2014 (11) TMI 902 - AT - Income Tax

Cooperative bank denied deduction under section 80P for late filing returns. Appeals dismissed for failure to comply.

The Tribunal upheld the denial of deduction under section 80P for a cooperative bank due to failure to file returns within the specified time. It ruled ... Deduction under Chapter VI-A - requirement to make claim in the return under 80A(5) - timely filing of return under section 139(1) - belated return not to be treated as return for claim of deduction under 80A(5) - mutuality principleRequirement to make claim in the return under 80A(5) - timely filing of return under section 139(1) - belated return not to be treated as return for claim of deduction under 80A(5) - deduction under Chapter VI-A - Whether assessee-cooperative banks were entitled to deduction under section 80P when no timely return was filed and claim was not made in the return. - HELD THAT: - The Tribunal held that section 80A(5) mandates that a claim for deductions under the provisions grouped under Chapter VI-A (heading C) must be made in the return of income. The legislative scheme requires filing of return under section 139(1) where the total income exceeds the exemption limit; for certain deductions (e.g., under sections 10A/10B) Parliament elsewhere expressly tied the allowance to timely filing. Section 80A(5), however, omits the words 'in due time' and therefore requires only that the claim appear in a return; the Tribunal interpreted this to mean that a return filed under section 139(1), section 139(4) (where applicable before completion of assessment), or in response to notices under section 142(1)/148 can satisfy the requirement. Conversely, a belated return filed beyond the statutory time-limits (i.e., not within section 139(1)/139(4) or the time specified under notices) cannot be treated as a return for the purpose of claiming deduction under section 80P. The Tribunal emphasised that failure to file the return within prescribed time is a statutory default (with penal consequences under section 276CC) and that allowing a party who did not file any return to obtain Chapter VI-A benefits would contravene legislative intent and produce anomalous results vis-a -vis compliant taxpayers. Applying these principles to the facts, returns filed after the relevant due date could not be treated as valid to claim deduction under section 80P, and where no return was filed the claim could not be allowed.Claim for deduction under section 80P denied because no valid return with the requisite claim was filed within the scope of section 80A(5); belated returns beyond statutory time-limits do not entitle the assessee to deduction.Mutuality principle - exemption under section 80P - Whether the assessee-bank's lending only to members attracts the principle of mutuality so as to exempt its total income. - HELD THAT: - The Tribunal rejected the mutuality plea. It followed higher court authorities that where profits are distributable to shareholders (or where the entity's activities and receipts resemble ordinary banking operations), the mutuality principle does not apply. Precedents hold that participation in profits by shareholders without contribution conditions, and exploitation of funds akin to a commercial bank, defeat mutuality. Applying these precedents, the Tribunal found the assessee's activities did not satisfy the requirements for mutuality and therefore the contention that total income should be exempt on that basis was unsustainable.Mutuality-based exemption refused; the assessee is not entitled to exempt total income on the basis of mutuality.Final Conclusion: The appeals are dismissed: deduction under section 80P cannot be allowed where no valid return containing the claim was filed within the scope of section 80A(5) and section 139; the mutuality contention likewise fails. Issues Involved:1. Denial of deduction under section 80P of the Income Tax Act by invoking section 80A(5).2. Whether the cooperative societies are liable to file the return of income under the Income Tax Act.3. The applicability of the principle of mutuality to the income of the cooperative societies.4. The requirement to file a return of income within the specified time for claiming deductions under section 80P.5. The consideration of belated returns for the purpose of deduction under section 80P.6. The jurisdiction of the Assessing Officer to issue notice under section 148 for regularizing belated returns.Detailed Analysis:1. Denial of Deduction under Section 80P by Invoking Section 80A(5):The common issue in these appeals is the denial of deduction under section 80P by invoking section 80A(5). The assessee, a cooperative bank, failed to file a return of income for the assessment year 2010-11. The Assessing Officer issued a notice under section 142(1), but the assessee did not comply, leading to a best judgment assessment under section 144. The Assessing Officer disallowed the deduction under section 80P by invoking section 80A(5). The CIT(A) upheld this decision, relying on a previous ITAT Cochin Bench decision, which stated that deductions under section 80P are not allowed if the return is not filed within the prescribed time.2. Liability of Cooperative Societies to File Return of Income:The Tribunal examined whether cooperative societies are liable to file returns under the Income Tax Act. Section 139(1) mandates that every person whose total income exceeds the maximum amount not chargeable to tax must file a return. The Tribunal concluded that cooperative societies are not exempt from this requirement unless notified by the Central Government. The statutory liability to file returns cannot be disowned on the grounds of a bona fide impression that returns are not needed.3. Applicability of Principle of Mutuality:The assessee argued that its income should be exempt based on the principle of mutuality, as it lends money only to its members. The Tribunal referred to the Supreme Court's decision in CIT vs. Kumbakonam Mutual Benefit Fund Ltd., which held that the principle of mutuality is not satisfied if profits are distributed to shareholders as shareholders. The Tribunal concluded that the assessee's position is similar to an ordinary bank, and the mutuality principle does not apply.4. Requirement to File Return of Income within Specified Time:The Tribunal analyzed section 80A(5), which mandates that a claim for deduction must be made in the return of income. The Tribunal noted that the legislative intent is clear from the plain language of the statute, and the return must be filed within the time specified under section 139(1) or 139(4) or in response to a notice under section 142(1) or 148. The Tribunal emphasized that filing a return within the specified time is mandatory for claiming deductions under section 80P.5. Consideration of Belated Returns:The Tribunal considered whether belated returns can be treated as returns of income for the purpose of deduction under section 80P. It concluded that returns filed beyond the time limit provided under section 139(1) or 139(4) or the time specified in a notice under section 142(1) or 148 cannot be considered as returns of income for claiming deductions under section 80P. The Tribunal emphasized that the legislative intent is to prevent misuse and avoid multiple deductions.6. Jurisdiction to Issue Notice under Section 148:The Tribunal addressed the contention that the Assessing Officer should have issued a notice under section 148 to regularize the belated returns. It concluded that the Assessing Officer had no jurisdiction to issue such a notice as the assessment proceedings were already pending. The Tribunal noted that section 147 and 148 are for the benefit of the revenue and cannot be used to compel the Assessing Officer to regularize belated returns.Conclusion:The Tribunal upheld the denial of deduction under section 80P, emphasizing the mandatory requirement to file returns within the specified time. The appeals filed by the assessees were dismissed. The Tribunal also rejected the alternative plea based on the principle of mutuality, citing relevant case law. The decision reinforces the importance of complying with statutory requirements for claiming tax deductions.