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Facts
The assessee, a credit cooperative society, made substantial cash deposits during the demonetization period. It failed to file its return of income (ITR) initially but filed a belated return in response to a Section 142(1) notice. The Assessing Officer (AO) disallowed the claimed deduction under Section 80P and depreciation, treating the belated return as non-est under Section 80A(5) of the Income Tax Act, which was partially upheld by the First Appellate Authority regarding the 80P deduction.
Held
The Tribunal, relying on various High Court and Supreme Court precedents, held that while the requirement to claim a deduction under Section 80P in the return of income is mandatory, the timing of filing the return itself is directory. Therefore, a claim made during assessment proceedings or in a belated return is valid. The Tribunal set aside the lower authorities' order and remitted the matter to the AO to re-examine the assessee's claim for deduction under Section 80P on its merits.
Key Issues
Whether deduction under Section 80P can be allowed when the return of income is filed belatedly in response to a notice under Section 142(1), and whether the requirement to claim such deduction in the return of income is mandatory or directory under Section 80A(5) of the Income Tax Act.
Sections Cited
144, 80P, 80P(2)(a)(i), 80A(5), 142(1), 139(1), 139(4), 270A, 271F, 80AC, 10A, 10AA, 10B, 10BA, 80-IA, 80-IAB, 80-IB, 80-IC, 80-ID, 80-IE, 80J, 80J(6A), Chapter III, Chapter VI-A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Mumbai “SMC” Bench, Mumbai.
Before: Ms. Madhumita Roy, & Smt. Renu JauhriShri Mandar Vaidya, Adv. Shri R.R. Makwana, (Sr. DR)
O R D E R PER MADHUMITA ROY, (JM) : The instant appeal filed by the assessee is directed against the order dated 08.05.2024 passed by the National Faceless Appeal Centre (NFAC), under Section 144 of the Income Tax, Act, 1961 (hereinafter referred to as ‘the Act’) arising out of the order dated 28.12.2019 passed by the ITO, Ward 23(2)(3), Mumbai for Assessment Year 2017-18 whereby and whereunder, the disallowance of deduction to the tune of Rs.2,14,322/- under Section 80P(2)(a)(i) of the Act has been upheld.
We have heard the rival submissions made by the respective parties. We have also perused the relevant materials available on record including the orders passed by the authorities below.
Brief facts leading to the case are that the assessee, a credit cooperative society, providing loan to its customer, made cash deposits during the demonetization period to the tune of Rs.11,36,500/- with IDBI Bank and Rs.16,80,000/- with Saraswat Cooperative Bank. The assessee did not file any return of income and notice under Section 142(1) of the Act for filing of return for the year under consideration was issued to the asessee on 12.12.2017 through ITBA, in response whereof return of income was filed by the assessee, a copy whereof has also been submitted before us. The assessee during the course of assessment proceedings submitted computation of income wherein it has shown total income for business and profession of Rs.8,48,776/-, claimed a deduction under Section 80P of Rs.4,51,789/- of the Act and further claimed depreciation of Rs.3,96,987/-. As the assessee did not file its return of income for Assessment Year 2017-18 and has not disclosed its accounts to the department, its profits to the department, the claim of deduction under Section 80P of the Act has found to be not allowable and with the following observations the same has been disallowed by the Ld. AO:
“4. The assessee is having income in excess of Rupees Eight Lakhs and it is obligatory on the part to file the return of income. However assessee has failed to file the same. Assessee had filed return of income on 28/08/2019 which is much beyond the due date and is not acceptable. In view of this the assessee was asked to show cause why the deduction u/s 80P should be allowed and why depreciation should not be disallowed.
The assessee has submitted its reply on 19/12/2019. The same has been considered but the same are not acceptable. Even for claiming a deduction the return has to be filed on or before the due date of filing return as specified in the Act. If the proceedings u/s.144 had not been taken up, the assessee Would have continued to flout the provisions of the Income tax Act, 1961 by not filing its return of income The assessee has not availed of the opportunity to file return of income u/s 139 nor did it avail of the opportunity to file return in response to notice u/s 142(1). It filed the return long after the both the above due dates i.e. due date for filing return u/s 139 and due date to file the return in response to notice u/s 142(1) were over.
6. Considering the above facts and elaborate discussion made in the preceding paragraphs, it is seen that the assessee by not filing return of income for A.Y. 2017-18 it has not disclosed its accounts to the departments, its profits to the department and further its disallowable also to the department. Thus in view of the above facts, the assessee is not liable to claim deduction u/s 80P of the IT Act and also depreciation and it has not claimed the same itself by filing of return of income Thus, when there is no claim of a deduction made by the assessee, the question of allowing the said deduction does not arise. In view of the above facts, the claim of deduction u/s.80P and depreciation made by the assessee during the 144 proceedings is not made by a valid disclosure of a return of income by the assessee and therefore, the deduction claimed by the assessee of Rs.4,51,789/- is disallowed and depreciation claimed of Rs.3,96,987/- also is not allowed. Penalty proceedings u/s 270A of the Income tax Act 1961 are initiated separately for under-reporting of income as the assessee has not disclosed the same by filing of the return of income Penalty proceedings u/s 271F is initiated separately for not filing the return on time. Thus the profit and gains of the assessee as claimed in its computation of income is treated as the assessee's undisclosed income for the year under consideration.”
The appellant filed return on 28.08.2019 beyond the statutory time limit prescribed under Section 139(1) and 139(4) and, therefore, the same was treated as non-est and the claim of Rs.4,51,789/- made by the appellant as deduction under Section 80P was not allowed by the AO.
5. The claim of depreciation to the tune of Rs.3,96,987/- was also not allowed in view of this particular fact that the appellant has not filed valid return. However, the same was directed to be deleted by the First Appellate Authority, but the deduction under Section 80P claimed by the assessee as has not been entertained by the Ld. AO the same was upheld by the First Appellate Authority for the sole reason that the assessee did not file its return of income as required under Section 80A(5) of the Act. Under this facts and circumstances of the matter, the issue involved before us is this as to whether the deduction under Section 80P(2)(a)(i) is allowable in view of the provision of Section 80A(5) of the Act.
6. Section 80P(2)(a)(i) speaks as follows:
80P. (1) Where, in the case of an assessee being a co-operative society, the "gross total income includes any income referred to in sub-section (2) there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee.
(2) The sums referred to in sub-section (1) shall be the following, namely:-
(a) in the case of a co-operative society engaged in-
(1) carrying on the business of banking or providing credit facilities to its members, or (ii) a cottage industry", or (iii) the marketing of agricultural produce" grown by its members, or] (iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or (v) the processing, without the aid of power, of the agricultural produce of its members, [or] (vi) the collective disposal of the labour of its members, or (vii) fishing or allied activities, that is to say, the catching curing processing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members.] the whole of the amount of profits and gains of business attributable to any one or more of such activities. Provided that in the case of a co-operative society falling under sub- clause (vi), or sub-clause (vii), the rules and bye-laws of the society restrict the voting rights to the following classes of its members, namely:-
(1) the individuals who contribute their labour or, as the case may be, carry on the fishing or allied activities; (2) the co-operative credit societies" which provide financial assistance to the society; (3) the State Government;]
7. According to the assessee it is coming under the zone of consideration under Section 80P(2)(a)(i) of the Act, having regard to the mode of business of the assessee.
8. The provision of Section 80A(5) speaks that where the assessee fails to make a claim for 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 income’ no deduction shall be allowed to him thereunder. Thus, non-claiming of deduction while filing of return though disqualifies the assessee, the provision of Section 80A(5) of the Act does not specify that the return is to be filed only under Section 139(1) of the Act. Moreso, an amendment to this provision has been made by introducing Section 80AC of the Act when mandatory return under Section 139(1) has been prescribed in case of claiming deduction under Section 80IA of the Act that too made effective from Assessment Year 2018-19. Thus, taking into consideration both the provisions of law, it appears that provision of Section 80A(5) is applicable only when a return of income is filed by an assessee and deduction under chapter VIA is not claimed in such return of income and it would not apply to a case where no return of income was filed. Under this facts and circumstances of the case, therefore, ground taken by the Assessing Officer and further confirmed by the First Appellate Authority in rejecting the claim made under Section 80P(a)(i) of the Act to the tune of Rs.2,14,322/- for non filing of return under Section 139(1) of the Act and claimed deduction under chapter VIA of the Act is not sustainable in the eyes of law as was the crux of the submissions made by the Ld. A.R which was also supported by the judgments passed by the different benches of ITAT. He has relied upon by the judgment passed by the Bangalore Bench in the case of Prathamika Krishi Pattina, Sahakara Sangha Ltd. Vs. ITO, reported in (2022) 142 taxmann.com 405 (Bangalore – Trib) wherein it has been held that Section 80A(5) was applicable only when a return of income was filed by an assessee and deduction under Chapter VIA was not claimed in such return and it would not apply to a case where no return of income was filed. A copy of the said judgment has been filed before us. The relevant observation made by the Bench on this issue is as follows:
“6. The CIT(A), however, rejected the contentions of the assessee by holding that the provisions of section 80A(5) of the Act are unambiguous and filing of return is a precondition for claiming deduction under section 80P of the Act. The CIT(A) also distinguished the cases cited on behalf of the assessee. I do not propose to discuss those aspects because in my view the case laws and the discussions are not germane to the issue that required consideration by the CIT(A). The CIT(A) ultimately upheld the order of the AO. Hence, this appeal by the assessee before the Tribunal.
I have heard the rival submissions. The learned Counsel for the assessee submitted that the provisions of section 80A(5) of the Act will come into play only when a return of income is filed by an assessee and the claim for deduction under Chapter VIA of the Act is not claimed in the said return. It was contended that since the assessee did not file return of income for Assessment Year 2017-18, there was no question of invoking the provision of section 80A(5) of the Act. His further submission was that section 80AC of the Act as it existed prior to its substitution by the Finance Act, 2018 w.e.f. 1-4-2018 reads as follows.
“80AC. Deduction not to be allowed unless return furnished-Where in computing the total income of an assessee of the previous year relevant to the assessment year commencing on the 1st day of April, 2006 or any subsequent assessment year, any deduction is admissible under section 80-1A or section 80-1AB or section 80-IC or section 80-ID or section 80- IE, no such deduction shall be allowed to him unless he furnishes a return of his income for such assessment year on or before the due date specified under sub-section (1) of section 139.”
He pointed out that the aforesaid provisions contemplate filing of return of income to claim deductions under certain provisions of Chapter VI "A" of the Act and 80P is not one of the section which is mentioned in section 80AC of the Act. He therefore submitted that the deduction under section 80P of the Act cannot be denied to the assessee for non filing of return of income. Learned DR, on the other hand, reiterated the stand of the Revenue as reflected in the order of the CIT(A).
8. I have given a careful consideration to the rival submissions. I agree with the submissions of the learned Counsel for the assessee that section 80A(5) of the Act is applicable only when a return of income is filed by an assessee and a deduction under Chapter VI "A" of the Act, is not claimed in such return of income. It will not apply to a case where no return of income is filed. The provisions of section 80AC of the Act, as we have already seen, contemplates denial of deduction in respect of certain provisions of Chapter VI "A" of the Act, if a return of income is not filed by an assessee. Those provisions, as rightly contended by the learned Counsel for the assessee, do not apply to the claim for deduction under section 80P of the Act. Therefore, the Revenue authorities were not justified in not entertaining the claim of the assessee for deduction under section 80P of the Act as made by the assessee. Since neither the AO nor the CIT(A) have examined the other conditions for allowing deduction under section 80P of the Act, I deem it fit and proper to remand the issue of the assessee's eligibility to claim deduction under section 80P of the Act, in the sense with regard to the quantum of deduction and also with regard to the other conditions for allowing deduction under section 80P of the Act, for examining afresh by the AO. I therefore allow the appeal of the assessee for statistical purposes.”
9. He has further relied upon the judgment passed by the Nagpur Bench in the matter of Krushi Vibhag Karmchari Vrund Sahakari pat Sanstha Maryadit Vs. ITO, reported in (2023) 147 taxmann.com 449 (Nagpur Trib.) wherein it has been held that requirement of making a claim in return of income under Section 80A(5) is directory in nature and, therefore, lower authorities were not justified in rejecting the assessee’s claim of deduction under Section 80P only on the ground that such a claim was not made in return but during the course of assessment proceedings. The relevant observation made by the Bench is as follows:
“5. I have heard both the sides and scanned through the relevant material on record. It is an undisputed fact that the assessee did not file return of income for the year under consideration either originally or pursuant to notice u/s 148. Computation of income was filed during the course of assessment proceedings in which the deduction u/s 80P was claimed. Whereas, the authorities below have canvassed a view that the assessee violated section 80A(5) and hence the deduction was not available; the assessee has made out a case that section 80A(5) does not apply where no return is furnished and rather it is section 80AC which would govern the case and because of omission of section SOP in the list of sections given in section 80AC, the deduction should be granted. In order to appreciate the contention of the Id. AR, it would be apposite to reproduce section 80AC, before its substitution by the Finance Act, 2018 w.e.f 1-4-2018, which reads as under:
“Where in computing the total income of an assessee of any previous year relevant to the assessment year commencing on the 1st day of April, 2006 or any subsequent assessment year, any deduction is admissible under section 80-IA or section 80-1AB or section 80-IB or section 80-IC or section 80-ID or section 80-IE, no such deduction shall be allowed to him unless he furnishes a return of his income for such assessment year on or before the due date specified under sub-section (1) of section 139.”
6. On going through the above provision, it is crystallized that the requirement of filing return before the time u/s 139(1) is sine qua non for claiming deduction under the six sections (80-IA or 80-IAB or 80-IB or 80-IC or 80-ID or 80-IE). In other words, if a return is filed belatedly u/s 139(4) or under any other section, claiming deduction under any of the six sections, the writ of the section 80AC will operate to prevent its granting. This section does not deal with granting or non-granting of deduction under any other sections of Part C of Chapter VI-A, including section 80P Thus, to infer that since section 80AC does not cover section 80P, the latter section is immune from any other statutory requirement, is wholly incorrect In fact, section 80AC is alien to deduction under any section except the specified six sections.
7. Now, I turn to section 80A(5), which has been pressed into service by the AO for denying the benefit of deduction u/s 80P of the Act, which runs as under:
“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.”
8. This section provides that where an assessee fails to make a claim in his return of income for any deduction, amongst others, the sections enshrined in Part C to Chapter VI-A (including section 80P and six sections as given in section 80AC), then the deduction shall not be allowed. A perusal of the mandate of section 80A(5) divulges that the claiming of deduction under various sections of part C of Chapter VI-A in the return of income is essential. The reference in this provision is only to return of income, without any further qualification. The return may be u/s 139(1) or 139(4) or any other relevant section.
9. On a conjoint reading of sections 80A(5) and 80AC, it gets manifest that claiming of deduction under various sections of Part C of Chapter VI-A in the return of income is essential. However, an additional requirement for claiming deduction under sections 80-IA or 80-IAB or 80-I8 or 80-IC or 80-ID or 80-IE is that such deduction must be claimed in a return filed u/s 139(1) of the Act. In one sense, section 80AC is an exception to section 80A(5), making the mandate of the latter section more stringent in the prescribed cases. Whereas other deductions of Part C of Chapter VI-A, including section 80P, can be claimed in the return filed under any section, including section 139(4), the six deductions as referred to in section 80AC must necessarily be claimed in the return filed u/s 139(1) only. Ex consequenti, the contention that since section 80P is not covered under section 80AC, the deduction under this section becomes automatically allowable without adhering to the requirement of section 80A(5), is bereft of force and hence dismissed.
10. Now I advert to the requirements of section 80A(5), which stipulates that no deduction under other sections including 80P shall be allowed if the assessee fails to make such a claim in the return of income Thus, there are twin conditions, viz, first, claiming deduction u/s 80P and second, claiming such deduction in the return of income. There is no dispute on the first condition, which has been satisfied in this case as the assessee did claim the deduction albeit during the course of assessment proceedings. The whole controversy revolves around the second condition, which says that the claim should be made in the return of income. The assessee in the extant case did not file any return of income, but made a claim of the deduction in computation of income filed during the course of the assessment proceedings. The moot question is whether the requirement of making a claim in the return of income is a mandatory or a directory requirement. If it is held as mandatory, then the claim must be made in the return of income, failing which the benefit of deduction would be lost. Au contraire, if it is held as directory, then the claim made either in the return of income or in any manner before the conclusion of assessment proceedings, as is the case under consideration, would validate the entitlement.
11. The Hon'ble Supreme Court in CIT v. G.M. Knitting Industries (P) Ltd. [2016] 71 taxmann.com 35/ [2015] 376 IIR 456/279 CTR 534 came across a situation in which the assessee claimed additional depreciation in Form 3AA but the Form was not furnished along with the return of income. Such Form was submitted during the course of assessment proceedings. The AO denied the claim on the ground that the Form 3AA was required to be statutorily filed along with the return of income. The view of the AO was reversed by the Tribunal as well as the Hon'ble High Court by holding that even if the Form was filed during the course of assessment proceedings, it amounted to sufficient compliance. The Hon'ble Supreme Court, taking note of the judgment in CIT v. Shivanand Electronics [1994] 75 Taxman 93/209 ITR 63/119 CTR 94 (Bom.), approved the view of the Hon'ble High Court having the effect that the requirement of filing Form 3AA was a necessary ingredient for claiming additional depreciation, but the timing of filing the Form was a directory requirement, which was fulfilled on filing it even during the course of assessment proceedings. The Hon'ble Bombay High Court in Shivanand Electronics (supra) dealt with the requirement of filing audit report for the purpose of claiming deduction u/s 80J, which required that the report should be filed "along with return of income" under s. 80J(6A). It held that such requirement of filing the audit report along with the return of income was not mandatory, but directory in the sense that if assessee complied with the same before completion of assessment, deduction under s 801, on the basis of such report, was allowable.
12. Recently, the Hon'ble Supreme Court was confronted with the claim of benefit u/s 10B in Pr. CIT v. Wipro Lid 12022] 140 taxmann.com 223/288 Taxman 491/446 ITR 1. The assessee furnished original return taking the benefit of section 10B and did not carry forward the loss. Thereafter, a revised return was filed foregoing the claim of deduction u/s 10B The AO rejected the withdrawal of exemption under section 10B by holding that assessee did not furnish the necessary declaration in writing before due date of filing return of income, which was an essential requirement for not claiming the benefit of section 108. The Hon'ble High Court decided the issue in favour of the assessee by holding that the requirement of filing the declaration was mandatory but filing it along with the return of income u/s 139(1) was a directory requirement. The matter was brought by the Revenue before the Hon'ble Supreme Court. The assessee, inter alia, relied on the judgment of the Apex Court in G.M Knitting Industries (P) Ltd (supra) Their Lordships held that the requirement of filing the report in support of deduction w/s 10B was not a directory but a mandatory requirement. It further held that both the conditions of filing the declaration and filing it before the time limit u/s 139(1) were mandatory and had to be cumulatively satisfied Rejecting the reliance on GM. Knitting Industries (P) Ltd (supra), the Hon'ble Supreme Court held that that decision was relevant in the context of deduction provisions and not the exemption provisions as given under Chapter III of the Act. As the Hon'ble Summit Court in Wipro Ltd. (supra) was dealing with section 10B, falling under Chapter III of the Act, it held qua G.M. Knitting Industries (P) Ltd. (supra) that: Therefore, the said decision shall not be applicable to the facts of the case on hand, while considering the exemption provisions. Even otherwise, Chapter III and Chapter VI-A of the Act operate in different realms and principles of Chapter III, which deals with "incomes which do not form a part of total income", cannot be equated with mechanism provided for deductions in Chapter VI-A, which deals with "deductions to be made in computing total income". Therefore, none of the decisions which are relied upon on behalf of the assessee on interpretation of Chapter VI-A shall be applicable while considering the claim under section 10B (8) of the IT Act.
13. On going through the judgments in GM. Knitting Industries (P) Ltd. (supra) in juxtaposition to Wipro Ltd. (supra), the principle which emerges is that the fulfillment of requirement of making a claim for exemption under the relevant sections of Chapter III in the return of income is mandatory, but when it comes to the claim of a deduction, inter alia, under the relevant sections of Chapter VI-A, such requirement becomes directory. In the latter case, the making of a claim even after the filing of return but before completing the assessment, meets the directory requirement of making a claim in the return of income. The instant case involves deduction u/s 80P and hence, would be governed by the principle laid down in GM. Knitting Industries (P) Lid (supra), as per which the making of a claim of deduction is mandatory but the timing is directory. Even if the claim is made during the course of assessment proceedings, such a claim has to be allowed. In view of the foregoing discussion, I am satisfied that the authorities below were not justified in rejecting the assessee's claim of deduction u/s 80P only on the ground that such a claim was not made in the return but during the course of assessment proceedings. The impugned order is ergo set aside and the matter is remitted to the file of the AO for examining the claim of deduction u/s 80P on merits.
In the result, the appeal is allowed for statistical purposes.”
10. The judgment passed by the Hon’ble Surat Bench in the case of Wanka Vivid Karyakari Seva Sahkari Mandali Ltd. Vs ITO, reported in (2023) 156 taxmann.com 68 (Surat-Trib) which was also relied upon by the Ld. A.R wherein taking into consideration the previous two judgments as discussed hereinabove has been considered by us. It was held that requirement of making claim in return of income under Section 80A(5) was directory in nature and since nature of deduction and claim was not disputed by the Assessing Officer, deduction under Section 80P(2)(a)(i) and 80P(d) was to be allowed to the assessee. The relevant observation made by the Bench is as follows:
“6. I find that in the present appeal, the dispute is very narrow as to whether the assessee is eligible for deduction under section 80P without filing returned of income. First I deal with the objection of Id St DR that in assessing officer has no power to entertain the claim, if not made in the return of income 1 find that there is no dispute regarding such restrictions of power of assessing officer, however, being Appellate Authority, such claim of assessee which is emanated from the record of lower authorities can be entertained and admitted by the appeal authorities. I find that such claim was raised by the assessee before assessing officer, therefore, facts related to the issue is emanating from the record of lower authorities, thus, the claim of assessee is admitted.
7. I find that Co-ordinate Benches of Bangalore Tribunal in the case of Prathamika Krisha Pattina Sahakara Sangha Ltd (supra) held that provision of Section 80AC which deals with the denial of deduction in respect of certain provision of Chapter VIA, if a returned of income is not filed by assessee, it was held that such provision do not apply to the claim of deduction under section 80P. The relevant part of decision (supra) is extracted below:
“7. I have heard the rival submissions. The learned Counsel for the assessee submitted that the provisions of section 80A(5) of the Act will come into play only when a return of income is filed by an assessee and the claim for deduction under Chapter VIA of the Act is not claimed in the said return It was contended that since the assessee did not file return of income for Assessment Year 2017-18, there was no question of invoking the provision of section 80A(5) of the Act. His further submission was that section 80AC of the Act is it existed prior to its submission by the Finance Act, 2018 w.e.f. 1-4-2018 reads as follows:
"80AC. Deduction not to be allowed unless return furnished - Where in computing the total income of an assessee of the previous year relevant to the assessment year commencing on the 1st day of April, 2006 or any subsequent assessment year, any deduction is admissible under section 80-1A or sectiion80-IAB or section 880-IC or section 80-ID or section 80- IE, no such deduction shall be allowed to him unless he furnished a return of his income for such assessment year on or before the due date specified under sub-section (1) of section 139.
He pointed out that the aforesaid provisions contemplate filing of return of income to claim deductions under certain provisions of Chapter VI "A" of the Act and 80P is not one of the section which is mentioned in section 80AC of the Act. He therefore submitted that the deduction under section 80P of the Act cannot be denied to the assessee for non filing of return of income. Learned DR, on the other hand, reiterated the stand of the Revenue as reflected in the order of the CIT(A).
8. I have given a careful consideration to the rival submissions. I agree with the submissions of the learned Counsel for the assessee that section 80A(5) of the Act is applicable only when a return of income is filed by an assessee and a deduction under Chapter VI "A" of the Act, is not claimed in such return of income. It will not apply to a case where no return of income is filed. The provisions of section 80AC of the Act as we have already seen, contemplates denial of deduction in respect of certain provisions of Chapter VI "A" of the Act, if a return of income is not filed by an assessee Those provisions, as rightly contended by the learned Counsel for the assessee, do not apply to the claim for deduction under section 80P of the Act. Therefore, the Revenue authorities were not justified in not entertaining the claim of the assessee for deduction under section BUP of the Act as made by the assessee Since neither the AO nor the CIT(A) have examined the other conditions for allowing deduction under section 80P of the Act, I deem it fit and proper to remand the issue of the assessee's eligibility to claim deduction under section 80P of the Act, in the sense with regard to the quantum of deduction and also with regard to the other conditions for allowing deduction under section 80P of the Act, for examining afresh by the AO. I therefore allow the appeal of the assessee for statistical purposes.”
8.1 further find that Co-ordinate Benches of Nagpur Bench in the case of Krushi Vibhag Karmcharı Vrund Sahakari Pat Sanstha Maryadit (supra) also held that making of claim in return of income under section 80A(5) is directory and the authorities below were not justified in rejecting the claim of assessee under section 80P. The relevant extract is reproduced below:
“5. I have heard both the sides and scanned through the relevant material on record It is an undisputed fact that the assessee did not file return of income for the year under consideration either originally or pursuant to notice u/s 148. Computation of income was filed during the course of assessment proceedings in which the deduction u/s 80P was claimed. Whereas, the authorities below have canvassed a view that the assessee violated section 80A(5) and hence the deduction was not available; the assessee has made out a case that section 80A(5) does not apply where no return is furnished and rather it is section 80AC which would govern the case and because of omission of section 801 in the list of sections given in section 80AC, the deduction should be granted. In order to appreciate the contention of the Id. AR, it would be apposite to reproduce section 80AC, before its substitution by the Finance Act, 2018 w.e.f. 1-4-2018, which reads as under “Where in computing the total income of an assessee of any previous year relevant to the assessment year commencing on the 1st day of April, 2006 or any subsequent assessment year, any deduction is admissible under section 80-1A or section 80-1AB or section 80-IB or section 80-1C or section 80-ID or section 80-IE, no such deduction shall be allowed to him unless he furnishes a return of his income for such assessment year on or before the due date specified under sub-section (1) of section 139."
On going through the above provision, it is crystallized that the requirement of filing return before the time w/s 139(1) is sine qua non for claiming deduction under the six sections (80-IA or 80-IAB or 80-IB or 80-IC or 80-ID or 80-IE). In other words, if a return is filed belatedly u/s 139(4) or under any ether section, claiming deduction under any of the six sections, the writ of the section 80AC will operate to prevent its granting. This section does not deal with granting or non-granting of deduction under any other sections of Part C of Chapter VI-A, including section 80P. Thus, to infer that since section 80AC does not cover section 80P, the latter section is immune from any other statutory requirement, is wholly incorrect. In fact, section 80AC is alien to deduction under any section except the specified six sections.
7. Now, I turn to section 80A(5), which has been pressed into service by the AO for denying the benefit of deduction u/s 80P of the Act, which runs as under:
'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.
This section provides that where an assessee fails to make a claim in his return of income for any deduction, amongst others, the sections enshrined in Part C to Chapter VI-A (including section BOP and six sections as given in section 80AC), then the deduction shall not be allowed. A perusal of the mandate of section 80A(5) divulges that the claiming of deduction under various sections of part C of Chapter VI-A in the return of income is essential. The reference in this provision is only to return of income, without any further qualification. The return may be u/s 139(1) or 139(4) or any other relevant section.
On a conjoint reading of sections 80A(5) and 80AC, it gets manifest that claiming of deduction under various sections of Part C of Chapter VI-A in the return of income is essential. However, an additional requirement for claiming deduction under sections 80-1A or 80-1AB or 80-IB or 80-IC of 80-ID or 80-1E is that such deduction must be claimed in a return filed u/s 139(1) of the Act. In one sense, section 80AC is an exception to section 80A(5), making the mandate of the latter section more stringent in the prescribed cases. Whereas other deductions of Part C of Chapter VI-A, including section 80P, can be claimed in the return filed under any section, including section 139(4); the six deductions as referred to in section 80AC must necessarily be claimed in the return filed u/s 139(1) only. Ex consequenti, the contention that since section 80P is not covered under section 80AC, the deduction under this section becomes automatically allowable without adhering to the requirement of section 80A(5), is bereft of force and hence dismissed.
10. Now I advert to the requirements of section 80A(5), which stipulates that no deduction under other sections including 80P shall be allowed if the assessee fails to make such a claim in the return of income. Thus, there are twin conditions, víz, first, claiming deduction u/s 80P and second, claiming such deduction in the return of income. There is no dispute on the first condition, which has been satisfied in this case as the assessee did claim the deduction albeit during the course of assessment proceedings. The whole controversy revolves around the second condition, which says that the claim should be made in the return of income. The assessee in the extant case did not file any return of income, but made a claim of the deduction in computation of income filed during the course of the assessment proceedings. The moot question is whether the requirement of making a claim in the return of income is a mandatory or a directory requirement. If it is held as mandatory, then the claim must be made in the return of income, failing which the benefit of deduction would be lost. Au contraire, if it is held as directory, then the claim made either in the return of income or in any manner before the conclusion of assessment proceedings, as is the case under consideration, would validate the entitlement.
The Hon'ble Supreme Court in CII v. G. M. Knitting Industries (P) Ltd. [2016] 71 taxmann.com 35/2015] 376 ITR 456/279 CTR 534 came across a situation in which the assessee claimed additional depreciation in Form 3AA but the Form was not furnished along with the return of income. Such Form was submitted during the course of assessment proceedings. The AO denied the claim on the ground that the Form 3AA was required to be statutorily filed along with the return of income. The view of the AO was reversed by the Tribunal as well as the Hon'ble High Court by holding that even if the Form was filed during the course of assessment proceedings, it amounted to sufficient compliance. The Hon'ble Supreme Court, taking note of the judgment in CIT v. Shivanand Electronics, [1994] 75 Taxman 93/209 ITR 63/119 CTR 94 (Bom), approved the view of the Hon'ble High Court having the effect that the requirement of filing Form 3AA was a necessary ingredient for claiming additional depreciation, but the timing of filing the Form was a directory requirement, which was fulfilled on filing it even during the course of assessment proceedings. The Hon'ble Bombay High Court in Shivanand Electronics (supra) dealt with the requirement of filing audit report for the purpose of claiming deduction u/s 80J, which required that the report should be filed "along with return of income" under s. 801(6A). It held that such requirement of filing the audit report along with the return of income was not mandatory, but directory in the sense that if assessce complied with the same before completion of assessment, deduction under s. 80J, on the basis of such report, was allowable.
Recently, the Hon'ble Supreme Court was confronted with the claim of benefit u/s 10B in Pr CIT v. Wipro Ltd [2022] 140 taxmann.com 223/288 Taxman 491/446 ITR 1. The assessee furnished original return taking the benefit of section 10B and did not carry forward the loss. Thereafter, a revised return was filed foregoing the claim of deduction u/s 10B, The AO rejected the withdrawal of exemption under section 10B by holding that assessee did not furnish the necessary declaration in writing before due date of filing return of income, which was an essential requirement for not claiming the benefit of section 108. The Hon'ble High Court decided the issue in favour of the assessee by holding that the requirement of filing the declaration was mandatory but filing it along with the return of income u/s 139(1) was a directory requirement. The matter was brought by the Revenue before the Hon'ble Supreme Court. The assessee, inter alia, relied on the judgment of the Apex Court in G.M. Knitting Industries (P) Ltd. (supra) Their Lordships held that the requirement of filing the report in support of deduction u/s 10B was not a directory but a mandatory requirement. It further held that both the conditions of filing the declaration and filing it before the time limit u/s 139(1) were mandatory and had to be cumulatively satisfied Rejecting the reliance on G.M. Knitting Industries (P) Ltd. (supra), the Hon'ble Supreme Court held that that decision was relevant in the context of deduction provisions and not the exemption provisions as given under Chapter III of the Act. As the Hon'ble Summit Court in Wipro Ltd. (supra) was dealing with section 10B, falling under Chapter III of the Act, it held qua G.M. Knining Industries (P) Ltd. (supra) that: "Therefore, the said decision shall not be applicable to the facts of the case on hand, while considering the exemption provisions. Even otherwise, Chapter III and Chapter VI-A of the Act operate in different realms and principles of Chapter III, which deals with "incomes which do not form a part of total
income", cannot be equnted with mechanism provided for deductions in Chapter VI-A, which deals with "deductions to be made in computing total income" Therefore, none of the decisions which are relied upon on behalf of the assessee on interpretation of Chapter VI-A shall be applicable while considering the claim under section 10B (8) of the IT Act.
Ongoing through the judgments in G M Knitting Industries (P) Ltd. (supra) in juxtaposition to Wipro Ltd. (supra), the principle which emerges is that the fulfilment of requirement of making a claim for exemption under the relevant sections of Chapter III in the return of income is mandatory, but when it comes to the claim of a deduction, inter alia, under the relevant sections of Chapter VI-A, such requirement becomes directory. In the latter case, the making of a claim even after the filing of return but before completing the assessment, meets the directory requirement of making a claim in the return of income. The instant case involves deduction u/s 80P and thence, would be governed by the principle laid down in G.M. Knitting Industries (P) Ltd. (supra), as per which the making of a claim of deduction is mandatory but the timing is directory. Even if the claim is made during the course of assessment proceedings, such a claim has to be allowed. In view of the foregoing discussion, I am satisfied that the authorities below were not justified in rejecting the assessee's claim of deduction u/s 80P only on the ground that such a claim was not made in the return but during the course of assessment proceedings. The impugned order is ergo set aside and the matter is remitted to the file of the AO for examining the claim of deduction u/s 80P on merits."
9. Considering the aforesaid factual and legal discussion and keeping in view that the nature of deduction and quantum was not disputed by Assessing Office, so I direct the assessing officer to allow deduction under section 80P(2)(a)(i) and 80P(2)(d) as the case may be.
In the result, the appeal of the assessee is allowed for statistical purposes.”
11. Thus, under the facts and circumstances of the matter before us, though the assessee has not filed any return of income but filed the return of income in response to notice under Section 142(1) of the Act and the computation of income made therein has not admittedly disputed by the AO or by the CIT(A), merely because the assessee has not filed the return under Section 139(1) of the Act and claimed deduction under Section 80P, disallowance of such claim by the authorities below is not sustainable having regard to the provisions of Section 80A(5) not being directory in nature, as already decided by different Benches of the Tribunal. We, thus, respectfully relying upon the same setting aside the issue to the file of the Ld. AO to examine the claim of deduction under Section 80P on merits in the light of the above observation and to pass orders in accordance with law.
12. In the result, the appeal preferred by the assessee is allowed for statistical purposes.