2025 (7) TMI 872 - AT - Income Tax

Disallowance of deduction claimed u/s 80P - Adjustment u/s 143(1) - HELD THAT - There is no dispute that the assessee had made claim u/s 80P - AR also brought to our notice that the power to make disallowance of deduction under the head C deduction in respect of certain incomes under Chapter VIA while processing the return u/s 143(1) of the Act has been given to the AO by Finance Act 2021 w.e.f. 01.04.2021 relevant to A.Y. 2021-22. This provision was introduced from A.Y. 2021-22 but the same cannot be given effect to instant assessment year 2018-19. Therefore there was no power available with CPC to disallow the claim made under C deduction in respect of certain income under chapter VIA. Hence CPC could not have disallowed the deduction claimed by the assessee u/s 80P while processing the return of income u/s 143(1) - Appeal of the assessee is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Appellate Tribunal (AT) in this appeal were:

• Whether the Deputy Director of Income Tax, CPC, had the jurisdiction and power under the Income Tax Act, 1961, specifically under section 143(1), to disallow the claim of deduction under section 80P of the Act while processing the return for the assessment year 2018-19.
• Whether the belated filing of the income tax return beyond the due date prescribed under section 139(1) of the Act justified the disallowance of the deduction claimed under section 80P by the CPC during processing.
• The applicability and effect of the Finance Act, 2021 amendment conferring power to the Assessing Officer to disallow deductions under Chapter VIA during processing of returns, and whether this amendment applied retrospectively to assessment years prior to 2021-22.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Jurisdiction of CPC under section 143(1) to disallow deduction under section 80P for AY 2018-19

Relevant legal framework and precedents: Section 143(1) of the Income Tax Act, 1961, empowers the Central Processing Centre (CPC) to process returns filed by taxpayers and make certain adjustments. However, the scope of adjustments permissible under section 143(1) was amended by the Finance Act, 2021, effective from 1 April 2021 (relevant for AY 2021-22 and onwards), to include the power to disallow deductions claimed under Chapter VIA, which includes section 80P.

Court's interpretation and reasoning: The Tribunal noted that since the Finance Act, 2021 amendment came into effect only from AY 2021-22, the CPC did not have the statutory authority to disallow deductions under section 80P during processing of returns for AY 2018-19. The Tribunal emphasized that the power to disallow deductions under Chapter VIA during processing is a legislative grant effective prospectively and cannot be applied retrospectively.

Key evidence and findings: The assessee filed the return belatedly on 30 March 2019, beyond the due date of 31 August 2018. The CPC disallowed Rs. 3,50,338 claimed as deduction under section 80P on account of this delay. The assessee argued that the CPC lacked power to disallow the deduction for that assessment year.

Application of law to facts: Since the Finance Act, 2021 amendment empowering CPC to disallow deductions under Chapter VIA was not in force for AY 2018-19, the disallowance made by CPC was ultra vires. The Tribunal held that the CPC could not exercise such power for the year under consideration.

Treatment of competing arguments: The Revenue contended that the disallowance was justified, likely relying on the belated filing as a ground for denial of deduction. However, the Tribunal rejected this, holding that the procedural power to disallow deductions during processing was not vested in CPC for AY 2018-19.

Conclusions: The Tribunal concluded that the CPC had no jurisdiction to disallow the deduction under section 80P for AY 2018-19 during processing of the return under section 143(1).

Issue 2: Effect of belated filing of return on entitlement to deduction under section 80P

Relevant legal framework and precedents: Section 139(1) prescribes the due date for filing returns. Section 80P provides deduction to co-operative societies subject to conditions including timely filing. However, the law does not explicitly mandate denial of deduction solely on belated filing unless prescribed by statute or rules.

Court's interpretation and reasoning: The Tribunal observed that the mere fact of belated filing does not automatically disentitle the assessee from claiming deduction under section 80P. The procedural delay does not ipso facto justify disallowance unless the law specifically so provides. The Tribunal noted that the CPC's disallowance was premised on non-submission within due date, but no statutory provision empowered CPC to deny deduction on that ground during processing for the year in question.

Key evidence and findings: The return was filed beyond the due date by nearly seven months. The CPC disallowed deduction on this basis. The assessee challenged this on the ground of lack of jurisdiction and absence of statutory bar on deduction due to belated filing.

Application of law to facts: The Tribunal found that the belated filing alone was insufficient to justify denial of deduction under section 80P during processing by CPC for AY 2018-19. The procedural power to deny deduction during processing was not available to CPC at that time.

Treatment of competing arguments: The Revenue relied on the belated filing and consequent disallowance. The Tribunal rejected this, emphasizing the absence of empowering provision for CPC to make such disallowance during processing for that AY.

Conclusions: The Tribunal held that the deduction under section 80P could not be denied solely on account of belated filing of return for AY 2018-19 by the CPC during processing.

Issue 3: Applicability of Finance Act, 2021 amendment conferring power to AO to disallow deductions under Chapter VIA during processing

Relevant legal framework and precedents: The Finance Act, 2021 amended section 143(1) to empower the Assessing Officer (AO) to disallow deductions claimed under Chapter VIA during processing of returns, effective from 1 April 2021, i.e., AY 2021-22 onwards.

Court's interpretation and reasoning: The Tribunal clarified that this amendment cannot be applied retrospectively to assessment years prior to AY 2021-22, including AY 2018-19. The Tribunal underscored the principle that amendments conferring powers are prospective unless expressly stated otherwise.

Key evidence and findings: The assessee argued that since the amendment was effective from AY 2021-22, it could not be invoked for AY 2018-19. The Revenue did not dispute the date of applicability but maintained the disallowance.

Application of law to facts: The Tribunal held that the CPC's disallowance of deduction under section 80P for AY 2018-19 was without jurisdiction as the amendment empowering such disallowance was not yet in force.

Treatment of competing arguments: The Revenue's reliance on the amendment was rejected as misplaced for AY 2018-19.

Conclusions: The Tribunal concluded that the Finance Act, 2021 amendment empowering disallowance of deductions during processing does not