Substantive Tax Benefits Cannot Be Denied Due to ITR Schedule Mismatches or CPC Jurisdictional Overreach: ITAT Mumbai

In a significant judicial pronouncement, the Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has comprehensively addressed the boundaries of computerized return processing and the sanctity of substantive statutory deductions. The consolidated order in the case of Poonam Chambers B Wing Commercial Premises Co-operative Society Ltd. Vs DCIT (Appeals ITA 7043/MUM/2026 and ITA 7044/MUM/2026, dated 08/10/2026) resolved two distinct controversies pertaining to the denial of deductions under Section 80P(2)(d) of the Income Tax Act 1961.

The Tribunal evaluated the denial of the assessee's claims for Assessment Year (AY) 2019-20 and AY 2021-22. For the former, the deduction was rejected on the premise of belated return filing, while for the latter, the claim was reduced to Nil due to a system-generated validation error triggered by an incorrect column entry in the Income Tax Return (ITR). By overturning the disallowances in both years, the ITAT has reinforced the principle that procedural lapses and automated processing algorithms cannot extinguish an assessee's legitimate statutory entitlements.

Jurisdictional Limits of CPC Processing for AY 2019-20

The first appeal pertained to AY 2019-20, where the assessee, a commercial premises co-operative society, sought a deduction of ₹91,26,052 under Section 80P(2)(d). This amount was derived from interest income, specifically comprising fixed deposit interest of ₹89,38,431 and savings bank interest of ₹1,87,621 earned from co-operative banks.

The assessee filed its return of income on 20 September 2019, which was beyond the extended statutory due date of 31 August 2019 prescribed under Section 139(1). Consequently, the Centralized Processing Centre (CPC) rejected the deduction claim during the summary processing phase. This denial was subsequently upheld in rectification proceedings and by the Commissioner of Income Tax (Appeals) [CIT(A)], who invoked the provisions of Section 80AC of the Income Tax Act 1961. The CIT(A) concluded that compliance with the filing deadlines under Section 80AC was mandatory for claiming the deduction and suggested the assessee seek condonation of delay under Section 119(2)(b).

The Scope of Section 143(1)(a)(v) Prior to Finance Act 2021

Before the Tribunal, the assessee raised a fundamental jurisdictional challenge. The core argument was not merely about the applicability of Section 80AC, but rather whether the CPC possessed the statutory authority to make such an adjustment under Section 143(1)(a)(v) for the specific assessment year in question.

The ITAT analyzed the legislative history and the precise wording of the statute applicable to AY 2019-20. The Tribunal noted that prior to the amendments introduced by the Finance Act 2021, the scope of adjustments permitted under Section 143(1)(a)(v) for belated returns was strictly confined to specific sections.