CPC Cannot Deny Section 80P Tax Deduction for Assessment Year 2019-20 Due to Procedural Limitations in Late Filing

Tribunal ruled that CPC lacks jurisdiction to disallow Section 80P deduction for AY 2019-20 due to late filing. The 2021 amendment empowering CPC to reject Chapter VI-A deductions is prospective, applying only from AY 2021-22. The Tribunal reversed lower authorities' orders, directing the AO to allow the claimed deduction, emphasizing that prior to the amendment, no mechanism existed to deny such deductions based on late return filing.

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1. ISSUES PRESENTED and CONSIDERED

The sole legal issue considered by the Tribunal is whether the Central Processing Centre (CPC) had jurisdiction to disallow the deduction claimed by the assessee under Section 80P of the Income-tax Act, 1961, on the ground that the return of income was not filed within the time prescribed under Section 139(1) of the Act for the Assessment Year (AY) 2019-20.

Specifically, the Tribunal examined:

• Whether the amendment to Section 143(1)(a)(v) of the Income-tax Act, introduced by the Finance Act, 2021, which empowers the CPC to disallow deductions under Chapter VI-A if returns are not filed within the due date under Section 139(1), applies retrospectively to AY 2019-20.
• Whether the CPC's disallowance of the Section 80P deduction in the instant case was valid and within jurisdiction, given the timing of the amendment.
• Whether the disallowance was an "incorrect claim apparent from any information in the return" within the meaning of Section 143(1)(a)(ii), thereby justifying the rejection of the deduction.

2. ISSUE-WISE DETAILED ANALYSIS

Issue: Jurisdiction of CPC to disallow deduction under Section 80P for AY 2019-20 when return was filed under Section 139(4) beyond due date under Section 139(1)

Relevant Legal Framework and Precedents:

Section 80P of the Income-tax Act provides deduction to Primary Agricultural Credit Societies and similar entities on income from cooperative activities. Section 139(1) mandates filing of income tax returns within a specified due date. Section 139(4) allows filing of belated returns after the due date.

Section 143(1)(a)(v), as amended by the Finance Act, 2021, w.e.f. 01.04.2021, empowers the CPC to disallow deductions under Chapter VI-A (which includes Section 80P) if the return is not filed within the due date under Section 139(1). Prior to this amendment, no such power was vested in the CPC or Assessing Officer to disallow such deductions solely on the ground of late filing.

The amendment is prospective and applies from AY 2021-22 onwards.

Coordinate Bench decisions in Shyamganj Pirijpur Samabay Vs. ACIT (ITA No. 1961/KOL/2024 for AY 2018-19) and Finolex Industries Ltd. Employees Co-op. Credit Society Ltd. Vs. ITO (ITA No. 76/PUN/2023) have held that the CPC cannot disallow Section 80P deductions for AYs prior to the amendment, even if the return is filed belatedly under Section 139(4). The CPC's jurisdiction to disallow such deductions arises only post amendment effective from AY 2021-22.

Court's Interpretation and Reasoning:

The Tribunal noted that the assessee filed the return under Section 139(4) declaring nil income and claiming deduction under Section 80P for AY 2019-20. The CPC rejected the deduction on the ground that the return was not filed within the due date under Section 139(1). The CIT(A) upheld this disallowance.

However, the Tribunal observed that the amendment empowering the CPC to disallow such deductions was effective only from AY 2021-22. Since AY 2019-20 predates this amendment, the CPC had no jurisdiction to deny the deduction under Section 80P on the basis of late filing.

The Tribunal relied on the coordinate Bench decisions which held that the disallowance of Section 80P deduction on the ground of late filing prior to the amendment is not permissible. The Tribunal further observed that invoking Section 143(1)(a)(ii) (which allows adjustment for an incorrect claim apparent from the return) was also not applicable, as the deduction under Section 80P is not covered under the definition of "incorrect claim" for this purpose.

Key Evidence and Findings:

The assessee's return was filed under Section 139(4) after the due date under Section 139(1) for AY 2019-20. The deduction under Section 80P was claimed and rejected by CPC through intimation under Section 143(1). The CIT(A) upheld the disallowance. The Tribunal found no statutory basis for such disallowance for AY 2019-20.

Application of Law to Facts:

The Tribunal applied the statutory timeline of the amendment and the coordinate Bench precedents to conclude that the CPC lacked jurisdiction to deny Section 80P deduction for AY 2019-20 on the ground of late filing. The amendment's prospective operation precludes retrospective disallowance.

Treatment of Competing Arguments:

The Revenue argued that the CPC was justified in disallowing the deduction as the return was not filed within the due date under Section 139(1). The Tribunal rejected this argument on the ground that the amendment empowering such disallowance was not applicable to AY 2019-20. The Tribunal also rejected any reliance on Section 143(1)(a)(ii) for disallowance, as the deduction under Section 80P does not constitute an "incorrect claim apparent from any information in the return."

Conclusions:

The Tribunal concluded that the disallowance of Section 80P deduction by the CPC for AY 2019-20 was without jurisdiction and therefore invalid. The deduction claimed by the assessee under Section 80P must be allowed.

3. SIGNIFICANT HOLDINGS

"The amendment brought by Finance Act, 2021, u/s 143(1)(a) is applicable from 01.04.2021, giving power to CPC for disallowing the claim of deduction u/s 80P of the Act if the return is not filed within the statutory time provided u/s 139(1) of the Act. Prior to the said amendment, there is no mechanism/ jurisdiction with AO/CPC to deny the deduction u/s 80P of the Act. The instant assessment year is A.Y. 2019-20, whereas the amendment is applicable from A.Y. 2022-23."

"Therefore, in the present Case of the assessee though admittedly return was filed beyond the time limit prescribed u/s 139(1) of the Act but still section 143(1)(a)(v) is not applicable to the assessee since the case of the assessee is for A.Y. 2019-20, which is before the amendment."

"Even if the revenue intends to invoke clause (ii) of section 143(1)(a) that would also not be permissible since in the definition of incorrect claim as provided in the provision, the deduction u/s 80P is not included anywhere and is therefore, outside the purview of the said provision."

"Following the decision of the Coordinate Bench of the Tribunal (supra), I hold that CPC was not justified in disallowing the deduction claimed by assessee u/s. 80P of the Act for A.Y. 2018-19 as the powers for doing so were brought into the Act from A.Y. 2021-22. I therefore reverse the impugned order of the lower authorities and direct the Assessing Officer to allow the deduction claimed by the assessee u/s. 80P of the Act."

Core principles established include:

• The amendment to Section 143(1)(a)(v) empowering CPC to disallow deductions under Chapter VI-A on late filing is prospective and applies only from AY 2021-22 onwards.
• For AYs prior to the amendment, CPC/Assessing Officer cannot disallow Section 80P deductions solely on the ground of late filing under Section 139(4).
• Disallowance under Section 143(1)(a)(ii) for incorrect claims apparent from the return does not extend to Section 80P deductions.

Final determination: The appeal is allowed, the disallowance of deduction under Section 80P for AY 2019-20 is set aside, and the Assessing Officer is directed to allow the deduction claimed by the assessee.

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