ITO WD 3(4), THANE vs UMA DEVELOPERS, MUMBAI

Income Tax Appellate Tribunal, F Bench, Mumbai

Before: Shri Jason P. Boaz & Shri Sandeep Gosain

For Appellant: Shri A.K. Dhondial

For Respondent: Shri Vijay Mehta

Hearing: 01.08.2016Pronounced: 10.08.2016

Per Jason P. Boaz, A.M.

This appeal by Revenue is directed against the order of the CIT(A)-1, Thane dated 05.09.2014 for A.Y. 2012-13. 2. The facts of the case, briefly, are as under: - 2.1 The assessee firm filed its return of income for A.Y. 2012-13 on 31.03.2013 after claiming deduction of `3,53,17,770/- under section 80IB(10) of the Income Tax Act, 1961 (in short 'the Act'). The return was processed under section 143(1) of the Act on 10.05.2013, wherein the deduction claimed under section 80IB(10) of the Act was disallowed in view of the provisions of section 80AC of the Act for the reason that the assessee had filed its return of income beyond the time limit specified under section 139(1) of the Act. 2.2 Aggrieved with the order dated 10.05.2013, the assessee preferred a rectification application under section 154 of the Act contending that the disallowance of the assessee’s claim for deduction under section 80IB(10) of the Act was beyond the scope of provisions of section 143(1) of the Act.

2 ITA No. 7718/Mum/2014 M/s. Uma Developers The assessee’s application was rejected by the ACIT (CPC) vide order under section 154 of the Act dated 16.08.2013 on the ground that the assessee’s claim for deduction under section 80IB(10) of the Act was not allowable as per provisions of section 80AC of the Act as the return of income for A.Y. 2012-13 was filed beyond the due date specified under section 139(1) of the Act. 2.3 Aggrieved by the order under section 154 of the Act dated 16.08.2013 for A.Y. 2012-13 rejecting the assessee’s claim for being allowed deduction under section 80IB of the Act as claimed, the assessee preferred an appeal before the CIT(A)-1, Thane. After considering the arguments put forth and the judicial pronouncements cited, the learned CIT(A) observed that in the cited decisions of the Hon'ble Bombay High Court, and of the ITAT, Mumbai, Bangalore and Ahmadabad Benches, even in cases where the return of income was filed beyond the due date specified under section 139(1) of the Act, the deduction under section 80IB(10) was either allowed or was set aside to the files of the authorities below for consideration of the eligibility of the claim with the direction that the claim for deduction should not be denied merely on the ground that the return of income was filed beyond the time specified under section 139(1) of the Act. Further, observing that the provisions of section 80AC of the Act being the subject matter of discussion and interpretation in various judgements, the learned CIT(A) held that the disallowance of the assessee’s claim for deduction under section 80IB(10) read with section 80AC of the Act on the ground that the return of income was filed beyond the time permitted under section 139(1) of the Act was not within the scope of section 143(1) of the Act and, therefore, the Assessing Officer (AO) was not justified in denying the assessee its claim for deduction under section 80IB(10) thereunder. In that view of the matter, the learned CIT(A) directed the AO to delete the disallowance of the assessee’s claim for deduction under section 80IB(10) of the Act and thereby allowed the assessee’s appeal.

3 ITA No. 7718/Mum/2014 M/s. Uma Developers 3.1 Aggrieved by the order of the CIT(A)-1, Thane dated 04.09.2014, Revenue has preferred this appeal raising the following grounds: - “1. Whether on the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in allowing the deduction claimed u/s 80IB(10)) of the I.T. Act made u/s 143(1)(a) on the contravention of section 80AC of the Act. 2. The appellant craves leave to add, amend alter or delete any grounds of appeal.” 3.2 The learned D.R. for Revenue was heard on the grounds raised and placed strong reliance on the action of the AO in disallowing the assessee’s claim for deduction under section 80IB(10) of the Act for contravention of the provisions of section 80AC of the Act in not filing the return of income for A.Y. 2012-13 within the period stipulated under section 139(1) of the Act. 3.3.1 Per contra, the learned A.R. for the assessee supported the finding rendered by the learned CIT(A) in the impugned order. The learned A.R. reiterated the submissions put forth before the learned CIT(A) in the impugned order. According to the learned A.R. the learned CIT(A) has correctly held that the adjustment made by the AO for disallowing the assessee’s claim for deduction under section 80IB(10) is beyond the scope of permitted adjustments while processing the return of income under section 143(1) of the Act as it was neither an arithmetic error nor an incorrect claim apparent from the record. It is contended that since the deduction under section 80IB(10) is to be allowed on fulfilment of conditions stipulated therein, the same can be allowed/disallowed only after examination of these conditions and since there could be two conceivable views on the merits of the assessee’s claim, the issue is debatable and therefore the disallowance of the assessee’s claim under section 143(1) of the Act could not have been made and was untenable. 3.3.2 The learned A.R. for the assessee further submitted that the issue in the case on hand is whether when the assessee has not filed the return of income within the period stipulated under section 139(1) of the Act, but filed the same within the extended period under section 139(4) of the Act,

4 ITA No. 7718/Mum/2014 M/s. Uma Developers can the assessee’s claim for deduction under section 80IB(10) of the Act be disallowed under section 143(1) in view of the provisions of section 143(1)(a)/143(1) of the Act. It is contended that various judicial pronouncements have interpreted these provisions to mean that section 139(1) is to be read with 139(4) of the Act and in this regard cited the decision of the Hon'ble Bombay High Court in the case of Trustees of Tulsidas Gopalji Charitable & Chaleshwar Temple Trust (207 ITR 368 (Bom) and of the Coordinate Bench of this Tribunal in the case of Yash Developers (ITA No. 809/Mum/2011). It was submitted that in view of the above, the learned CIT(A)’s order allowing the assessee’s appeal be upheld. 3.4.1 We have heard the rival contentions of both the parties and perused and carefully considered the material on record, including the judicial pronouncements cited. In the impugned order, the learned CIT(A) has held as under at paras 6 to 11, while allowing the assessee’s appeal: - “6. I have carefully considered the appellant's submissions and the facts of the case. It has been submitted by the appellant that the disallowance of deduction u/s. 801B(10) on the ground that the return of income was filed beyond the due date as prescribed u/s. 139(1) in terms of provisions of section 80AC, is beyond the scope of section 143(1) of the I.T. Act. The disallowance made u/s. 143(l) was neither in the nature of arithmetical error nor an incorrect claim apparent from information in the return. In this regard, the relevant provisions of section 143(1) are reproduced as under for ready reference - 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, or (ii) an incorrect claim, if such incorrect claim is apparent from any information in the return; 7. Regarding we scope of section 143(1), it is now fairly well established that the adjustments that can be made under this section are either in the nature of arithmetical error or an incorrect claim apparent from any information in the return. Debatable issues or such issues which require interpretation are not covered within the scope of adjustments under this section.

5 ITA No. 7718/Mum/2014 M/s. Uma Developers

The issue involved in the instant case is whether when the appellant has not filed return of income within the time allowed u/s 139(1) but has filed the same within the time allowed u/s 139(4), can deduction u/s 801B(10) be disallowed u/s 143(1)(a) in terms of provisions of section 80AC. The provisions of section 80AC are reproduced as under for ready reference - Deduction not to be allowed unless return furnished. 80AC 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-IAB or section 80-IB or section 80-IC [or section 80-1D 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 subsection (1) of section 139.] 9. A perusal of the above provisions reveals that when the return of income is filed beyond the time allowed u/s. 139(1), then deduction u/s. 801B(10) is not allowable to the assessee. However, various judicial authorities have interpreted these provisions to mean that section 139(1) is directory not mandatory and that section 139(1) has to be read with section 139(4). Hon'ble Mumbai High Court in the case of Trustees of Tulsidas Gopalji Charitable & Chaleshwar Temple Trust (supra) held as under - 5. On a careful reading of s. 139 of the Act, we are of the clear opinion that sub-ss. (1) and (4,) of s. 139 have to be read together and on such a reading, the inevitable conclusion is that a return made within the time specified in sub-s. (4) has to be considered as having been made within the time prescribed in sub- s. (1) or sub-s. (2) of s. 139 of the Act. In other words, if a return is filed within the time specified in sub-s. (4) of s. 139 of the Act and the option contemplated by the Explanation to s. 11(1) is exercised in writing along with such return, requirements of the Explanation to s. 11(1) would stand satisfied. 6. Similar controversy came up before the Supreme Court in CIT vs. Kulu Valley Transport Co. Pvt. Ltd. (1970) 77 ITR 518 (SC). In that case, a dispute arose in regard to the right of an assessee to get the benefit of losses being set off and carried forward under s. 24(2) of the IT Act, 1922 which provided that in order to get the benefit of s. 24(2), the assessee must submit his loss return within the time specified by s. 22(1) (corresponding to s. 139(1) of 1961 Act.] Sec. 22(3) of the 1922 Act [corresponding to s. 139(4) of 1961 Act] enabled the assessee who had not furnished his return within the time allowed under sub-s. (1) or sub-s. (2) of s. 22 to furnish it at any time before the assessment was made. The assessee submitted its return within the time specified in s. 22(3). It was not accepted as a valid return for the purpose of s. 22A to enable the assessee to carry forward the losses. The Supreme Court did not approve this interpretation and held that s. 22(1) must be read with s. 22(3) for the purpose of determining the time within which the return has to be submitted. It was observed that s. 22(3) was merely a proviso to s. 22(1). On the aforesaid reasoning, it was held that a return of income profits or gains or of a business must be considered as having been made within the time prescribed if it is made within the time specified in s. 22(3). In other words, if s. 22(3) is complied with, s. 22(1)

6 ITA No. 7718/Mum/2014 M/s. Uma Developers

must also be held to have been complied with. If compliance has been made with the latter provision, the requirement of s. 22(2A) would stand satisfied. 10 The jurisdictional ITAT in the case of M/s. Yash Developers (supra), which is a direct decision on the issue involved in the instant appeal, has held as under - The relevant ground of appeal was as under - "III. On the facts and in the circumstances of the case and in law, whether the Ld CIT(A) was right in allowing assessee's claim of deduction u/s. 801B(10) when the assessee has not filed return of income within the time limit u/s. 139(1) and when section 80AC specifically, provides that no deduction shall be allowed unless return is furnished within time limit of section 139(1)." The ITAT held as under - 6. It is also relevant to state that in respect of delay in .filing the return of income on the basis of which the AO also denied deduction us. 80IB(10) of the Act in respect of assessment year 2008-09, which are Ground Nos. 3 and 4 of the appeal taken by department, the ld. CIT(A) has stated that the assessee filed return within extended time prescribed u/s. 139(4) of the Act and the said return be treated as the one filed within the time limit prescribed u/s. 139(1) of the Act and referred the decision of the Hon'ble Apex Court in the case of Kulu Valley Transport Co. P. Ltd. V/s CIT [1970] 77 ITR 518. Ld CIT(A) has stated that similar issue in the context of section 54F also came before the Hon'ble Punjab and Haryana High Court in the case of CIT V/s Jagruti Agarwal (339 ITR 610) (P&H) and it was held that subsection (4) of section 139 has to be read along with sub-section (1) of section 139 and therefore due date for ,furnishing the return of income according to section 139 was subject to extended period provided u/s. 139(4) of the Act. Ld. CIT(A) stated that similar issue was also considered by the Hon'ble Jurisdictional High Court in the case of Trustees of Tulsidas Gopalji Charitable & Chaleshwar Temple Trust V/s CIT [1994] 207 ITR 368 (BOM) and the jurisdictional High Court held that subsection (1) and (4) of section 139 have to he read together in such a reading the return made within the specified time under sub-section (4) has to be considered as having been made within the time prescribed u/s. 139(1) or (2) of the Act. The ld CIT(4) also relied on the decisions of other High Courts, which we do not propose to refer to, particularly when the decision of the Hon'ble Bombay High Court has been considered hereinabove. However, it is relevant to state that the ITAT, Ahmadabad Bench also considered similar issue in the case of Parmeshwar Cold Storage P. Ltd. V/s ACIT (08 1TR (Trib) 172 (Ahmd) in the context of claim of deduction u/s. 80IB wherein also the return was not .filed within the time prescribed u/s. 80AC of the Act but the Tribunal held that the claim of deduction u/s. 80IB of the Act should be adjudicated on merits and the matter was restored to CIT(A). The ld. CIT(A) has in para 9 also considered the decision of ITAT, Mumbai Bench in the case of Emerson Network Power India Pvt. Ltd. V/s ACIT reported in 122 ITJ 67 (Mum) wherein if was held that the AO was obliged to give due relief to assessee or entertain its claims if admissible as per law even though the assessee had not filed revised return. Following the said decision, the ld. CIT(A) directed the AO to allow claim of the assessee made u/s. 801B(10) of the Act on merits even though the return of income was not filed within the time prescribed as per section 139(1) of the Act. In view of above, the

7 ITA No. 7718/Mum/2014 M/s. Uma Developers department is in further appeals before the Tribunal.” “9. In respect of grounds No. 3 and 4, the relevant facts which we have already discussed hereinabove, we observe that the aid issue is covered in favour of assessee by the decision of Hon'ble Bombay High Court in the case of Trustees of Tulsidas Gopalji Charitable & Chaleshwar Temple Turst (supra) which has been considered by the ld CIT(A) while deciding the same in favour of assessee and respectfully .following the same, we hold that there is no reason to interfere with the order of ld. CIT(A). Therefore, the Ground No. 3 and 4 of the appeal taken by the department for assessment year 2008-09 ar also rejected by confirming the order of the learned CIT(A).” 11. In view of the above discussion and the decisions of the Hon'ble jurisdictional Mumbai High Court, the decisions of the Ahmedabad and Bangalore Benches of the ITAT and the jurisdictional ITAT, Mumbai, it is seen that even in cases where the return of income was filed beyond the due date as prescribed u/s. 139(1), deduction u/s. 80IB(10) was either allowed or the case was set aside to the CIT(A)/AO with the directions that the deduction should not be disallowed merely on the ground that the return of income was filed beyond the time allowed u/s 139(1) of the Act. Thus section 80AC was a subject matter of discussion and interpretation as held in various case laws. Therefore, the disallowance of deduction u/s. 801B(10) r.w.s. 80AC on the ground that the return of income was filed beyond the time allowed u/s 139(1) of the Act is not within the scope of section 143(l)(a) of the I.T. Act. Accordingly the AO was not justified in not deleting the disallowance of deduction u/s 80IB(10) in the order passed u/s 154 of the Act dated 16.08.2013. The AO therefore, is directed to delete the disallowance of the deduction u/s. 80IB(10) of the I.T. Act made u/s 143(1)(a). ………….” 3.4.2 On an appreciation of the findings rendered by the learned CIT(A) while allowing the assessee’s appeal (supra), we observe that the learned CIT(A) has considered at length the issue of whether the AO’s disallowance of the assessee’s claim for deduction under section 80IB(10) of the Act, for the reason that the return of income for A.Y. 2012-13 was filed beyond the due date stipulated under section 139(1) of the Act (but was filed within the time allowed under section 139(4) of the Act), in view of the provisions of section 80AC of the Act is beyond the scope of the provisions of section 143(1) of the Act. We concur with the view of the learned CIT(A) that as per the ratio of the decisions of the Hon'ble Bombay High Court in Trustees of Tulsidas Gopalji Charitable & Chaleshwar Temple Trust (supra) and of the Coordinate Bench n the Yash Developers (supra), even in cases where the return of income is filed beyond the due date stipulated under section 139(1) of the Act, the deduction should not be disallowed under section

8 ITA No. 7718/Mum/2014 M/s. Uma Developers 143(1) of the Act merely in view of the provisions of section 80C of the Act. We also find on a perusal of the provisions of section 143(1) of the Act, that the AO’s action in disallowing the assessee’s claim for deduction under section 80IB(10) of the Act, since the return of income was filed beyond the period stipulated under section 139(1) of the Act in view of the provisions of section 80AC, is beyond the scope of section 143(1) since there is neither an arithmetical error nor an incorrect claim apparent from the record. In this view of the matter, we uphold the finding of the learned CIT(A) that the AO was not justified in disallowing the assessee’s claim for deduction under section 80IB(10) of the Act and his direction to the AO to delete the disallowance thereof, made under section 143(1)(a)/143(1) of the Act. Consequently, Revenue’s grounds of appeal are dismissed. 3. In the result, Revenue’s appeal for A.Y. 2012-13 is dismissed. Order pronounced in the open court on 10th August, 2016. Sd/- Sd/- (Sandeep Gosain) (Jason P. Boaz) Judicial Member Accountant Member

Mumbai, Dated: 10th August, 2016

Copy to:

The Appellant 2. The Respondent 3. The CIT(A) -1, Thane 4. The CIT - II, Thane 5. The DR, “F” Bench, ITAT, Mumbai By Order

//True Copy// Assistant Registrar ITAT, Mumbai Benches, Mumbai n.p.

ITO WD 3(4), THANE vs. UMA DEVELOPERS, MUMBAI