Section 80P deduction cannot be disallowed for delayed filing before Finance Act 2021 amendment

ITAT PUNE allowed the assessee's appeal against disallowance of deduction under section 80P for delayed return filing. The tribunal held that prior to 01.04.2021, CPC lacked specific provisions under section 143(1)(a) to make prima facie adjustments disallowing section 80P deductions. The legislature introduced such disallowance provisions in section 143(1)(a)(v) through Finance Act 2021 with prospective effect from 01.04.2021. Following precedents in NRB Bearings Sevakachi Patsanstha and Finolex Industries cases, ITAT ruled that CPC cannot disallow section 80P deductions in returns processed under section 143(1)(a) before the amendment. The CIT(A)'s order affirming CPC's action was set aside and the disallowance was deleted.

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ISSUES:

Whether delay in filing the appeal can be condoned on the ground of reasonable cause supported by medical evidence.Whether deduction under section 80P of the Income-Tax Act, 1961 can be disallowed by the CPC on account of delay in filing the income tax return for the relevant assessment year.Whether the disallowance of deduction under section 80P can be treated as an "incorrect claim" under section 143(1)(a)(ii) read with section 80AC(ii) of the Act in returns processed prior to 01.04.2021.Whether the amendment introduced by the Finance Act, 2021 with effect from 01.04.2021 empowers CPC to make prime facie adjustments disallowing deductions under Chapter VIA, including section 80P, for delayed filing of returns.

RULINGS / HOLDINGS:

The delay of 182 days in filing the appeal was condoned as there was a "reasonable cause" supported by medical treatment evidence, applying the principle that a "more liberal approach may be adopted for the examination of the case on its merits" where delay is unintentional and well explained.The disallowance of deduction under section 80P by the CPC on the ground of delayed filing of the return for AY 2018-19 is not sustainable, as prior to 01.04.2021, CPC did not have the power to make prime facie adjustments disallowing such deductions under section 143(1)(a) of the Act.The CIT(A) erred in confirming the disallowance by treating the claim as "incorrect claim" under section 143(1)(a)(ii) read with section 80AC(ii), since the legislative amendment empowering such disallowance came into effect only from 01.04.2021.The amendment introduced by the Finance Act, 2021 w.e.f. 01.04.2021, which added section 143(1)(a)(v), empowers CPC to disallow deduction claims under Chapter VIA in returns filed after the due date, but this provision cannot be applied retrospectively to returns processed before that date.

RATIONALE:

The court applied the principle of condonation of delay based on "reasonable cause" supported by affidavit and medical evidence, referencing the Apex Court's ruling that delay which is "unintentional and less due to deliberate laches" may be condoned to examine the merits.The legal framework under section 80P requires the return to be filed within the due date prescribed under section 139(1) to claim deduction; however, the power of CPC to make prime facie disallowance of such deduction claims under section 143(1)(a) was introduced only by the Finance Act, 2021 effective 01.04.2021.Prior to this amendment, returns processed under section 143(1)(a) could not be adjusted for delayed filing-related disallowance of deductions under section 80P, as held consistently by this Tribunal in earlier decisions.The Tribunal followed precedent decisions which held that the amendment has prospective effect and cannot be applied retrospectively, thereby setting aside the disallowance confirmed by the CIT(A).

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