51,03,100/- only.
In response, the assessee furnished audit report and audited financial statement (P&L and Balance Sheet) along with the details of cash deposited during the demonetization. The assessee claimed the cash deposit was made out of loan amount received from the members and from the pigmy account. The assessee claimed that by virtue of being cooperative society registered under Karnataka Cooperative Societies Act, its income is exempt as per section 80P of the Act.
6. However, the AO found that the assessee has not filed return of income, therefore as per the provision of section 80A(5) of the Act, the assessee is not eligible for deduction under section 80P of the Act. The .
Page 3 of 8 AO without prejudice to the above also found that the assessee has earned interest from deposit with bank, hence the same is not eligible for deduction under section 80P(2)(a)(i) and 80P(2)(d) of the Act.
Thus, the AO in view of the above finalized the assessment under section 144 of the Act Act and assessed the income of the assessee at Rs. 5,84,930/- without extending benefit of deduction under section 80P of the Act.
The aggrieved assessee preferred an appeal before the learned CIT(A).
However, the assessee before the learned CIT(A) has not made any submission and also failed to respond to the notices issued for hearing. Hence, the learned CIT(A) proceeded to adjudicate the issue based on the material available on record.
The learned CIT(A) after considering the facts in totality confirmed the addition made by the AO by observing as under: 5.2 I have carefully considered the grounds of appeal raised by the appellant and examined the issue under dispute in the light of the facts and circumstances of the case and relevant provisions of the statute, Rules framed thereof and Circulars issued by the CBDT. 5.3 As seen from the facts of the case, appellant did not file its return of income for A.Y. 2017-18 within the time limit under section 139(1)/139(4) or u/s 142(1) of the Act. The AO disallowed deduction u/s 80P of the Act. The AO added an amount of Rs. 5,84,930/- to the income of the assessee for the A.Y. 2017-18. 5.4 I have considered the facts and circumstances of the case. The appellant claimed deduction of Rs. 5,84,930/- u/s 80P(2)(a)(i) or 80P(2)(d) in its income and expenditure account, however, the appellant did not file its return of income before the due date u/s 139(1) of the I.T. Act, 1961. As per provisions of section 80A(5) of the Act, the deduction claimed by the appellant is not allowable. The relevant portion of section 80A(5) is reproduced as under:
Page 4 of 8 "...Deductions to be made in computing total income. 80A. (1) In computing the total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of this Chapter, the deductions specified in sections 80C to 83 [80U] ... (5) 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." As the return in this case, for the assessment year 2017-18, was admittedly not filed therefore, the deduction u/s 80P cannot be allowed to the appellant. Keeping in view this factual and legal position, I am of the opinion that the A.O. has rightly made disallowance of Rs. 5,84,930/- as per provision of section 80A(5) of the I.T. Act, 1961. 5.5 The appellant also requested that other ground may be taken at the time of hearing. Since, the assessee has not taken any more ground before the undersigned, therefore, this ground is not adjudicated upon.
In the result, the appeal is dismissed.
Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before the tribunal.
12. The learned AR before me submitted that the return of income was furnished as on 24-09-2019 in response to notice issued under section 142(1) of the Act dated 12-07-2019. However, the AO proceeded to make assessment under section 144 of the Act without considering the return of income filed. The learned AR further submitted that notices issued during the appellate proceeding were sent through email and uploaded in ITP. As such, the assessee did not receive the physical notice, therefore, it failed to make reply.
On the contrary, the learned DR filed the order of the Tribunal bearing Shri Kala Bhaireshwara mulipurposes co- operative society limited Vs. ITO and ITA 969/Bang/2023 Madhu Sounhardha Patthina Vs ITO in support of the order of the authorities below.
I have carefully examined the facts and arguments presented by both the assessee and the revenue authorities. The main issue here is whether the assessee, a cooperative society, is eligible to claim deduction under section 80P of the Act even though the AO and the learned CIT(A) have both held that no valid return of income was filed within the time. It is not in dispute that for the relevant assessment year 2017–18, the assessee did not file a return of income under section 139(1) or section 139(4) of the Act. The AO issued several notices under section 142(1), but the assessee failed to file a return initially. Only later, on 24-09-2019, after the notice dated 12-07-2019, the assessee submitted a return, which it claims should be considered, even though it was filed belatedly.
14.1 However, to apply the correct legal position to decide whether the deduction under section 80P can be granted in the given facts and circumstances, I draw guidance from the Hon’ble Kerala High Court’s ruling in the case of Nileshwar Rangekallu Chethu Vyavasaya Thozhilali Sahakarana Sangham v. CIT reported in [(2023) 152 taxmann.com 347 / 459 ITR 730]. The Hon’ble Kerala High Court clearly held that as per the law prior to 1-4-2018, a claim for deduction under section 80P had to be made in a valid return filed within the timelines provided under the Act i.e. under section 139(1), 139(4), 142(1), or 148 of the Act and after the Finance Act 2018 amendment, only returns filed within the due date under section 139(1) are acceptable for such claims.
14.2 The Hon’ble Court also emphasized that the deduction provision is a statutory benefit, and the conditions set by law must be strictly .
Page 6 of 8 followed. A failure to file a valid and timely return is not a minor or procedural lapse that can be condoned. It is a mandatory pre-condition, and neither the tax authorities nor even the Hon’ble courts have the power to overlook it when it is not met. The relevant observation of the Hon’ble Kerala High Court in the above-mentioned case 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 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.
14.3 In the present case, for assessment year 2017–18, the assessee has not filed any return within the time allowed under section 139(1) or section 139(4) of the Act. The return was submitted in response to the notice issued under section 142(1) of the Act and that too belatedly which does not satisfy the legal requirements to qualify for a deduction under section 80P of the Act, particularly when read with section 80A(5) of the Act. The Hon’ble Kerala High Court has clarified that only a valid and timely filed return can carry a claim for deduction; otherwise, the return is non-existent in the eyes of law and cannot be acted upon.
14.4 Therefore, applying the binding legal principles laid down by the Hon’ble Kerala High Court, I hold that the AO and the learned CIT(A) were justified in denying the deduction under section 80P of the Act. The fact that the assessee later furnished details or documents or that it misunderstood the notice issued does not change the outcome because the legal requirement of a valid return filed within time remains unfulfilled.
14.5 In light of these facts and the applicable legal position, I find no reason to interfere with the orders of the lower authorities. Hence the ground of appeal of the assessee is dismissed.
S.A. No.10/Bang/2025
Regarding the stay petition filed by the assessee, I note that once the main appeal of the assessee has been disposed of, I do not find any reason to adjudicate the stay petition filed by the assessee. Accordingly, the stay petition filed by the assessee is dismissed as infructuous.
In the result, the appeal of the assessee is dismissed.
Order pronounced in court on 28th day of May, 2025