2025 (7) TMI 1224 - AT - Income Tax

Deduction u/s 80P - claim denied on belated filing of return - HELD THAT -This query has been answered in Nileswar Rangekallu Chethu Vyavasaya Thozhilali Sahakarana Sangham 2023 (3) TMI 1055 - KERALA HIGH COURT . The ratio laid down in case in the case of Madhu Souharda Pathina Sahakari Niyamitha 2024 (1) TMI 1452 - ITAT BANGALORE held that after 1-4-2018 even if the assessee makes his claim for deduction under section 80P in a return filed within time under sections 139(4) 142(1) or section 148 he will not be allowed the deduction unless the return in question was filed within the due date prescribed under section 139(1). Thus it is clear that the statutory scheme permits the allowance of a deduction under section 80P only if it is made in a return recognised as such under the IT Act and after 1-4-2018 only if that return is one filed within the time prescribed u/s 139(1) of the Act. As the return in these cases for the assessment years 2009-10 and 2010-11 were admittedly filed after the dates prescribed u/s 139(1) and 139(4) or in the notices issued u/s 142(1) and section 148 the returns were indeed non-est and could not have been acted upon by the AO even though they were filed before the completion of the assessment. The requirement of making the claim for deduction in a return of income filed by the assessee can be seen as a statutory pre-condition for claiming the benefit of deduction under the IT Act. It is trite that a provision for deduction or exemption under a taxing Statute has to be strictly construed against the assessee and in favour of the Revenue. Thus viewed a failure on the part of an assessee to comply with the precondition for obtaining the deduction cannot be condoned either by the statutory authorities or by the courts. - Decided against assessee. Whether the provision towards the audit fee and the interest expenses by the assessee are allowable deductions while calculating the taxable income of the assessee? - As we find that there is no finding given by the learned CIT(A) despite the fact that the issue was raised by the assessee before the learned CIT(A). In the absence of any finding by CIT(A) we are inclined to set aside the issue to the file of the CIT(A) for the limited purpose of fresh consideration.

Summary

ISSUES:

Whether an assessee who files a belated return after the time prescribed under section 139(1), 139(4), or notice under section 148 of the Income Tax Act is entitled to claim deduction under section 80P of the Act'Whether interest income earned from fixed deposits and bank investments by a cooperative society engaged in providing credit facilities to members qualifies for deduction under section 80P(2)(a)(i) or section 80P(2)(d) of the Act'Whether provisions made for audit fees and interest expenses (including provision for interest) are allowable deductions while computing taxable income'Whether the Assessing Officer's order passed under section 143(3) read with section 147 and the subsequent order under section 144 read with section 263 of the Act are sustainable regarding disallowance of deductions and additions made?

RULINGS / HOLDINGS:

The Court held that the assessee is not entitled to claim deduction under section 80P of the Act in a belatedly filed return after the prescribed time limit under section 139(1), 139(4), or section 148, as such returns are not considered valid returns for the purpose of the Act. The Court emphasized the phrase: "the return filed by the assessee after expiry of such time limit is not a return of income for the purpose of the Act."Interest income earned from deposits with banks does not qualify for deduction under section 80P(2)(a)(i) as it is not "profit earned from the business activity of providing credit facility to the members" and is taxable under section 56 as income from other sources. Similarly, such income is not eligible for deduction under section 80P(2)(d) because that provision applies only to income derived from investments with other cooperative societies, not banks.The provision for audit fees and provision for interest expenses, being unascertained liabilities, are not allowable deductions. The Court upheld the Assessing Officer's disallowance of these provisions.The Court upheld the Assessing Officer's reassessment under section 263 and consequent fresh assessment under section 144 read with section 263, confirming disallowance of deduction under section 80P and addition of provision for interest expense. However, the issue regarding audit fee and interest expense provisions was remanded for fresh consideration due to lack of findings by the appellate authority.

RATIONALE:

The Court applied the statutory framework under sections 80P, 80A(5), 80AC, 139(1), 139(4), 142(1), 148, 56, 143(3), 144, and 263 of the Income Tax Act. It relied on the principle that claims for deduction under section 80P must be made in a valid return filed within the prescribed time limits, as mandated by section 80A(5) and the amended section 80AC effective from 1-4-2018.The Court followed the binding precedent of the Hon'ble Kerala High Court in Nileswar Rangekallu Chethu Vyavasaya Thozhilali Sahakarana Sangham v. CIT, which clarified that post-amendment, deduction under section 80P is conditional on filing the return on or before the due date under section 139(1), and returns filed after such date-even if within extended time under other provisions-are not valid for claiming such deduction.The Court distinguished earlier conflicting decisions, including the Chirakkal Service Co-operative Bank Ltd. case, holding them to be per incuriam in light of the statutory amendments and subsequent authoritative rulings.The Court emphasized the strict construction of tax exemptions and deductions against the assessee and in favor of the Revenue, treating the requirement to claim deduction in a valid return as a mandatory precondition that cannot be waived.Regarding the nature of income, the Court interpreted "profits and gains of business" under section 80P(2)(a)(i) as excluding interest income from bank deposits, which is income from other sources under section 56, and clarified that section 80P(2)(d) applies only to income from investments in other cooperative societies, not banks.The Court noted the absence of appellate authority findings on the allowability of audit fee and interest expense provisions and remanded the issue for fresh consideration, applying the relevant provisions of the Act.