2016 (4) TMI 826 - HC - Income Tax

Exemption under section 80P - assessee is a primary agricultural credit society - Held that - Tribunal erred in law in deciding the issue regarding the entitlement of exemption under section 80P against the appellants. We hold that the primary agricultural credit societies registered as such under the KCS Act; and classified so under that Act including the appellants are entitled to such exemption. Denial of claim on belated filing of return by the assessee - Held that - Tribunal was not justified in denying exemption under section 80P of the IT Act on the mere ground of belated filing of return by the assessee concerned. A return filed by the assessee beyond the period stipulated under section 139(1) or 139(4) or under section 142(1) or section 148 can also be accepted and acted upon provided further proceedings in relation to such assessments are pending in the statutory hierarchy of adjudication in terms of the provisions of the IT Act. In all such situations it cannot be treated that a return filed at any stage of such proceedings could be treated as non est in law and invalid for the purpose of deciding exemption under section 80P of the IT Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Entitlement for exemption under section 80P of the Income Tax Act, 1961.
2. Validity of returns filed beyond the stipulated period under sections 139(1)/(4) or 142(1)/148 for the purpose of deciding exemption under section 80P.
3. Provisions for bad and doubtful debts under section 36(1)(viia) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Entitlement for Exemption under Section 80P:
The primary issue is whether the appellants, being primary agricultural credit societies registered under the Kerala Co-operative Societies Act (KCS Act), are entitled to exemption under section 80P(4) of the Income Tax Act (IT Act). The court noted that the appellants are classified as primary agricultural credit societies by the competent authority under the KCS Act. According to section 80P(4) of the IT Act, the provisions of section 80P do not apply to co-operative banks other than primary agricultural credit societies or primary co-operative agricultural and rural development banks. The court emphasized that a primary agricultural credit society, as defined under section 5(cciv) of the Banking Regulation Act (BR Act), is a co-operative society primarily engaged in providing financial accommodation for agricultural purposes and does not admit other co-operative societies as members. The court concluded that the appellants, being classified as primary agricultural credit societies, are entitled to the exemption under section 80P(4) of the IT Act. Consequently, the Tribunal erred in denying the exemption, and the appeals were allowed in favor of the appellants.

2. Validity of Returns Filed Beyond the Stipulated Period:
The court addressed the issue of whether returns filed beyond the period stipulated under sections 139(1) or 139(4), as well as sections 142(1) or 148, can be considered for exemption under section 80P. The court clarified that section 80A(5) of the IT Act provides that no deduction shall be allowed if the assessee fails to make a claim in the return of income. However, this provision applies only in cases where no returns have been filed. In cases where returns have been filed, even if belatedly, the question of exemptions or deductions under section 80P must be considered. The court held that returns filed beyond the stipulated period can still be accepted and acted upon, provided further proceedings in relation to such assessments are pending. Therefore, the Tribunal was not justified in denying the exemption on the mere ground of belated filing of returns. The court answered substantial questions B and C in favor of the appellants, allowing the consideration of belated returns for exemption under section 80P.

3. Provisions for Bad and Doubtful Debts:
The court also addressed the issue of provisions for bad and doubtful debts under section 36(1)(viia) of the IT Act. The Tribunal had restricted the provisions for bad and doubtful debts to 7.5% of the gross total income, reasoning that the appellants were not entitled to the status of rural branch to claim 10% of the aggregate average advances. The court, however, remitted the matter for reconsideration by the Income Tax Appellate Tribunal in light of the answers rendered on substantial questions of law A, B, and C. The Tribunal was directed to consider the issues relating to bad and doubtful debts and the claims of the assessee by treating that in all cases where exemptions are claimed under section 80P and such matters were pending before the assessing authority or appellate authority.

Conclusion:
The court allowed the appeals, holding that the appellants are entitled to exemption under section 80P(4) of the IT Act, and directed the Tribunal to reconsider the issues relating to bad and doubtful debts in light of the court's answers to the substantial questions of law.