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Facts
The assessee, a primary agricultural credit co-operative society, filed three appeals for AYs 2017-18 and 2020-21. One appeal challenged the denial of Section 80P deduction for a belatedly filed return of income. The second appeal contested a penalty under Section 271B for delayed submission of audit reports. The third appeal disputed the disallowance of Section 80P deduction on interest income from Treasury and Scheduled Banks.
Held
The Tribunal upheld the denial of Section 80P deduction for the belatedly filed return, citing a High Court precedent that mandated timely filing for claiming the deduction. It deleted the Section 271B penalty, finding reasonable cause for the delay in submitting audit reports as per another High Court ruling. For the AY 2020-21 appeal, the Tribunal allowed the Section 80P deduction on interest income from District Co-operative Bank and Treasury, relying on a jurisdictional High Court judgment.
Key Issues
1) Whether deduction under Section 80P is allowable if the return of income is filed beyond the statutory due date. 2) Whether penalty under Section 271B can be imposed for delayed submission of audit reports when reasonable cause exists. 3) Whether interest income earned by a co-operative society from deposits in Treasury and Scheduled Banks is eligible for deduction under Section 80P.
Sections Cited
139(1), 139(4), 142(1), 144, 80P, 80A(5), 80AC, 148, 271B, 44AB, 80P(2)(a)(i), 80P(2)(d)
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Income Tax Appellate Tribunal, COCHIN BENCH
Before: SHRI INTURI RAMA RAO, AM & SHRI PRAKASH CHAND YADAV, JM
O R D E R Per: Inturi Rama Rao, AM These appeals filed by the assessee are directed against the orders of the National Faceless Appeal Centre, Delhi [CIT(A)], dated 03.07.2024, 17.08.2024 & 16.08.2024 for Assessment Years (AYs) 2017-18 & 2020-21, respectively.
Since different issues are involved in these appeals, we shall take up the appeals in seriatim. to 783/Coch/2024 Kulasekharapuram Service Co-op. Bank Ltd. – AY: 2017-18 3. Brief facts of the case are that the assessee is a primary agricultural credit co-operative society registered under the provisions of the Kerala Co-operative Societies Act, 1969. The appellant did not file return of income for AY 2017-18 under the provisions of section 139(1) of the Income Tax Act, 1961 (the Act). The Income Tax Officer, Ward-5, Alappuzha (hereinafter called "the AO") issued notice u/s. 142(1) of the Act requiring the assessee to file the return of income. In response the assessee filed the return of income on 25.01.2019, which beyond the stipulated time period. Therefore, the AO completed the assessment vide order dated 30.12.2019 u/s. 144 of the Act.
Being aggrieved, an appeal was filed before the CIT(A), who vide the impugned order confirmed the action of the AO.
Being aggrieved, assessee is in appeal before this Tribunal.
We have heard the rival contentions of both the parties and perused the material available on record. The solitary issue that arises for our consideration is whether or not the CIT(A) was correct in law in confirming the action of the AO denying deduction u/s. 80P of the Act as no valid return of income was filed by the assessee. Admittedly, in the present case the assessee has not filed valid return of income either under the provisions of section 139 of the Act or in response to the notice u/s. 142(1) issued by the AO. The provisions of sub-section 80A(5) mandates that in order to claim a deduction under the section specified under Chapter VI-A, a claim is required to be made in the return of income. The issue in the present case is settled against the assessee by the decision of to 783/Coch/2024 Kulasekharapuram Service Co-op. Bank Ltd. the Hon'ble Jurisdictional High court in the case of Nileshwar Range Kallu Chethu Vyavasaya Thozihilali Sahararana Sangham [2023] 459 ITR 730 (Ker) wherein it was held 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 to 783/Coch/2024 Kulasekharapuram Service Co-op. Bank Ltd. 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 precondition for obtaining the deduction cannot be condoned either by the statutory authorities or by the courts.
13. It is in the backdrop of the aforesaid discussion that we must consider the findings of a Division Bench of this Court in The 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.” Respectfully following the decision of the Hon'ble Jurisdictional High Court we hold that the assessee is not entitled for deduction u/s. 80P of the Act as no valid return of income was filed by the assessee society and the decision of the Hon'ble Jurisdictional High court prevails over the coordinate bench’s decision of this Tribunal. Thus, we do not find any merit in the appeal filed by the assessee. Accordingly the appeal stands dismissed. to 783/Coch/2024 Kulasekharapuram Service Co-op. Bank Ltd. – AY: 2017-18 7. This appeal was filed against the order of the CIT(A) confirming the penalty levied u/s. 271B of the Act by the AO vide order dated 09.07.2021.
In the present case, the audited financial statements were not furnished by the assessee within the due date as specified u/s 44AB of the Act. Therefore, the AO levied penalty u/s 271B of the Act amounting to Rs. 1,50,000/- .
9. Being aggrieved, an appeal was filed before the CIT(A), who vide the impugned order confirmed the action of the AO.
10. Being aggrieved by the order of the learned CIT(A) the assessee is in appeal before us.
The learned A.R. before us submitted that the delay occurred due the bona fide belief that the society was not statutorily required to file return of income, being a primary agricultural credit society in terms of clause (cciv) of the Banking Regulation Act, eligible for deduction u/s. 80P of the Act.
12. On the other hand, the learned Sr. DR vehemently supported the orders of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we note that the Hon'ble Jurisdictional High Court in the case of Chavakkad Service Co-op. Bank Ltd. [2024] 169 taxmann.com 45 (Kerala) has observed as under: - to 783/Coch/2024 Kulasekharapuram Service Co-op. Bank Ltd. “Where assessee co-operative societies did not file audit report as mandated under section 44AB within time limit specified thereunder, however, audit reports were made available before Assessing Authority at time of finalization of assessments, since delay in obtaining audit reports from statutory auditors under Kerala Co-operative Societies Act and Rules could be seen as a reasonable cause for delayed submission of audit reports, no penalty under section 271B was to be imposed on assessee.”
The facts of the case on hand are identical as discussed above. Thus, respectfully following the same, we delete the penalty imposed by the Revenue.
This appeal is filed against the order of the CIT(A) dated 16.08.2024 confirming the action of the AO disallowing deduction u/s. 80P(2)(a)(i) of the Act vide order dated 19.09.2022
We have heard the rival contentions of both the parties and perused the material available on record.
8. Learned CIT- DR vehemently argued that such interest income could have hardly be held even derived from assessee’s regular credit facilities made available to the members concerned. He further quotes PCIT & Anr. v. Totagars Co-operative Sales Society reported in (2017) 395 ITR 611 (Kar.) and submitted that the impugned disallowance has been rightly made in assessee’s hand. to 783/Coch/2024 Kulasekharapuram Service Co-op. Bank Ltd.
Regarding the interest income received from Treasury, Scheduled Banks, etc., this issue is no longer res integra, as it is covered by the judgement of the Hon'ble Jurisdictional High court in the case of CIT vs. Sahyadri Co-operative Credit Society Ltd. in of 2019, wherein it was held as under: - “ The question that arises therefore is whether, merely because the assessee chooses to deposit its surplus profit in a permitted bank or financial institution, and earns interest on such deposits, such interest would cease to form part of its profits and gains attributable to its business of providing credit facilities to its members? In our view that question must be answered in the negative, since we cannot accept the contention of the Revenue that the interest earned on those deposits loses its character as profits/gains attributable to the main business of the assessee. It is not as though the assessee in the instant case had used the surplus amount (the profit earned by it] for an investment or activity that was unrelated to its main business, and earned additional income by way of interest or gain through such activity. The assessee had only deposited the profit earned by it in the manner mandated under Section 63 of the Multi-State Co-operative Societies Act, or permitted by Section 64 of the said Act. In other words, it dealt with the surplus profit in a manner envisaged under the regulatory Statute that regulated, and thereby legitimized, its business of providing credit facilities to its members. Under those circumstances, if the assessee managed to earn some additional income by way of interest on the deposits made, it could only be seen as an enhancement of the profits and gains that it made from its principal activity of providing credit facilities to its members. The nature and character of the principal income [profits earned by the assessee from its lending activity) does not change merely because the assessee acted in a prudent manner by depositing that income in a bank, instead of keeping it in hand. The provisions of the I.T. Act cannot be seen as intended to discourage prudent financial conduct on the part of an assessee.”
Respectfully following the above decisions of the Hon'ble Jurisdictional High Court we hold that the assessee is entitled for deduction under sections 80P(2)(d) of the Act is dismissed and & 783/Coch/2024 are allowed.
Order pronounced in the open court on 4th February, 2025.