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Facts
The assessee, a Co-operative Housing Society, filed its Return of Income for A.Y. 2018-19 claiming a deduction of Rs. 15,28,879/- under Section 80P of the Income Tax Act. The Central Processing Centre (CPC) disallowed this deduction under Section 143(1) citing improper schedule filing, without issuing a prior notice. The ld. CIT(A) upheld the disallowance, but on a different ground, stating that interest earned by a Co-operative Society from its investments is not eligible for deduction under Section 80P(2)(d).
Held
The Tribunal found that the assessee had properly filed the return and claimed the Section 80P deduction in all relevant schedules. The CPC violated Section 143(1) by making an adjustment without issuing a mandatory letter or notice to the assessee outlining the scope and reason for the adjustment. Furthermore, the ld. CIT(A) exceeded its jurisdiction by introducing a new ground for disallowance not originally raised by the CPC, based on Supreme Court precedent regarding appellate powers. Therefore, the Tribunal directed the Assessing Officer to allow the deduction claimed by the assessee under Section 80P of the Act.
Key Issues
1. Whether the Central Processing Centre (CPC) can disallow a Section 80P deduction under Section 143(1) without issuing a prior notice to the assessee detailing the adjustment. 2. Whether the ld. CIT(A) has the jurisdiction to uphold a disallowance on a new ground not originally raised by the Assessing Officer/CPC in the intimation under Section 143(1).
Sections Cited
143(1), 250, 139(1), 80P, 80P(2)(d), 251, 31
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Income Tax Appellate Tribunal, PUNE BENCHES “SMC” :: PUNE
Before: MS.ASTHA CHANDRA & DR.DIPAK P. RIPOTE
ORDER
PER DR. DIPAK P. RIPOTE, AM:
This is an appeal filed by the Assessee against the order of ld.Commissioner of Income Tax(Appeal) [NFAC]/ Addl.CIT(Appeal) under section 250 of the Income Tax Act, 1961 for A.Y.2018-19 dated 17.10.2024, emanating from order under section 143(1) of the Act, dated 12.07.2019. The assessee has raised the sole ground of appeal as under :
“1. 80P deduction of Rs.1528879/- is disallowed. Being a Cooperative Society 80P deduction is allowed in the Income Tax Return.”
Submission of ld.AR : 2. Ld.Authorised Representative(ld.AR) for the Assessee submitted that Assessee is a Co-operative Housing Society duly registered with Deputy Registrar of Co-operative Societies. Ld.AR filed copy of the Registration Certificate, dated 20.01.2003 issued by the Deputy Registrar Co-operative Societies, Pune City(page 21 of the paper book). Ld.AR submitted that for the A.Y.2018-19, Assessee had filed Return of Income on 17.07.2018 under section 139(1) of the Act, claiming deduction under section 80P of the Act. However, the CPC vide its order dated 12.07.2019 passed under section 143(1) of the Act, denied the assessee’s claim for deduction under section 80P of the Act. The reason mentioned in the order is as under : “Deduction under chapter-VIA will not be allowed unless respective schedules are filled properly.”
2.1 The ld.AR submitted that Assessee had properly filed Return of Income. Ld.AR took us through the Copy of the Return of Income filed by assessee to demonstrate that Assessee had claimed deduction under section 80P of the Act and properly filled up “Schedule VI-A – Deductions under ChapterVI-A” of the Return of Income. Ld.AR submitted that ld.CIT(A) failed to consider all these facts and upheld the order passed by CPC on an altogether different issue which was never raised in the order under section 143(1) of the Act. Ld.CIT(A) upheld the decision stating that as held by Hon’ble Karnataka High Court in the case of CIT Vs. Totagars Co-operative Sales Society 392 ITR 74, interest earned by a Co-operative Society on its investment is not eligible for deduction under section 80P(2)(d) of the Act. Ld.AR further submitted that this issue is not the issue raised by CPC in the order under section 143(1) of the Act, therefore, ld.CIT(A) has no jurisdiction to raise the issue without giving a separate notice. Therefore, ld.AR pleaded that Assessee’s appeal may be allowed. Ld.AR also relied on the decision of ITAT Mumbai in of Gautam Dhan Co-op housing Society Ltd., vs. ITO, for A.Y.2019-20, dated 13.06.2023.
Submission of ld.DR : 3. Ld.Departmental Representative(ld.DR) for the Revenue relied on the order of CPC and ld.CIT(A).
Findings &Analysis : 4. We have heard both the parties and perused the records. In this case, Assessee had filed Return of Income for A.Y.2018-19 on 17.07.2018. The due date for filing Original Return of Income for A.Y.2018-19 was 31.08.2018. Thus, the Return of Income was filed within the statutory time limit. Assessee had filed Return of Income under section 139(1) of the Act. We have perused the Return of Income and it is observed that Assessee had claimed deduction under section 80P of the Act of Rs.15,28,879/- in the “Schedule VI-A – Deductions under Chapter VI-A” of Return of Income. Similarly, Assessee has claimed deduction under section 80P in the “Schedule – Deductions under Chapter section 80P” of Rs.15,28,879/-. Similarly, Assessee has claimed the said deduction in the computation of income in the return of income. Thus, apparently at all relevant places, the Assessee has claimed deduction under section 80P of the Act. However, the Central Processing Centre, vide its order dated 12.07.2019 passed under section 143(1) of the Act, has denied the claim of the Assessee for deduction under section 80P of the Act, by giving following reasons as under :
“Deduction under chapter-VIA will not be allowed unless respective schedules are filled properly.” 4.1 We have specifically asked ld.DR for the Revenue to explain us the so-called above defect mentioned by CPC in the order under section 143(1) of the Act. Ld.DR could not point out any defect in the Return of Income; rather ld.DR accepted that Assessee has claimed deduction under section 80P of the Act in the Return of Income. We have already mentioned in the earlier paragraphs that we have verified the Return of Income with the help of ld.DR for the Revenue and ld.AR for the Assessee and observed that Assessee had properly claimed deduction under section 80P of the Act in the relevant Schedules.
4.2 As per Section 143(1), it is mandatory to issue a letter to the Assessee, mentioning scope of adjustment and reason for adjustment before making the adjustments. In this context, on earlier hearing, ld.AR had submitted a “Screenshot” obtained from Income Tax Portal of the Assessee’s Account to demonstrate that no Notice or Letter was issued by CPC prior to impugned adjustment. Therefore, the Bench had adjourned the hearing with the direction to the ld.Departmetnal Representative for the Revenue to verify the fact regarding issue of letter by CPC. Today, ld.DR submitted a Report from the Assessing Officer stating that no letter or notice is observed on the system issued prior to the order under section 143(1) of the Act. It means, there was no Letter or Notice prior to making adjustment under section 143(1) of the Act. It is also observed that CPC had not issued any letter or notice prior to making impugned adjustment.
4.2.1 Thus, CPC has violated the provisions of section 143(1) of the Act, by not issuing a letter before making impugned adjustment.
4.3 Section 143(1) of the Act is reproduced here as under : 143. (1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return shall be processed in the following manner, namely:— (a) the total income or loss shall be computed after making the following adjustments, namely:— (i) any arithmetical error in the return; [***] (ii) an incorrect claim, if such incorrect claim is apparent from any information in the return; [(iii) disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was furnished beyond the due date specified under sub-section (1) of section 139; (iv) disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return; (v) disallowance of deduction claimed under sections 10AA, 80- IA, 80-IAB, 80-IB, 80-IC, 80-ID or section 80-IE, if the return is furnished beyond the due date specified under sub-section (1) of section 139; or (vi) addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return: Provided that no such adjustments shall be made unless an intimation is given to the assessee of such adjustments either in writing or in electronic mode: Provided further that the response received from the assessee, if any, shall be considered before making any adjustment, and in a case where no response is received within thirty days of the issue of such intimation, such adjustments shall be made:] 84[Provided also that no adjustment shall be made under sub-clause (vi) in relation to a return furnished for the assessment year commencing on or after the 1st day of April, 2018;] (b) the tax 85[, interest and fee], if any, shall be computed on the basis of the total income computed under clause (a); (c) the sum payable by, or the amount of refund due to, the assessee shall be determined after adjustment of the tax 85[, interest and fee], if any, computed under clause (b) by any tax deducted at source, any tax collected at source, any advance tax paid, any relief allowable under an agreement under section 90 or section 90A, or any relief allowable under section 91, any rebate allowable under Part A of Chapter VIII, any tax paid on self-assessment and any amount paid otherwise by way of tax 86[, interest or fee]; (d) an intimation shall be prepared or generated and sent to the assessee specifying the sum determined to be payable by, or the amount of refund due to, the assessee under clause (c); and (e) the amount of refund due to the assessee in pursuance of the determination under clause (c) shall be granted to the assessee: Provided that an intimation shall also be sent to the assessee in a case where the loss declared in the return by the assessee is adjusted but no tax 86[, interest or fee] is payable by, or no refund is due to, him: Provided further that no intimation under this sub-section shall be sent after the expiry of one year from the end of the financial year in which the return is made. Explanation.—For the purposes of this sub-section,—
(a) "an incorrect claim apparent from any information in the return" shall mean a claim, on the basis of an entry, in the return,— (i) of an item, which is inconsistent with another entry of the same or some other item in such return; (ii) in respect of which the information required to be furnished under this Act to substantiate such entry has not been so furnished; or (iii) in respect of a deduction, where such deduction exceeds specified statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction; (b) the acknowledgement of the return shall be deemed to be the intimation in a case where no sum is payable by, or refundable to, the assessee under clause (c), and where no adjustment has been made under clause (a). 4.4 The scope of Section 143(1) of the Act is limited to arithmetical error, incorrect claim, incorrect loss, disallowance of expenditure indicated in the Audit Report, disallowance of certain deduction, if Return of Income not filed in time and mis-match in 26AS. In this case, CPC has referred to incorrect claim apparent from the record from any information in the Return of Income. However, as we have mentioned above, on perusal of the Return of Income, we are convinced that Assessee had filled all the relevant Schedules of the Return of Income and all other relevant columns of Return of Income. Therefore, CPC has no jurisdiction to disallow the claim of the Assessee. Hence, we direct the Assessing Officer to allow the Assessee’s claim of deduction under section 80P of the Act.
4.5 In this case, ld.CIT(A) has relied on the decision of Hon’ble Karnataka High Court of Totagars Co-operative Sales Society(supra) and then discussed, how interest earned from Cooperative Banks is not covered under section 80P(2)(d) of the Act.Whether the interest earned by Co-operative Societies from Co-operative Banks is eligible or not was never discussed in the order under section 143(1) of the Act, as the scope of section 143(1) is limited.
4.6 In this case, ld.CIT(A) had travelled beyond the order under section 143(1) of the Act, wherein the disallowance was made only stating following reasons : “Deduction under chapter-VIA will not be allowed unless respective schedules are filled properly.”
Therefore, ld.CIT(A) has no jurisdiction to travel beyond the above-mentioned reason, mentioned in the order under section 143(1) of the Act. In this context, reference is made to Hon’ble Supreme Court’s decision in the case of CIT Vs. Rai Bahadur Hardutory Motilal Chamaria 1968 AIR 153. The relevant observation of the Hon’ble Supreme Court is reproduced here as under :
5.1 In the case of Commissioner Of Income-Tax, Calcutta Vs. Rai Bahadur Hardutroy Motilal Chamaria on 7 April, 1967held as under : Quote“ ………We are unable to accept the argument put forward on behalf of the appellant as correct. It is true that the Income-tax Officer has referred to the remittance of Rs.5,85,000 from the Calcutta branch, but the Income-tax Officer considered the despatch of this amount only with a view to test the Genuineness of the entries relating to Rs.4,30,000 in the books of the Forbesganj branch. It is manifest that the Income-tax Officer did not consider the remittance of Rs.5,85,000 in the process of assessment from the point of view of its taxability. It is also manifest that the Appellate Assistant Commissioner has considered the, amount of remittance of Rs.5,85,000 from a different aspect, namely, the point of view of its taxability. But since the Income-tax Officer has not applied his mind to the question of the taxability or nontaxability of the amount of Rs.5,85,000, the Appellate Assistant Commissioner had no jurisdiction, in the circumstances of the present case, to enhance the taxable income of the assessee on the basis of this amount of Rs.5,85,000 or of any portion thereof. As we have already stated. it is not open to the Appellate Assistant Commissioner to travel outside the record, i.e., the return made by the assessee or the assessment order of the Income- tax Officer with a view to find out new sources of income and the power of enhancement under s. 31(3) of the Act is restricted to the sources of income which have been the subject-matter of consideration by the Income-tax Officer from the point of view of taxability. In this context "consideration" does not mean "incidental" or "collateral" examination of any matter by the Income-tax Officer in the process of assessment. There must be something in the assessment order to show that the Income-tax Officer applied Ms mind to the particular subject-matter or the particular source of income with a view to its taxability or to its non-taxability and not to any incidental connection. In the present case it is manifest that the Income-tax Officer has not considered the entry of Rs.5,85,000 from the point of view of its taxability and therefore the Appellate Assistant Commissioner had no jurisdiction, in an appeal unders.31 of the Act, to enhance the assessment. For these reasons we hold that the High Court rightly answered the question in favour of the assessee and this appeal must be dismissed with costs.” Unquote.
5.2 The above decision of Hon’ble Supreme Court is in the context of Section 31 of Income Tax Act, 1922. However, Section 251 of the Income Tax Act, 1961 is identical to Section 31 of the Income Tax Act, 1922. For ready reference, both the Sections are reproduced here as under : Section 31 of Income Tax Act, 1922 : "31. (1) The Appellate Assistant Commissioner shall fix a day and place for the hearing of the appeal, and may from time to time adjourn the hearing. (2) The Appellate Assistant Commissioner may, before disposing of any appeal, make such further inquiry as lie thinks fit, or cause further inquiry to be made by the Income- tax Officer...... (3) In disposing of an appeal the Appellate Assistant Commissioner may, in the case of an order of assessment,- (a) confirm, reduce, enhance or annul the assessment, or (b) set aside the assessment........”
Section 251 of Income Tax Act, 1961 : Powers of the [Joint Commissioner (Appeals) or the] Commissioner (Appeals). 251. (1) In disposing of an appeal, the Commissioner (Appeals) shall have the following powers— (a) in an appeal against an order of assessment, he may confirm, reduce, enhance or annul the assessment : 5.3 The Hon’ble Supreme Court explained the law that Appellant Commissioner had no jurisdiction of enhancement, if the ITO has not applied his mind on the particular subject matter. In this case, the ADIT(CPC) who is the Assessing Officer, who pass order under section 143(1) in the case of the Assessee, has disallowed the claim of assessee only on one ground as under : “Deduction under chapter-VIA will not be allowed unless respective schedules are filled properly.”
5.4 Thus, the Assessing Officer had not discussed anything about eligibility of the assessee qua interest earned. Therefore, respectfully following Hon’ble Supreme Court’s decision(supra), under section 251 of the Act, ld.CIT(A) has no jurisdiction. Accordingly, order passed by the ld.CIT(A) is unsustainable.
5.5 In these facts and circumstances of the case, we are convinced that CPC has erred in disallowing the Assessee’s claim for deduction under section 80P of the Act. Accordingly, grounds of appeal raised by the assessee are allowed. Accordingly, the Assessing Officer is directed to allow assessee deduction under section 80P of the Act.
In the result, appeal of the Assessee is allowed. Order pronounced in the open Court on 27th January, 2025.