2023 (2) TMI 854 - AT - Income Tax

Assessee's Appeal Allowed: Disallowance of Deduction Deleted

Sai Prerana Co-op. Credit Society Ltd. Versus Income Tax Officer-17 (3) (2), Mumbai

The appeal by the assessee was allowed, and the adjustment made by the CPC for disallowance of deduction u/s 80P was deleted. The Tribunal emphasized that ... Deduction u/s 80P - disallowing 80P deduction while processing return u/s 143(3) - HELD THAT:- The issue of deduction has already been allowed by the Ld. CIT(A) in 143(3) proceedings and therefore, the Revenue should have reduced the demand raised u/s 143(1) of the Act also. The Ld. AO is accordingly directed to give effect of the finding of the Ld. CIT(A) in the impugned order that order u/s 143(1) already merged with the section 143(3) of the Act and the said addition u/s 143(3) has been deleted by the Ld. CIT(A) vide order dated 01.12.2022. CPC authorization to make adjustment u/s 143(1) as the issue of deduction u/s 80P of the Act was of debatable nature - CPC was not authorized to carry out such adjustment for disallowance of deduction u/s 80P of the Act. The adjustment made by the CPC is accordingly deleted on this ground also. Issues:1. Denial of deduction u/s 80P of the Income-tax Act, 1961 by the Ld. CIT(A).2. Issue of double taxation if addition is sustained.3. Disallowance of 80P deduction by CPC while processing return u/s 143(3).Analysis:Issue 1: Denial of deduction u/s 80P by Ld. CIT(A)The appeal was against the order of the Ld. CIT(A) for assessment year 2017-18, where the deduction u/s 80P of the Act was denied by the Ld. CPC while processing the return. The Ld. CIT(A) held that the order u/s 143(1) had merged with the assessment order u/s 143(3), where the Assessing Officer disallowed the deduction u/s 80P. The Ld. CIT(A) observed that no intervention was required as the issue had merged with the subsequent assessment order challenged by the assessee.Issue 2: Issue of double taxationThe assessee raised concerns about facing double taxation if the addition was sustained. The Ld. Counsel of the assessee argued that the demand raised after u/s 143(1) was not reduced by the Assessing Officer, even though the Ld. CIT(A) allowed the claim in the order related to u/s 143(3). The Ld. CIT(A) had directed the AO to give effect to the finding that the order u/s 143(1) had merged with u/s 143(3, and the addition u/s 143(3) had been deleted.Issue 3: Disallowance of 80P deduction by CPCThe Ld. Departmental Representative (DR) argued that the Revenue had appealed against the Ld. CIT(A)'s order, making the matter subjudice. However, the Tribunal found that the deduction had already been allowed by the Ld. CIT(A) in the 143(3) proceedings. The Ld. Counsel raised an additional ground that the CPC was not authorized to make adjustments u/s 143(1) as the issue was debatable. Referring to a Tribunal decision, it was highlighted that prior to the Finance Act 2021, the AO did not have the power to disallow claims under the heading 'C - Deductions in respect of certain incomes' under Chapter VI-A. The Tribunal upheld that the CPC was not authorized to make such adjustments, and the disallowance of deduction u/s 80P was deleted.In conclusion, the appeal by the assessee was allowed, and the adjustment made by the CPC for disallowance of deduction u/s 80P was deleted. The Tribunal emphasized that the CPC was not empowered to carry out such adjustments prior to the relevant amendment.