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Facts
The assessee, a non-filer cooperative society, had its assessment reopened for AY 2019-20 due to cash deposits and interest income. While the CIT(A) deleted the addition for cash deposits after sources were explained, the interest income from time deposits was confirmed as income from other sources. The assessee's primary grievance is the denial of deduction u/s 80P(2)(d) for this interest income.
Held
The Tribunal upheld the denial of deduction under Section 80P(2)(d) for interest income, citing the assessee's failure to file a return of income under Section 139(1) as mandated by Section 80AC. It also confirmed that additions for other escaped income could be made during reassessment proceedings, even if the initial ground for reopening was subsequently deleted.
Key Issues
1. Whether deduction u/s 80P(2)(d) can be claimed for interest income from time deposits when the assessee failed to file a return of income under Section 139(1). 2. Whether additions for other escaped income can be made during reassessment proceedings even if the original ground for reopening is deleted.
Sections Cited
147, 144, 144B, 80P(2)(d), 69A, 57, 80P(2)(a)(i), 139, 148, 80AC, 139(1), 133(6), Rule 29
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Income Tax Appellate Tribunal, “B” BENCH, CHANDIGARH
Before: HON’BLE SHRI LALIET KUMAR, JM & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2019-20 arises out of an order of learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [CIT(A)] dated 02-09-2024 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s. 147 r.w.s. 144 r.w.s.144B of the Act on 29- 12-2023. The sole grievance of the assessee is denial of deduction u/s 80P(2)(d) for Rs.42.47 Lacs. The registry has noted delay of 68 days in the appeal which stand condoned considering the condonation petition of the assessee. Having heard rival submissions and upon perusal of case records, the appeal is disposed-off as under.
The assessee did not file its return of income for this year. Pursuant to information of cash credit in assessee’s bank accounts, the case was reopened. It transpired that the assessee deposited cash of Rs.151.39 Lacs in The Kangra Central Coop Bank Ltd. The assessee failed to respond to the hearing notices as issued by Ld. AO. After obtaining bank statement, Ld. AO noted cash deposit of Rs.147.39 Lacs and added the same u/s 69A. The assessee derived interest of Rs.42,47,498/- from various time deposits which was also added as income from other sources.
During first appeal, the assessee filed additional evidences / additional grounds which were subjected to remand proceedings. After due consideration of relevant material and remand report, Ld. CIT(A) held that there was no violation of procedure by Ld. AO as alleged by the assessee. On merits, the assessee was able to explain the sources of cash deposits and accordingly, the addition made u/s 69A was deleted.
On the issue of interest income, Ld. CIT(A) held that the said income was to be considered as income from other sources against which the assessee would be able to claim deduction u/s 80P(2)(d). The assessee also contended that it paid interest to its members and therefore, only net interest should be assessed. However, the said plea was rejected since there was no nexus between the interest earned from the bank and interest paid to the members. The activity of receiving interest from members and paying interest to the members would constitute business and profit so earned only would come within the purview of Sec.80P(2)(a)(i). Against bank interest which was to be assessed as income from other sources, deduction u/s 57 could be allowed for expenditure which had direct nexus with such income. However, no such nexus was proved by the assessee and therefore, no such allowance could be granted to the assessee. Finally, the assessee did not file any return of income u/s 139 as well as in response to notice u/s 148 and therefore, no deduction u/s 80P(2)(d) could be allowed to the assessee considering the amendment made to Sec.80AC w.e.f. 01-04-2018 which mandate the assessee to file return of income u/s 139(1) to make such claim of deduction. It was further observed that the accounts of the assessee were duly audited on 25- 02-2022 which was much before issuance of notice u/s 148. Therefore impugned deduction u/s 80P(2)(d) could not be allowed to the assessee. Aggrieved, the assessee is in further appeal before us.
From the facts, it emerges that the assessee is a non-filer. It has neither furnished return of income u/s 139 nor in response to notice issued u/s 148. The Ld. AO, observing cash credits in assessee’s bank accounts, procured the bank statement from assessee’s bank and made addition of cash deposits and interest income. The Ld. CIT(A), deleted the addition of cash deposit since the assessee substantiated the sources thereof. However, the assessee earned interest on time deposits which would certainly be assessable as income from other sources. Against this income, deduction of expenditure u/s 57 could be allowed only if there was direct nexus of expenditure with this income. The assessee has failed to show any such nexus. Therefore, netting-off of interest income could not be permitted. In the result, the additional ground No.4 stand rejected. Further, the interest income would be eligible for deduction u/s 80P(2)(d) provided the assessee fulfills the mandate of Sec.80AC which provide that to claim such a deduction, the return of income must be filed before due date u/s 139(1). The assessee has failed to fulfill this mandatory condition. Considering the ratio of decision of Hon’ble Apex Court in the case of Dilip Kumar & Co. (9 SCC 1), in the absence of any valid return of income u/s 139(1), this deduction has rightly been denied to the assessee. We confirm the adjudication of Ld. CIT(A) on this issue.
In the additional grounds of appeal
No.3, the assessee assail the impugned addition of interest on the ground that the same do not form part of reasons for reopening and further, the primary issue of cash deposits stood deleted by Ld. CIT(A). These arguments do not convince us from any angle. The assessee has remained non-filer throughout and it failed to make any representation during assessment proceedings. Left with no option, Ld. AO procured the bank statement of the assessee u/s 133(6) and assessed the income of the assessee on the basis of information contained therein. Secondly, Ld. AO has clearly made addition for cash deposits in the assessment order for which the assessment of the assessee was reopened. It is not the case that no addition was made on recorded reasons. Even otherwise, this legal issue stood covered against the assessee by the decision of jurisdictional High Court in the case of Mehak Finvest (P) Ltd. (367 ITR 769). The Hon’ble Court, considering Explanation-3 to Sec.147 (inserted by the Finance (No. 2) Act, 2009, retrospectively with effect from 01-04-1989), concurred that Ld. AO was empowered to make additions even on the ground on which reassessment notice might not have been issued where during the reassessment proceedings, he concludes that some other income has escaped assessment which comes to his notice during the course of the proceedings for reassessment u/s 148 of the Act. The provision nowhere postulates or contemplates that the AO cannot make any additions on any other ground unless some addition is made on the ground on which reassessment had been initiated. Therefore, this ground stand rejected.
7. The assessee has also filed petition u/r 29 seeking admission of addition evidences. The same is in the nature of audit report of the audit conducted by the