2025 (7) TMI 14 - AT - Income Tax

Denial of deduction u/s 80P - non filing of return of income -absence of filing a valid return of income within the prescribed time u/s 139(1) - assessee is a primary agricultural credit society registered under the Kerala Co-operative Societies Act - HELD THAT - In the present case it cannot be disputed that the assessee neither filed its return of income u/s 139(1) of the Act nor filed the same in response to the notice issued u/s 142(1) of the Act. We find that the issue of whether the assessee is entitled to claim deduction under section 80P of the Act in the absence of a return of income is no longer res integra and has been decided in favour of the Revenue in Nileshwar Range Kallu Chethu Vyavasaya Thozhilali Sahakarana Sangham 2023 (3) TMI 1055 - KERALA HIGH COURT as 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 of the IT Act 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 under section 139(1) of the Act. Appeal by the assessee is dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

• Whether an assessee, being a primary agricultural credit society registered under the Kerala Co-operative Societies Act, is entitled to claim deduction under section 80P of the Income Tax Act in the absence of filing a valid return of income within the prescribed time under section 139(1) of the Act;
• Whether a belated return filed beyond the permissible time under section 139(4) or in response to notices under section 142(1) can be treated as a valid return for the purpose of claiming deduction under section 80P;
• The applicability and interpretation of section 80A(5) and section 80AC of the Income Tax Act, particularly post the amendment effective from 1-4-2018, regarding the preconditions for claiming deductions under Chapter VIA, including section 80P;
• The effect of non-filing or delayed filing of return on the entitlement to deduction under section 80P, including the interplay with provisions such as sections 139(8), 139(9), and 234A of the Act;
• Whether the assessee's bona fide belief that income of a co-operative society is exempt under section 80P can excuse the failure to file a timely return and claim deduction accordingly.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Entitlement to Deduction under Section 80P Without Filing a Valid Return

Relevant Legal Framework and Precedents: Section 80P of the Income Tax Act provides for deduction in respect of income of co-operative societies engaged in specified activities. Section 80A(5) mandates that no deduction under Chapter VIA shall be allowed unless the claim is made in the return of income filed by the assessee. Section 80AC, as amended effective 1-4-2018, further restricts the allowance of deduction under section 80P to returns filed on or before the due date under section 139(1). The Kerala High Court's decision in Nileshwar Range Kallu Chethu Vyavasaya Thozhilali Sahakarana Sangham v/s CIT (2023) 459 ITR 730 is a binding precedent interpreting these provisions.

Court's Interpretation and Reasoning: The Tribunal relied extensively on the Kerala High Court's ruling, which clarified that the statutory scheme admits claims for deduction under section 80P only if made in a valid return filed within the prescribed time under section 139(1). Returns filed beyond the due date under sections 139(4), 142(1), or 148 are not valid for this purpose. The Court emphasized that the requirement to claim deduction in a valid return is a statutory precondition and must be strictly complied with.

Key Evidence and Findings: The assessee did not file its original return under section 139(1) by the due date, nor did it file a valid belated return within the permissible timeframe. The return filed on 11/02/2019 was beyond the time limit for a belated return and thus invalid. The Assessing Officer (AO) completed the assessment under section 144 without granting the deduction, relying on the statutory provisions and judicial precedent.

Application of Law to Facts: Since no valid return claiming deduction under section 80P was filed, the AO and subsequently the CIT(A) rightly denied the deduction. The Tribunal found no infirmity in this approach, as the statutory provisions and binding judicial authority require a valid return filed within the due date for such claims.

Treatment of Competing Arguments: The assessee's contention that filing a return was optional for a co-operative society and that the income was exempt under section 80P was rejected. The Tribunal distinguished the legal requirement of filing a timely return to claim deduction from the substantive question of exemption, emphasizing procedural compliance as a precondition. The Department's reliance on the Kerala High Court decision was accepted as authoritative.

Conclusions: The Tribunal concluded that the assessee's failure to file a valid return within the prescribed time disentitled it from claiming deduction under section 80P. The statutory scheme and judicial precedent mandate strict compliance with filing requirements, and no exception was warranted on grounds of bona fide belief or delayed filing.

Issue 2: Validity of Belated Return Filed Beyond Permissible Time and its Effect on Deduction Claim

Relevant Legal Framework and Precedents: Section 139(4) allows filing of belated returns within prescribed time limits. Section 80A(5) requires that claims for deductions under Chapter VIA be made in a return filed by the assessee. The Kerala High Court in the cited case held that returns filed beyond the due date under section 139(1) are invalid for claiming deduction under section 80P, even if filed under other provisions.

Court's Interpretation and Reasoning: The Tribunal, following the High Court, held that a belated return filed beyond the permissible period under section 139(4) or in response to notices under section 142(1) cannot be treated as valid for claiming deductions under section 80P. The statutory amendment to section 80AC post-1-4-2018 made the requirement more stringent, mandating filing within the due date under section 139(1).

Key Evidence and Findings: The assessee's return filed on 11/02/2019 was beyond the due date and belated filing window, thus invalid for the purpose of claiming deduction. The AO and CIT(A) correctly rejected the deduction claim on this basis.

Application of Law to Facts: The Tribunal applied the statutory provisions strictly, finding that the belated return filed was not valid for deduction claims. The legislative intent to restrict claims to timely filed returns was upheld.

Treatment of Competing Arguments: The assessee argued that the belated return should be accepted. The Tribunal rejected this, noting that the law does not allow condonation or acceptance of such belated returns for deduction claims under section 80P, as supported by the High Court ruling.

Conclusions: The belated return filed beyond the prescribed period was invalid for claiming deduction under section 80P, and the Tribunal upheld the denial of deduction on this ground.

Issue 3: Interpretation of Section 80A(5) and Section 80AC Post Amendment and Their Impact on Deduction Claims

Relevant Legal Framework and Precedents: Section 80A(5) prohibits allowance of deductions under Chapter VIA unless claimed in the return filed by the assessee. Section 80AC was amended by Finance Act 2018 to require filing of return on or before due date under section 139(1) for claiming deduction under section 80P. The Kerala High Court decision elaborated on these provisions.

Court's Interpretation and Reasoning: The Tribunal adopted the High Court's reasoning that the statutory scheme requires a valid return filed within the due date under section 139(1) for claiming deduction under section 80P. The amendment to section 80AC strengthened this precondition, making the filing of a timely return mandatory.

Key Evidence and Findings: The assessee's failure to file a return within the due date meant it did not satisfy the statutory precondition for claiming deduction under section 80P. The AO's reliance on section 80A(5) was justified.

Application of Law to Facts: The Tribunal applied the amended provisions to the facts, confirming that the claim for deduction was not maintainable without a timely return.

Treatment of Competing Arguments: The assessee's argument that the income was exempt and thus no return was necessary was rejected. The Tribunal emphasized that procedural compliance is a mandatory precondition for claiming deductions.

Conclusions: The Tribunal upheld the interpretation that section 80A(5) and amended section 80AC require a timely filed return for deduction claims under section 80P, and the assessee's failure to comply warranted denial of deduction.

Issue 4: Effect of Provisions Sections 139(8), 139(9), and 234A on Deduction Claims in Belated Returns

Relevant Legal Framework and Precedents: Sections 139(8) and (9) relate to the accrual of interest on amounts assessed and the effect of filing returns within prescribed time. Section 234A provides for levy of interest for delay in filing return. The Kerala High Court clarified that these provisions do not extend to validating belated returns for claiming deductions under section 80P.

Court's Interpretation and Reasoning: The Tribunal, following the High Court, held that sections 139(8)/(9) and 234A are intended for specific purposes, such as limiting interest liability, and do not confer general validity on belated returns for claiming deductions. Therefore, these provisions cannot be interpreted to permit acceptance of belated returns for deduction claims.

Key Evidence and Findings: The assessee's reliance on these provisions was found misplaced as they do not affect the validity of returns for deduction claims.

Application of Law to Facts: The Tribunal applied this reasoning to reject the assessee's contention that these provisions validate the belated return filed.

Treatment of Competing Arguments: The assessee argued that these provisions support acceptance of belated returns. The Tribunal disagreed, emphasizing the limited and specific scope of these provisions.

Conclusions: The Tribunal held that sections 139(8), 139(9), and 234A do not validate belated returns for claiming deductions under section 80P, and thus do not assist the assessee.

Issue 5: Bona Fide Belief of Exemption and Its Effect on Filing Return and Claiming Deduction

Relevant Legal Framework and Precedents: The Income Tax Act requires filing of returns and claims for deductions to be made in accordance with statutory provisions. The principle of strict construction of exemption and deduction provisions against the assessee is well established.

Court's Interpretation and Reasoning: The Tribunal rejected the assessee's claim of bona fide belief that income was exempt and return filing was unnecessary. It held that procedural compliance cannot be excused on such grounds, especially when the statutory scheme mandates filing of returns for claiming deductions.

Key Evidence and Findings: The assessee did not file a return within the due date and did not make a claim for deduction in a valid return. The bona fide belief was not supported by statutory provisions or precedent.

Application of Law to Facts: The Tribunal applied the principle that exemption or deduction provisions are to be strictly construed and that failure to comply with filing requirements cannot be condoned.

Treatment of Competing Arguments: The assessee's argument was dismissed as it conflicted with statutory mandates and judicial precedent.

Conclusions: Bona fide belief of exemption does not excuse failure to file a valid return or claim deduction under section 80P, and the assessee's claim was rightly rejected.

3. SIGNIFICANT HOLDINGS

The Tribunal, following the authoritative decision of the Kerala High Court, held:

"The statutory scheme permits the allowance of a deduction under section 80P of the IT Act 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 under section 139(1) of the Act."

"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. A provision for deduction or exemption under a taxing statute has to be strictly construed against the assessee and in favour of the Revenue."

"The amendment to Section 80AC with effect from 1-4-2018 mandates that for an assessee to get a deduction under section 80P, he must furnish a return of income for such assessment year on or before the due date specified in section 139(1)."

"Provisions such as sections 139(8), 139(9), and 234A, which are intended for specific purposes like limiting interest, cannot be read as enabling acceptance of belated returns for claiming deductions under section 80P."

The Tribunal's final determination was to uphold the denial of deduction under section 80P of the Act on the ground that the assessee failed to file a valid return within the prescribed time, which is a mandatory statutory precondition for claiming such deduction. The grounds raised by the assessee were dismissed, and the appeal was accordingly rejected.