ITAT Chennai Remands Section 80P(2)(a)(i) Deduction Matter After Assessee's Failure to Submit Evidence Due to Lack of Professional Assistance

Case Reference

Madurai Electricity System PSCS Vs ITO (ITAT Chennai)
Assessment Year: 2022–23
Order Date: 08th April, 2026

Background and Facts of the Case

The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) recently adjudicated a matter involving denial of deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961, where the core issue was not the merits of the claim itself but rather the assessee's inability to produce supporting documentation before the lower authorities.

The assessee, Madurai Electricity System PSCS, is a cooperative credit society duly registered under the Tamil Nadu Cooperatives Societies Act, 1983. The primary business operations of the society revolve around providing credit facilities to its members and mobilizing deposits from those very members — activities that fall squarely within the ambit of cooperative credit operations eligible for deduction under the Income Tax Act, 1961.

For Assessment Year 2022–23, the assessee filed its return of income on 05.11.2022, declaring a total income of Rs. Nil after claiming a deduction of Rs. 2,03,66,049/- under Section 80P(2)(a)(i) of the Act. The case was subsequently picked up for scrutiny, and statutory notices were issued and duly served upon the assessee.

Proceedings Before the Assessing Officer

Despite receiving statutory notices, the assessee failed to appear before the Assessing Officer (AO) or submit any documentary evidence to support its deduction claim. As a consequence, the AO proceeded to disallow the entire deduction of Rs. 2,03,66,049/- claimed under Section 80P(2)(a)(i) of the Act.

The AO's reasoning was straightforward — in the absence of any supporting documents establishing that the interest income was indeed derived from providing credit facilities to members, there was no basis to allow the deduction. The AO did not go into an examination of the merits of the claim and based the disallowance entirely on the non-furnishing of evidence.

First Appellate Stage: Commissioner of Income Tax (Appeals)

Aggrieved by the AO's order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals) / National Faceless Appeal Centre (NFAC), Delhi. The CIT(A) passed its order under Section 250 of the Income Tax Act, 1961 on 25.08.2025.

However, the CIT(A) also confirmed the disallowance without going into the substantive merits of the deduction claim. The appellate authority upheld the AO's decision on the identical ground — that the assessee had not placed any supporting evidence on record to justify its claim for deduction under Section 80P(2)(a)(i) of the Act.