Section 80P Deduction Cannot Be Disallowed via CPC Intimation for Belated Return in AY 2019-20: ITAT Rajkot Ruling

Background and Overview

The Rajkot Bench of the Income Tax Appellate Tribunal delivered an important ruling concerning the powers of the Central Processing Centre (CPC) to deny deductions claimed by co-operative societies under Section 80P of the Income Tax Act, 1961, through a summary adjustment at the return-processing stage. The case arose in the context of Assessment Year 2019-20 and involved a co-operative society that had filed its return of income after the due date prescribed under Section 139(1).

The core question before the Tribunal was whether the CPC could legitimately disallow a Section 80P deduction amounting to Rs. 5,52,154/- through an adjustment under Section 143(1)(a) of the Income Tax Act, 1961, solely on the ground that the assessee's return was filed belatedly.

Facts of the Case: Medi Seva Sahakari Mandali Ltd. Vs ADIT (CPC) (ITAT Rajkot)

The assessee, Medi Seva Sahakari Mandali Ltd., is a co-operative society that filed its return of income for Assessment Year 2019-20 on 28 November 2020, declaring a total income of Rs. Nil after claiming a deduction of Rs. 5,52,154/- under Section 80P of the Income Tax Act, 1961.

The CPC, Bengaluru, while processing the return, issued an intimation under Section 143(1)(a) and made an adjustment to the returned income by disallowing the entire Section 80P deduction. The reason cited was straightforward — the return had not been furnished within the due date stipulated under Section 139(1) of the Act.

Aggrieved by this adjustment, the assessee filed an appeal before the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi. However, the CIT(A) upheld the action of the CPC.

The CIT(A) Order and Its Reasoning

The CIT(A) dismissed the assessee's appeal by observing the following:

  • Prior to the Finance Act, 2018, Section 80AC of the Income Tax Act, 1961 restricted deductions under specific sections such as Section 80-IA, Section 80-IAB, Section 80-IB, and Section 80-IC in cases where returns were not filed by the due date under Section 139(1).
  • Through the Finance Act, 2018, the scope of Section 80AC was broadened to cover all deductions falling under the heading "C.— Deductions in respect of certain incomes" in Chapter VI-A — which includes Section 80P.
  • As a result, the CIT(A) held that from AY 2018-19 onwards, the deduction under Section 80P would be available only if the return is filed on or before the prescribed due date.
  • Further, the CIT(A) reasoned that the adjustment under Section 143(1)(a)(ii) — which covers "an incorrect claim, if such incorrect claim is apparent from any information in the return" — was validly invoked because the fact of late filing was clearly discernible from the return itself.
  • The addition of Rs. 5,52,154/- was accordingly confirmed and Grounds 2 and 3 of the assessee's appeal were dismissed.

Assessee's Arguments Before the ITAT

Before the Tribunal, counsel for the assessee raised the following contentions: