2025 (6) TMI 2008 - AT - Income Tax

Denial of deduction u/s. 80P - information about cash deposit in the bank account of assessee held with bank during the demonetization period - invocation of section 80A(5) to deny the deduction under section 80P - CIT(A) s co-terminus powers with that of the AO to allow deduction - HELD THAT - Where the conditions of section 80A(5) stands fulfilled and a valid claim of deduction u/s. 80P of the Act has been made in the return even ld. AO could have allowed the claim but then CIT(A) who is having co-terminus powers with that of the ld. AO was very much having the necessary details and could have allowed the claim of assessee because section 80A(5) of the Act has no pre-condition that return of income has to be filed u/s. 139(1) of the Act. As going through the provisions of section 80A(5) and also observing that ld. AO has examined the details filed by the assessee accepting the source of cash deposit as well as activity of Cooperative Society and having not disputed the quantum of deduction except for the technical ground inclined to hold that assessee is eligible for deduction u/s. 80P - Appeal of the assessee is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this appeal are:

(a) Whether the assessee, a Cooperative Society, is entitled to claim deduction under section 80P of the Income-tax Act, 1961, for the Assessment Year 2017-18, despite the return of income not being e-verified within the prescribed time limit?

(b) Whether the invocation of section 80A(5) of the Act to deny the deduction under section 80P is justified where the return was filed in response to a notice under section 142(1) and a claim for deduction was made therein?

(c) Whether the relaxation provided by CBDT Circular No. 13/2020 dated 13.07.2020, allowing one-time e-verification of returns for AY 2015-16 to AY 2019-20, applies to the assessee's case and entitles it to claim deduction under section 80P?

(d) Whether the failure to file a regular return under section 139(1) of the Act precludes the assessee from claiming deduction under section 80P, or whether filing a return in response to notice under section 142(1) suffices?

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Entitlement to Deduction under Section 80P despite non e-verification of return within prescribed time

The relevant legal framework includes section 80P of the Income-tax Act, which provides deduction to Cooperative Societies on certain incomes, subject to conditions including filing of return of income. The validity of the return hinges on compliance with procedural requirements, including e-verification within 120 days of filing.

The Assessing Officer (AO) observed that the assessee filed the return on 28.02.2018 and revised it on 07.03.2018 but failed to e-verify it within the stipulated 120 days, rendering the return invalid. Consequently, the AO denied the deduction under section 80P relying on section 80A(5) which bars deduction if no claim is made in the return.

The Court noted that the return was filed in response to a notice under section 142(1), not as a regular return under section 139(1). The assessee subsequently submitted the signed ITR-V acknowledgment on 28.08.2020 and 15.09.2020, after the assessment order was passed on 30.12.2019.

Applying the law to facts, the Court observed that the return was not e-verified within the prescribed time, but was verified later pursuant to CBDT Circular No. 13/2020 which granted one-time relaxation for e-verification delays for AY 2015-16 to AY 2019-20. The Court found that the AO accepted the source of cash deposits and the activities of the Cooperative Society, and the only ground for denial was the technicality of non e-verification within time.

The Court concluded that the assessee had made a valid claim for deduction under section 80P in the return filed, and the subsequent e-verification pursuant to the CBDT circular remedied the defect. Therefore, the assessee was entitled to the deduction.

Issue (b): Justification of invoking Section 80A(5) to deny deduction under Section 80P

Section 80A(5) provides that if an assessee fails to make a claim for deduction under certain specified sections in the return of income, no deduction shall be allowed. The AO invoked this provision on the basis that the return filed by the assessee was invalid due to non e-verification, and hence the claim was not effectively made.

The Court examined the language of section 80A(5) and held that it does not mandate that the return must be filed under section 139(1) specifically; it only requires that a return of income be furnished with the claim for deduction. Since the assessee filed the return in response to a notice under section 142(1) and made the claim under section 80P therein, the condition under section 80A(5) was satisfied.

The Court further noted that the AO accepted the claim on merits but denied it solely on the technical ground of invalid return. The Tribunal held that such invocation of section 80A(5) was not justified when the return was ultimately verified and the claim was made.

Issue (c): Applicability of CBDT Circular No. 13/2020 for one-time relaxation of e-verification

The CBDT Circular No. 13/2020 dated 13.07.2020 provided one-time relaxation for e-verification of returns for AY 2015-16 to AY 2019-20, recognizing difficulties faced by taxpayers in submitting signed ITR-V forms within the prescribed period.

The AO and the Commissioner of Income Tax (Appeals) (CIT(A)) initially did not apply this circular, holding that since the department had already issued notice under section 142(1), the relaxation was not applicable.

The Court disagreed with this restrictive interpretation, emphasizing that the circular's relief was available irrespective of the mode of return filing, provided the return was pending due to non-submission of ITR-V. The assessee's submission of the signed ITR-V in August and September 2020 was within the ambit of this circular, thus validating the return.

This interpretation aligns with the principle that procedural lapses should not defeat substantive rights where remedial measures are available and utilized.

Issue (d): Effect of non-filing of regular return under Section 139(1) on claim of deduction under Section 80P

The assessee did not file the regular return under section 139(1) but filed the return in compliance with notice under section 142(1). The question was whether such filing sufficed for claiming deduction under section 80P.

The Court noted that section 80A(5) does not specify that the return must be filed under section 139(1), only that a return be furnished with the claim. The Tribunal relied on precedent where returns filed in response to notices were held to be valid for claiming deductions.

The Court held that the filing of return in response to section 142(1) notice, with a claim for deduction under section 80P, was sufficient to satisfy the statutory requirements.

This approach prevents penalizing taxpayers for procedural irregularities when they have furnished returns and claims in accordance with law.

3. SIGNIFICANT HOLDINGS

"Where the assessee furnishes a return of income but fails to make a claim as enunciated in section 80A(5) of the Act, then said claim/deduction/exemption shall not be allowed. However, section 80A(5) does not impose a pre-condition that the return must be filed under section 139(1) of the Act."

"The one-time relaxation granted by CBDT Circular No. 13/2020 dated 13.07.2020 for e-verification of returns for AY 2015-16 to AY 2019-20 applies even where returns were filed in response to notices under section 142(1) and were pending due to non-submission of ITR-V."

"In the instant case, the assessee having filed the return with claim for deduction under section 80P and subsequently complied with e-verification requirements within the period allowed by the CBDT circular, is entitled to the deduction under section 80P."

"The Assessing Officer's denial of deduction on the sole ground of technical invalidity of the return due to non e-verification within 120 days is not sustainable where the return was later verified and accepted."

The Court set aside the order of the CIT(A) and directed the AO to allow the deduction under section 80P of the Act at Rs. 11,23,838/- claimed by the assessee.