2025 (2) TMI 224 - AT - Income Tax

Cooperative society loses section 80P deduction for invalid return filing under section 80A(5) requirements

ITAT Cochin denied deduction under section 80P as the assessee cooperative society failed to file a valid return of income as required under section ... Denial of deduction u/s. 80P - no valid return of income was filed by the assessee - HELD THAT:- Admittedly, in the present case the assessee has not filed valid return of income either under the provisions of section 139 or in response to the notice u/s. 142(1) issued by the AO. The provisions of sub-section 80A(5) mandates that in order to claim a deduction under the section specified under Chapter VI-A, a claim is required to be made in the return of income. The issue in the present case is settled against the assessee by the decision of Nileshwar Range Kallu Chethu Vyavasaya Thozihilali Sahararana Sangham [2023 (3) TMI 1055 - KERALA HIGH COURT] as held that the assessee is not entitled for deduction u/s. 80P as no valid return of income was filed by the assessee society - Decided against assessee. Penalty levied u/s. 271B - audited financial statements were not furnished by the assessee within the due date as specified u/s 44AB - HELD THAT:- As decided in Chavakkad Service Co-op. Bank Ltd. [2024 (11) TMI 1272 - KERALA HIGH COURT] where assessee co-operative societies did not file audit report as mandated u/s 44AB within time limit specified thereunder, however, audit reports were made available before Assessing Authority at time of finalization of assessments, since delay in obtaining audit reports from statutory auditors under Kerala Co-operative Societies Act and Rules could be seen as a reasonable cause for delayed submission of audit reports, no penalty under section 271B was to be imposed on assessee. Deduction u/s 80P(2)(d) on account of interest received from District Co-operative Bank and Treasury allowed. ISSUES PRESENTED and CONSIDEREDThe appeals before the Tribunal primarily raised the following issues:1. Whether the CIT(A) was correct in confirming the denial of deduction under Section 80P of the Income Tax Act, 1961, due to the failure of the assessee to file a valid return of income.2. Whether the CIT(A) was justified in confirming the penalty levied under Section 271B of the Act for the delayed filing of audited financial statements.3. Whether the assessee is entitled to a deduction under Section 80P(2)(a)(i) of the Act concerning interest income received from Treasury and Scheduled Banks.ISSUE-WISE DETAILED ANALYSISIssue 1: Denial of Deduction under Section 80PRelevant legal framework and precedents: The core legal framework involves Section 80P of the Income Tax Act, which provides deductions for cooperative societies. The Tribunal relied on the precedent set by the Hon'ble Jurisdictional High Court in the case of Nileshwar Range Kallu Chethu Vyavasaya Thozihilali Sahararana Sangham, which emphasized the necessity of filing a valid return of income to claim deductions under Chapter VI-A, including Section 80P.Court's interpretation and reasoning: The Tribunal interpreted that the statutory scheme under the IT Act mandates that claims for deductions must be made in a return of income filed within the due dates specified under Sections 139(1), 139(4), 142(1), or 148. The amendment to Section 80AC further tightened this requirement post-1.4.2018.Key evidence and findings: The assessee failed to file the return of income within the stipulated time, thus rendering the return non-est and ineligible for claiming deductions.Application of law to facts: The Tribunal applied the statutory requirements and the precedent to the facts, concluding that the assessee's failure to file a valid return precluded it from claiming the deduction.Treatment of competing arguments: The Tribunal noted the arguments but found them unpersuasive against the binding precedent of the jurisdictional High Court.Conclusions: The Tribunal dismissed the appeal, upholding the denial of the deduction under Section 80P.Issue 2: Penalty under Section 271BRelevant legal framework and precedents: Section 271B of the Act imposes penalties for failure to furnish the audit report as required under Section 44AB. The Tribunal considered the precedent set by the Hon'ble Jurisdictional High Court in Chavakkad Service Co-op. Bank Ltd., which allowed for reasonable cause in delayed submissions.Court's interpretation and reasoning: The Tribunal recognized the delay in obtaining audit reports as a reasonable cause due to statutory auditor delays under the Kerala Co-operative Societies Act and Rules.Key evidence and findings: The assessee argued that the delay was due to a bona fide belief regarding statutory requirements, which was accepted as reasonable cause.Application of law to facts: The Tribunal applied the reasonable cause exception to the delayed submission of the audit report, following the jurisdictional High Court's precedent.Treatment of competing arguments: The Tribunal favored the assessee's explanation over the Revenue's insistence on penalty imposition.Conclusions: The Tribunal deleted the penalty imposed under Section 271B.Issue 3: Deduction on Interest IncomeRelevant legal framework and precedents: Section 80P(2)(a)(i) and Section 80P(2)(d) pertain to deductions on income attributable to cooperative societies. The Tribunal referred to the case of CIT vs. Sahyadri Co-operative Credit Society Ltd., which held that interest income from deposits does not lose its character as profits attributable to the society's business.Court's interpretation and reasoning: The Tribunal determined that interest income from deposits in banks or financial institutions remains part of the profits attributable to the society's business of providing credit facilities.Key evidence and findings: The Tribunal found that the interest income was derived from surplus profits deposited in a manner consistent with statutory requirements.Application of law to facts: The Tribunal applied the legal principles established in the precedent to the facts, recognizing the interest income as eligible for deduction under Section 80P(2)(d).Treatment of competing arguments: The Tribunal dismissed the Revenue's argument that the interest income should be excluded from the deduction, aligning with the jurisdictional High Court's interpretation.Conclusions: The Tribunal allowed the deduction for interest income under Section 80P(2)(d).SIGNIFICANT HOLDINGSCore principles established: The Tribunal reinforced the principle that statutory compliance with filing requirements is essential for claiming deductions under Section 80P. It also recognized the reasonable cause exception for delayed audit report submissions and affirmed the character of interest income from statutory deposits as attributable to the society's business.Final determinations on each issue: The Tribunal dismissed the appeal concerning the denial of Section 80P deductions due to non-compliance with filing requirements. It allowed the appeal regarding the penalty under Section 271B, recognizing reasonable cause for delay. It also allowed the deduction for interest income, affirming its character as business profits.