2025 (4) TMI 1432 - AT - Income Tax

Cooperative Society's Tax Deduction Claim Upheld: Invalid Return Triggers Full Section 144 Assessment Procedure

Mysore District Judicial Employee Credit Co-operative Society Limited Versus The Income Tax Officer, Ward – 1 (1), Mysore.

The Tribunal addressed the validity of a cooperative society's tax deduction claim under section 80P(2)(a)(i) when an updated return was filed under ... Disallowance of claim of deduction u/s 80P - return was not filed u/s 139(1) - intimation u/s 143(1) - HELD THAT:- Intimation issued under section 143(1) of the Act is without jurisdiction, as it was based on a return that was already held invalid by CPC itself. A foundational requirement for processing a return u/s 143(1) of the Act is that such return must be a valid return as per the Act. Once the updated return filed under section 139(8A) of the Act was declared invalid by CPC for non-compliance with procedural requirements, it ceased to exist for legal purposes, and therefore could not form the basis for any further intimation or adjustment under section 143(1) of the Act. Where no valid return exists, any disallowance of claims must be undertaken through regular assessment proceedings under section 144, not through summary processing under section 143(1) of the Act. Accordingly, the impugned intimation dated 29th December 2023 issued by CPC is held to be bad in law and void ab initio. The disallowance made therein is therefore liable to be set aside.Appeal of the assessee is hereby allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal are:- Whether the claim of deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961, amounting to Rs. 35,86,483/-, can be disallowed on the ground that the return of income was not filed under section 139(1) but instead an updated return under section 139(8A) was filed after the due date and belated return period had lapsed.- Whether an intimation issued under section 143(1) of the Act can be validly passed based on an updated return filed under section 139(8A) that was held invalid by the Centralized Processing Centre (CPC) for non-compliance with section 140B and non-filing of Part B-ATI.- The jurisdictional question whether disallowance of deduction claims can be made by summary processing under section 143(1) when no valid return exists, or whether such disallowance must be made through regular assessment proceedings under section 144.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of claim of deduction under section 80P(2)(a)(i) when return is filed under section 139(8A) after due date and belated return period has lapsedRelevant legal framework and precedents: Section 80P(2)(a)(i) provides deduction to cooperative societies engaged in the business of providing credit facilities to members. Section 139(1) mandates filing of return of income within prescribed due dates. Section 139(4) permits filing of belated return within a specified extended period. Section 139(8A) allows filing of updated return after the expiry of the time limit for belated return, subject to conditions including payment of tax under section 140B and filing of Part B-ATI.Court's interpretation and reasoning: The Tribunal noted that the assessee, a cooperative society, did not file return under section 139(1) within due date nor filed belated return under section 139(4) within the extended period. Instead, an updated return was filed under section 139(8A) on 26th September 2022 claiming deduction under section 80P(2)(a)(i). However, CPC held this return invalid due to non-payment of tax under section 140B and non-filing of Part B-ATI.Key evidence and findings: The updated return was declared invalid by CPC vide intimation dated 28th March 2023. Subsequently, CPC disallowed the deduction under section 80P(2)(a)(i) by intimation under section 143(1) dated 29th December 2023.Application of law to facts: The Tribunal emphasized that a valid return is a prerequisite for claiming deductions. Since the updated return was held invalid, the claim of deduction under section 80P could not be considered on the basis of that invalid return.Treatment of competing arguments: The assessee argued that once the return was held invalid, it cannot be used against them for disallowance under section 143(1). The Revenue contended that requisite tax was paid as per Part B-ATI and hence deduction claim could be disallowed in summary processing.Conclusions: The Tribunal agreed with the assessee that the invalidity of the return negated the basis for disallowance under section 143(1).Issue 2: Jurisdiction to disallow deduction under section 80P by intimation under section 143(1) when return is invalidRelevant legal framework and precedents: Section 143(1) permits summary assessment based on the return filed, but only if the return is valid. Section 144 provides for regular assessment where no valid return exists or where summary assessment is not possible.Court's interpretation and reasoning: The Tribunal held that since the updated return under section 139(8A) was declared invalid, it ceased to exist for legal purposes. Therefore, the intimation passed under section 143(1) based on that invalid return was without jurisdiction and void ab initio.Key evidence and findings: The CPC's own intimation declared the return invalid, yet proceeded to disallow deduction under section 143(1). The Tribunal found this procedure impermissible.Application of law to facts: The Tribunal reasoned that disallowance of claims in absence of a valid return cannot be done by summary processing under section 143(1) but must be done through regular assessment proceedings under section 144.Treatment of competing arguments: The Revenue's reliance on summary processing was rejected as inconsistent with statutory provisions and principles of natural justice.Conclusions: The intimation under section 143(1) disallowing deduction was held to be without jurisdiction and void ab initio.3. SIGNIFICANT HOLDINGS- 'A foundational requirement for processing a return under section 143(1) of the Act is that such return must be a valid return as per the Act. Once the updated return filed under section 139(8A) of the Act was declared invalid by CPC for non-compliance with procedural requirements, it ceased to exist for legal purposes, and therefore could not form the basis for any further intimation or adjustment under section 143(1) of the Act.'- 'Where no valid return exists, any disallowance of claims must be undertaken through regular assessment proceedings under section 144, not through summary processing under section 143(1) of the Act.'- The Tribunal reversed the orders of the CPC and the learned CIT(A) and allowed the assessee's appeal, holding that the disallowance of deduction under section 80P(2)(a)(i) based on an invalid updated return was not sustainable.