Appeals Allowance: Invalid Denial of Deduction under Income Tax Act

The appeals focused on the validity of denying deduction under section 80P of the Income Tax Act during return processing under section 143(1)(a). The issue revolved around the applicability of section 143(1)(a)(v) and section 143(1)(a)(ii) for disallowing deductions under Chapter VI-A(C) for Assessment Year 2019-20. The Tribunal ruled that the disallowance of deduction under section 80P before the amendment to section 143(1)(a)(v) in 2021 was not valid. The appeals were allowed, and the disallowance of deduction under section 80P for the relevant assessment year was deemed invalid.

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Issues Involved:
1. Validity of the denial of deduction under section 80P of the Income Tax Act, 1961, during the processing of returns under section 143(1)(a).
2. Applicability of section 143(1)(a)(v) and section 143(1)(a)(ii) for disallowance of deduction under Chapter VI-A(C) for Assessment Year 2019-20.

Summary:

The sole issue in these appeals is the validity in law of the adjustment by way of denial of deduction under section 80P of the Income Tax Act, 1961 ('the Act'), inadmissible in view of section 80AC of the Act, during the processing of returns under section 143(1)(a) of the Act. The year involved is Assessment Year (AY) 2019-20. Section 80AC mandates that deduction under the specified provisions of Chapter VI-A would be allowed only if the return claiming the said deductions is filed within the time specified under section 139(1). The scope of section 80AC was extended by Finance Act, 2018, to include all other deductions under Chapter VI-A (Part C), which includes section 80P.

The controversy arises because the amendment to section 143(1)(a)(v) of the Act, which includes the disallowance of deduction claimed under any provision of Chapter VI-A(C) if the return is filed beyond the date specified under section 139(1), came into effect from 01.04.2021 by Finance Act, 2021. Before this amendment, section 143(1)(a)(v), brought by Finance Act, 2008, was in agreement with section 80AC, extending the disallowance of deductions for returns not filed within the time specified under section 139(1) to the provisions specified in section 80AC.

Section 143(1)(a)(v) did not include within its ambit the disallowance of deduction under Chapter VI-A(C) and, thus, under section 80P of the Act, before its amendment by Finance Act, 2021. The processing of the returns of income in the instant cases was in July/August, 2020, before the amended section 143(1)(a)(v) came into effect. Therefore, the disallowance of deduction under section 80P could not have been made under section 143(1)(a)(v) before 01.04.2021.

The Tribunal examined section 143(1)(a)(ii), which deals with incorrect claims apparent from any information in the return. The definition of "incorrect claim" is exhaustive and does not include the date of filing the return as information required to substantiate any entry in the return. Therefore, the invocation of section 143(1)(a)(ii) for disallowing deduction under section 80P for returns processed before 01.04.2021 is not valid in law.

In conclusion, the Tribunal held that the amended section 143(1)(a)(v) would apply only from 01.04.2021 and not earlier. The appeals were allowed, and the disallowance of deduction under section 80P for the relevant assessment year was held to be invalid.

Order pronounced on September 25, 2023, under Rule 34 of The Income Tax (Appellate Tribunal) Rules, 1963.

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