2024 (2) TMI 152 - AT - Income Tax

CPC lacked jurisdiction to disallow section 80P deduction before April 2021 amendment despite section 80AC bar

Pairagacha Cooperative Credit Society Ltd. Versus Income Tax Officer, Hooghly

ITAT Kolkata held that CPC lacked jurisdiction to make prima facie disallowance of deduction u/s 80P before 01.04.2021, as such powers were conferred only ... Deduction u/s 80P - claim denied as delay in filing the return of income - scope of amendment brought is in by Finance Act from 01.04.2021 w.e.f. 1.4.21 - prima facie adjustment - HELD THAT:- From perusal of the said amendment, we note that before 01.04.2021 there was no mechanism for the CPC to prima facie disallow the claim u/s. 80P of the Act. It was only from 01.04.2021 that such powers have been conferred with the CPC to make prima facie disallowance in case of the claim made u/.s 10AA or deduction claimed under any of the provisions in Chapter VIA which, inter alia, includes 80P of the Act. We note that section 80AC of the Act puts a bar against claiming of deduction in respect of certain income provided under the head (C) of Chapter VIA which includes section 80P of the Act also if the return of income are not filed before the due date prescribed u/s. 139(1) of the Act. Had it been a case of scrutiny proceeding u/s. 143(3) of the Act, the situation certainly would have been against the assessee subject to the approval by the authorities for condonation of delay in filing the return. As before us, the issue is regarding prima facie adjustment made u/s. 143(1)(a)(v) of the Act and as discussed above, such power of making the prima facie adjustment towards deduction u/s. 80P of the Act came to CPC only from 1.4.2021 and thus, the alleged disallowance by CPC is beyond its jurisdiction. Therefore, the assessee deserves relief. We are thus inclined to hold that the Ld. CIT(A) erred in denying the deduction u/s 80P - Decided in favour of assessee. Penalty u/s. 272A(1)(d) - no compliance made to notices u/s. 142(1) within the stipulated time - HELD THAT:- From the documents on record, we observe that the demand notice for imposition of penalty is not available. We find it proper to consider the submissions made by the Ld. Counsel for deleting the penalty since the assessment has been completed u/s. 143(3) of the Act and it not being an ex parte order u/s. 144. We find that there is a reasonable cause to delete the penalty so imposed. Thus, the penalty imposed of Rs. 20,000/- is deleted. Grounds taken by the assessee are allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether a prima facie disallowance of a deduction under section 80P (Chapter VIA, head C) can be made by Central Processing Centre (CPC) under section 143(1)(a)(v) where the return for the relevant year was filed after the due date, given that the statutory amendment empowering CPC to disallow Chapter VIA deductions took effect from 01.04.2021. 2. Whether penalty under section 271A(1)(d) (penalty for failure to comply with notice under section 142(1)) can be sustained where (a) the assessment for the year was completed under section 143(3) (i.e., not ex parte) and (b) there is no record of a separate demand/penalty notice having been issued/served with the penalty order. ISSUE-WISE DETAILED ANALYSIS Issue 1: CPC's power to prima facie disallow deduction under section 80P via section 143(1)(a)(v) Legal framework: Section 143(1)(a)(v) permits prima facie disallowance in the CPC intimation of deductions claimed under section 10AA or any provision of Chapter VIA under head C where the return is furnished beyond the due date under section 139(1). Section 80P is a deduction falling within Chapter VIA (head C). Section 80AC bars certain Chapter VIA deductions where return is not filed by the due date. Precedent Treatment: No prior judicial precedent was invoked or applied by the Tribunal from the record. The Tribunal assessed the matter on statutory text and the timing of legislative amendment. Interpretation and reasoning: The impugned disallowance was made in the CPC intimation on the ground that the return was filed late. The Tribunal examined the legislative history and noted that the specific authority for CPC to make prima facie disallowances in respect of Chapter VIA deductions (including section 80P) was conferred by an amendment effective 01.04.2021. For the assessment year before the Tribunal, the return due date and filing occurred prior to that effective date (return due 31.08.2019; return filed 26.06.2020). The Tribunal reasoned that, prior to 01.04.2021, CPC lacked a statutory mechanism to prima facie disallow section 80P claims under section 143(1)(a)(v). By contrast, scrutiny proceedings under section 143(3) would allow disallowance after fuller verification and subject to condonation considerations. Accordingly, a post-amendment CPC intimation purporting to exercise a power that was not in existence for the relevant assessment year is beyond CPC's jurisdiction. Ratio vs. Obiter: The holding that CPC's prima facie disallowance of a section 80P claim is beyond jurisdiction where the enabling amendment postdates the assessment year is a ratio decidendi of the decision. Conclusion: The Tribunal set aside the denial of deduction under section 80P (Rs. 23,98,593) as the CPC's prima facie adjustment was beyond its jurisdiction for the assessment year in question and allowed the assessee's appeal on this issue. Issue 2: Validity of penalty under section 271A(1)(d) for non-compliance with notice under section 142(1) Legal framework: Section 271A(1)(d) permits imposition of penalty for failure to furnish information or documents as required under section 142(1). Proper issuance and service of notices and compliance timelines are material to determining liability. Assessments completed under section 143(3) involve consideration of submissions and materials and are distinguishable from ex parte assessments under section 144. Precedent Treatment: No earlier decisions were cited or relied upon; Tribunal evaluated facts against statutory requirements and principles of reasonable cause. Interpretation and reasoning: The penalty order recorded issuance of section 142(1) notices and imposition of penalty per default (Rs. 10,000 per default, total Rs. 20,000). The assessee asserted non-service of any demand/penalty notice and pointed out that the assessment was completed under section 143(3), i.e., the assessee's submissions were considered. The record did not contain the demand/penalty notice said to accompany the penalty order. The Tribunal treated the absence of the demand notice on record and the fact that the assessment was not ex parte as establishing a reasonable cause to delete the penalty. On these facts the Tribunal concluded that sustaining the penalty was not warranted. Ratio vs. Obiter: The determination that the penalty must be deleted on the combined factual grounds of no recorded demand/penalty notice and the assessment having been completed under section 143(3) is a ratio applicable to like factual scenarios; the observation that reasonable cause exists in such circumstances constitutes the operative holding. Conclusion: The Tribunal deleted the penalty of Rs. 20,000 imposed under section 271A(1)(d) (noting the absence of the demand/penalty notice on record and that the assessment was completed under section 143(3)), and allowed the appeal on this point. Cross-references and Practical Implications - Issue 1 is fact- and time-sensitive: the Tribunal's decision rests on the timing of the legislative amendment (effective 01.04.2021). Where the amendment empowering CPC to prima facie disallow Chapter VIA deductions postdates the assessment year, CPC intimation-based disallowance of such deductions may be held ultra vires. - Issue 2 underscores evidentiary and procedural prerequisites for imposing statutory penalties: absence of record of a demand/penalty notice and completion of a non-ex parte assessment are material considerations that can constitute reasonable cause to remit or delete penalty.