Allowable section 80P deduction if PCIT allows a delay in filing ITRs

Facts and issues of the case

This appeal by assessee is directed against the order of Ld. CIT(A) dated 24.3.2022. The assessee has raised following grounds of appeal:-

In the facts and circumstances of the case, the Assessing Officer and the Appellate Authority erred in denying the benefit of deduction under Sec. 80P (2) of the Income Tax Act, 1961 to the appellant.

Whether the Id. C.I.T. (A) was correct in holding that the Appellant was disentitled for claiming the benefit of deduction u/s. 80P of the Act for belated filing of ITR by virtue of the provisions contained in Sec. 80AC of the Act even when appellant’s delay condonation application filed u/s. 119 (2) (b) of the Act before the Prl. C.I.T. was pending for consideration and disposal.

The Appellate authority erred in not applying the decision rendered by the jurisdictional Hon’ble High Court of Karnataka in a batch of Writ Petitions involving identical issue, viz: W.P. 28871/2019(1-IT) c/w. 8 other WPs in Balkuru Halu Utpadakara Sahakari Sangha Ltd. Balkur Vs. Prl. C.I.T. and Ors. The Respondent had traversed beyond his authority in passing the impugned Assessment Order dated 21-12-2019 as Sec. 143(1)(a)(v) of the Act as it existed on the date of passing of the order did not contain a provision to disallow deduction u/s. 80P of the Act.

The Appellant craves leave to add, to amend, modify and/or to alter any of the foregoing grounds and also urge such other grounds at the time of hearing.”The Ld. A.R. submitted that assessee is entitled for deduction u/s 80P of the Act, though assessee has not filed the return of income. In this regard, he relied on the judgement in the case of Chirakkal Co-Operative Bank Ltd. Vs. CIT 384 ITR 490 (Kerala), wherein held as under:-

Section 80A(5) provides that where the assessee fails to make a claim in his return of income for any deduction, inter alia, under any provision of Chapter VI-A under the heading “C. — Deductions in respect of certain incomes”, no deduction shall be allowed to him thereunder. Therefore, in cases where no returns have been filed for a particular assessment year, no deductions shall be allowed. This embargo in section 80A(5) would apply, though section 80P is not included in section 80AC.

Observation by the court

This is so because, the inhibition against allowing deduction is worded in quite similar terms in sections 80A(5) and 80AC, of which section 80A(5) is a provision inserted through the Finance Act 33 of 2009 with effect from April 1, 2013, after the insertion of section 80AC as per the Finance Act of 2006 with effect from April 1, 2006. This clearly evidences the legislative intendment that the inhibition contained in sub-section (5) of section 80A would operate by itself. In cases where returns have been filed, the question of exemptions or deductions referable to section 80P would definitely have to be considered and granted if eligible.

Here, questions would arise as to whether belated returns filed beyond the period stipulated under section 139(1) or section 139(4) as well as following sections 142(1) and 148 proceedings could be considered for exemption. If those returns are eligible to be accepted in terms of law, going by the provisions of the statute and the governing binding precedents, it goes without saying that the claim for exemption will also stand effectuated as a claim duly made as part of the returns so filed, for due consideration.

When a notice under section 142(1) is issued, the person may furnish the return and while doing so, could also make claim for deduction referable to section 80P. Not much different is the situation when pre- assessment enquiry is carried forward by issuance of notice under section142(1) or when notice is issued on the premise of escaped assessment referable to section 148 of the Income-tax Act. This position notwithstanding, when an assessment is subjected to first appeal or further appeals under the Income-tax Act or all questions germane for concluding the assessment would be relevant and claims which may result in modification of the returns already filed could also be entertained, particularly when it relates to claims for exemptions.

This is so because the finality of assessment would not be achieved in all such cases, until the _termination of all such appellate remedies. Under such circumstances, the Tribunal was not justified in denying exemption under section 80P of the Income-tax Act on the mere ground of belated filing of return by the assessee concerned. A return filed by the assessee beyond the period stipulated under section 139(1) or 139(4) or under section 142(1) or section 148 can also be accepted and acted upon provided further proceedings in relation to such assessments are pending in the statutory hierarchy of adjudication in terms of the provisions of the Income-tax Act. In all such situations, it cannot be treated that a return filed at any stage of such proceedings could be treated as non est in law and invalid for the purpose of deciding exemption under section 80P of the Income-tax Act. We thus answer substantial questions of law B and C formulated and enumerated above.”

On the other hand, Ld. D.R. submitted that assessee is not entitled for deduction u/s 80P of the Act, which is applicable from assessment year 2018-19 and in this regard, he relied on the judgement of Hon’ble Madras High Court in W.P. No.7038 of 2020 dated 7.4.2021, wherein held as under:-

The scope of an ‘intimation’ under Section 143 (1) (a) of the Act, extends to the making of adjustments based upon errors apparent from the return of income and patent from the record. Thus to say that the scope of ‘incorrect claim’ should be circumscribed and restricted by the Explanation which employs the term ‘entry’ would, in my view, not be correct and the provision must be given full and unfettered play. The explanation cannot curtail or restrict the main thrust or scope of the provision and due weight age as well as meaning has to be attributed to the purposes of Section 143(1)(a) of the Act.

The provisions of Section 80AC(ii) make it clear that any deduction that is claimed under Part C of Chapter VIA would be admissible only if the return of income in that case were filed within the prescribed due date. Thus no claim under any of the provisions of Part C of Chapter VIA would be admissible in the case of a belated return. There is no dispute on this position. The date of filing of a return of income would b apparent on the face of return and upon a perusal https./www.mhc.tn.gov.in/ judis/ W.P. Nos.7038 of 2020 and batch thereof, it would be clear as to whether the return is a valid return, having been filed within the statutory time limit, or 01 belated one. This is mechanical exercise and one that can be carried out by the CPC, very much within the scope of Section 143 (1) (a) (ii) of the Act.”

Court heard the rival submissions and perused the materials available on record. In this case, the main plea of the assessee is that assessee filed an application for condonation of delay in filing the income tax return for the assessment year 2018-19 and on this basis, exemption u/s 80P of the Act to be granted. In my opinion, if the delay is condoned by the competent authority, assessee is entitled for exemption u/s 80P of the Act in accordance with law. Hence, Court remit the issue to the file of AO to examine whether application filed by the assessee on 30.11.2018 before PCIT, Central Revenue Building, Attavara, Bengaluru for condoning the delay in filing the return of income for the assessment year 2018-19. If it is condoned by the competent authority, the exemption u/s 80P of the Act is to be granted though it was filed belatedly. With this observation, Court remits the issue to the file of AO for fresh consideration.