2025 (6) TMI 711 - AT - Income Tax

Disallowing deduction claimed u/s.80P under intimation u/s.143(1) - HELD THAT - We note that the amendment carried out in Finance Act 2021 w.e.f. 01.04.2021 with respect to allowing of deduction u/s.80P of the Act is prospective in nature. Admittedly the assessment year under consideration is 2019-20. To fortify our view we would like quote the decision of Finolex Industries Ltd. Employees Co-o. Credit Society Ltd. 2023 (4) TMI 1423 - ITAT PUNE Thus we hold that CPC was not justified in disallowing the deduction claimed by assessee u/s.80P of the Act for A.Y. 2019-20 as the powers to CPC for doing so were brought into effect from 01.04.2021. We therefore reverse the impugned order of the lower authorities and direct the AO to allow the deduction claimed by the assessee u/s.80P of the Act. Grounds of appeal raised by the assessee are allowed.

Summary

The core legal question considered in this appeal is whether the Centralized Processing Centre (CPC) was justified in disallowing the deduction claimed by the assessee under section 80P of the Income Tax Act, 1961, for the assessment year 2019-20, particularly when the disallowance was made under the intimation provisions of section 143(1)(a)(v) of the Act.

The issue arises from the CPC's suo motu adjustment disallowing the deduction claimed under section 80P, which was challenged by the assessee on the ground that the CPC lacked the authority to make such an adjustment prior to 1 April 2021. The assessee contended that the amendment empowering the CPC to disallow deductions under section 80P was prospective and not applicable to the assessment year in question, which predates the amendment.

The Tribunal considered the relevant statutory framework, particularly the provisions of section 143(1)(a)(v) of the Income Tax Act, as amended by the Finance Act, 2021, effective from 1 April 2021. This section empowers the CPC to make adjustments to disallow certain deductions claimed under Chapter VI-A of the Act if the return is filed beyond the due date specified under section 139(1). Section 80P falls under Chapter VI-A and provides for deductions in respect of income of cooperative societies.

Prior to the Finance Act, 2021 amendment, section 143(1)(a)(v) did not include deductions under section 80P within its scope, and hence, the CPC had no power to disallow such deductions suo motu during processing of returns for assessment years before 1 April 2021. The assessment year under consideration, 2019-20, corresponds to financial year 2018-19, which is before the effective date of the amendment.

The Tribunal relied heavily on the precedent set by a Coordinate Bench in a similar case involving a cooperative society, where it was held that the CPC's power to disallow deductions under section 80P under section 143(1)(a)(v) is prospective and does not apply to assessment years prior to 1 April 2021. The Coordinate Bench observed that although the return was filed beyond the due date, section 143(1)(a)(v) was not applicable to disallow the deduction under section 80P for the relevant assessment year.

Additionally, the Tribunal noted that even if the Revenue attempted to invoke clause (ii) of section 143(1)(a), which deals with incorrect claims, the definition of incorrect claim does not include deductions under section 80P, thus placing such deductions outside the purview of that provision as well.

The Tribunal's reasoning emphasized the principle of prospective application of tax amendments and the limits of the CPC's powers under the Act. It held that the CPC was not justified in disallowing the deduction claimed by the assessee under section 80P for the assessment year 2019-20, as the amendment empowering such disallowance was effective only from 1 April 2021.

In addressing the competing arguments, the Tribunal gave due weight to the legislative intent behind the amendment and the strict interpretation of the CPC's powers. The Tribunal rejected the Revenue's position that the deduction could be disallowed under the existing provisions for the assessment year in question, finding no statutory basis for such a disallowance.

Consequently, the Tribunal reversed the orders of the lower authorities, including the Addl./JCIT(A), and directed the Assessing Officer to allow the deduction claimed by the assessee under section 80P of the Act for the assessment year 2019-20.

Significant holdings from the judgment include the following verbatim excerpt from the Coordinate Bench decision relied upon:

"Section 143(1)(a)(v) of the Act spells out that if any deduction is claimed under any of the provisions of Chapter VI-A which include deduction u/s 80P such deduction has to be allowed only if the return is filed within due date specified under sub-section 139(1) of the Act. In other words, if any return is filed beyond due date u/s 139(1) of the Act then no deduction u/s 80P shall be allowed. However, clause (v) was inserted by the Finance Act, 2021 w.e.f. 01-04-2021. The case of the assessee, on the other hand, is for F.Y. 2018-19 relevant to A.Y. 2019-20 which is the period prior to amendment brought in by the Finance Act, 2021. Before this amendment, clause (v) did not include and cover deduction u/s 80P. So therefore, in the present Case of the assessee though admittedly return was filed beyond the time limit prescribed u/s 139(1) of the Act but still section 143(1)(a)(v) is not applicable to the assessee since the case of the assessee is for A.Y. 2019-20, which is before the amendment."

The core principles established are:

• The amendment to section 143(1)(a)(v) by the Finance Act, 2021, empowering the CPC to disallow deductions under section 80P, is prospective and applies only to assessment years commencing on or after 1 April 2021.
• The CPC has no jurisdiction to disallow deductions under section 80P suo motu in assessment years prior to the amendment.
• Deductions under section 80P are not covered under the definition of incorrect claims for the purpose of section 143(1)(a)(ii), thus limiting the scope for suo motu disallowance by the CPC under that provision.
• Strict interpretation of the scope of CPC's powers is warranted to prevent unwarranted disallowances in the absence of explicit statutory authority.

Final determination on the sole issue was that the CPC was not justified in disallowing the deduction under section 80P for assessment year 2019-20, and the appeal filed by the assessee was allowed accordingly.