Aroor Co-op Urban Society Ltd, Kozhikkode V. ITO, Kozhikkode

ITA 188/COCH/2021

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 2390 (ITAT-COCHIN)
• Duration Of Justice: 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Assessment Year: 2016-2017
• Appeal Filed On: 26-10-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Bad and doubtful debts
• Section: 142(1); 143(1); 80P; 139(1); 139(4)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN Before ShriGeorge George K., Judicial Memberand ShriLaxmi Prasad Sahu, Accountant Member ITA No.188/Coch/2021 (Assessment Year: 2016-17) Aroor Co-Operative Urbn Society Aroor P.O., Kakkattil 673507 Vs. DCIT, Central Prossing Centre Bangalore PAN –AADAA8506H Appellant Respondent Appellant by: Shri V.S. Narayanan, CA Respondent by: Smt. J.M. Jamuna Devi, Sr. D.R. Date of Hearing: 27.06.2022 Date of Pronouncement: 28.07.2022 O R D E R Per: L.P. Sahu, A.M. This is an appeal filed by the assessee against the order of the learned CIT(A), NFAC, DELHI dated 11.10.2021 for AY 2016-17 on the following grounds of appeal: - “1. The order of the learned Commissioner of Income Tax (Appeals) National Faceless Appeal Center dated 11-10- 2021for the assessment year2016-17 dismissing the appeal is against the law and contrary to the facts and circumstances of the case. 2. The amended Sec 80AC from 2018-19 is not applicable for AY 2016-17, the assessment year of your appellant. 3. The learned Commissioner of Income Tax (Appeals) NFAC went wrong in his view that Sec 80AC is applicable to Sec 80P. 4. Earlier year provisions and reserves reversed in the profit and loss account is to be excluded from the income computation ITA No. 188/Coch/2021 Aroor Co-Operative Urbn Society 2 since reserves and provisions created during the year is added back to the profit as per profit and loss account determining the total income in the return submitted. 5. Without prejudice to the above it is submitted that the deduction under Section 80P is on the gross total income and deduction is to be enhanced to the addition made to the income. 6. For the above and other grounds that may be submitted at the time of hearing it is prayed to the Honorable Tribunal to allow the appeal.” 2. The brief facts of the case are that the assessee filed the return of income on 14.02.2017 whereas the due date for filing of the return was 17.10.2016, declaring Nil income. The CPC processed the return under Section 143(1)(a) of the Income Tax Act, 1961 (hereinafter "the Act") assessing the total income at Rs.11,36,060/-. The order has been received by the assessee on 13.04.2018 by e-mail. The assessee challenged the order of the AO before the learned CIT(A) stating that such type of addition cannot be made under Section 143(1)(a) of the Act. The CIT(A) decided the appeal against the assessee. The findings of the CIT(A) are as under: - “a) Appellant is Cooperative Society registered under Kerala State Cooperative Societies Act. Return was filed on 14.02.2017 showing Total Income at NIL as against the due date for filing of return being 17.10.2016. Appellant had claimed deduction u/s 80P of Rs.4,21,117/-. b) While calculating the Total income under business and profession, the Appellant had claimed 'Exempt Income' of Rs.11,36,060/-. In the note to computation of Income the Appellant explained this 'Exempt Income' as "These adjustments are necessitated due to accounting and auditing system followed by the Cooperative Department". These 'Exempt Income' include Reserve to remove bad and doubtful debts - Rs.95,588/- and Reserve for Interest arrears - Rs.10,40,476/-. c) Intimation/order u/s 143(1) was passed on 16.03.2018 assessing Total Income at Rs.11,36,060/-. The deduction claimed u/s 80P of Rs.4,21,117/- was allowed. The 'Exempt Income' claimed of Rs.11,36,060/- was disallowed and adjustment/addition was made in the order intimation u/s 143( 1) of the Act. ITA No. 188/Coch/2021 Aroor Co-Operative Urbn Society 3 d) The submissions of the Appellant on this issue in brief are as under:-  Income from business is only Rs.4,21, 117/-.  Provisions made in earlier years is reversed in P&L account and taken credit. Provisions made. during the year is debited in P&L account. This is the way in which Cooperative Societies in Kerala finalise their accounts. Provisions and reserves made during the year are added to Profit and Provisions and reserves of earlier year credited to P&L account is deducted. Thus, Provisions and reserves made during the year of Rs.13,53,853/- are added back and Provisions and reserves of earlier year of Rs 11,36,164/- is deducted .  Thus, the addition /adjustment of Rs.11,36,164/- mad by the AO is not correct and deserves to be deleted. e) The Appellant has claimed Exempt Income of Rs.11,36,064/- in computation of Income. This by no stretch of imagination is 'Exempt Income' as it consists of Reserve to remove bad and doubtful debts - Rs.95,588/- and Reserve for Interest arrears - Rs.10,40,476/-. The Appellant's contention stated that this is the way followed by the Cooperative Societies of that area is not sustainable and the action of AO is upheld. f) The Appellant itself in its written submissions have stated that business income for AY under consideration is Rs.4,21,117/- for which claim u/s 80P has been made and this claim was allowed by the AO. Deduction u/s 80P can only be allowed to the extent of business income only and cannot be allowed on Reserve to remove bad and doubtful debts and Reserve for interest arrears. Even otherwise" Section 80AC has been amended from AY. 2018-19 and deduction u/s 80P can be allowed only if the ITR is filed within the due date. g) In view of the above facts, the action of AO in making addition/adjustment of Rs.11,36,060/- is upheld. Grounds of Appeal Nos. 1 to 3 are dismissed. h) Ground of Appeal No.4 is routine and general in nature and does not require any separate adjudication. 9. As a result, appeal is dismissed.” Against the above order the assessee is in appeal before the Tribunal. 3. The learned A.R. reiterated the submissions made before the lower authorities and he also submitted that the assessee can make claim of deduction under Chapter VIA of the Act even after filing the return belatedly as decided by the Hon'ble jurisdictional High Court in the case of ITA No. 188/Coch/2021 Aroor Co-Operative Urbn Society 4 Chirackal Service Co-Operative Bank Ltd. vs. CIT reported in (2016) 68 taxmann.com 298). He has submitted a copy of the P&L account in Annexure-2 which reads as follows: - S.No. Loss Rs. S.No. Profit Rs. 1 Total loss as per trading account 1 Total profit as per trading account 2 Interest outstanding 7359077 2 Interest receivable 5978097 3 Establishment expenses 1304782 3 4 Contingency expenses 1231087 4 Miscellaneous 4242442 5 Reserve for current years’ interest arrears 697468 5 Reserve for previous years’ interest arrears 1040476 6 Reserve for bad and doubtful debts 162673 6 Reserve for bad and doubtful assets 95588 7 Depreciation 235285 8 Reserve for deposit list difference 200 9 Provision for leave salary 44108 10 Reserve for furniture list difference 574 11 Provision for gratuity 213545 Total 11243799 Total 11356603 Profit of current year 107804 Loss for current year - Grand total 11356603 Grand total 11356603 Net profit 107804 Profit of current year 107804 Total 107804 Total 107804 He further submitted that there is no corresponding amendment in section 143(1)(a). Hence the claim for deduction under section 80P cannot be denied under 143(1)(a) proceedings. There is nothing in the law that would justify an adjustment on account of claim under section 80P u/s 143(1)(a). He has also submitted a written submission which reads as under: - ITA No. 188/Coch/2021 Aroor Co-Operative Urbn Society 5 “The learned Commissioner of Income Tax (Appeals) National Faceless Appeal center has dismissed the Appeal against the intimation u/s 143(1) for the assessment year 2016-17. The addition of Rs.11,36,164 is against law and contrary to the facts of the case. The addition cannot be made in 143(1) intimation. Under sub clause (v) to section 143 1(a) of the Act, the A.O may made disallowance of deduction claimed under section 143(1)(a)of the Act, the A.O may make disallowance of deduction claimed under section 10AA; 80-IA,80-IAB,80IB,80-IC,80ID &80IE if return is filed beyond the due date prescribed by section 139(1). Disallowance of deduction claimed u/s 80P of the Act is not included in the said sub clause. The amended section 80AC also shows that if the appellant fails to file return on time for the previous year relating to 2018-19, then no deduction is admissible under any provisions of chapter VIA. However there is no corresponding amendment in section 143(1)(a). Hence the claim for deduction under section 80P cannot be denied under 143(1)(a) `proceedings. There is nothing in the law that would justify an adjustment on account of claim under section 80P u/s 143(1)(a). The Reserves and provisions created earlier year which was disallowed in the computation of total income in that year reversed and credited to Profit and loss account during the year deducted in the statement of computation during the year should not be added to the total income. It may please be noted that during the year Rs.13,53,853 reserves and provisions created are added back to the profit as per profit and loss account (Please refer schedule 2 statement of computation) in determining the total income. (Copy of the statement of computation attached-Annexure 1 ).This method of accounting is followed in determining the total income every year. The learned assessing authority has considered only the deduction made for reversing the earlier years reserves and provisions and ignored the addition made for determining the total income in the statement of computation of total income.( Copy of the Profit and loss account of Cooperative societies Audit report attached- Annexure 2). In computing the total income Rs. 11,36,064 ( Please refer schedule 3 in statement of computation) is deducted and Rs.13,53,853 is added to the profit as per profit and loss account. The addition of Rs.11,36,064 is not correct and is to be deleted. Without prejudice to the above it is submitted that in the intimation serialnumber 2 is the head of Income from business or profession ( Copy of the Intimation u/s 143(1) attached-Annexure -3). It can be seen that the addition of Rs.11,36,064 is made under the head Income from business or profession. Your appellant has income from banking and financial services to its members. Your appellant is entitled for deduction u/s 80P on the additions made. Please refer to the judgment of the Honorable ITAT "G" Bench Mumbai in the case Income Tax Officer -27(3)(5) Vs M/s Yashomandir ITA No. 188/Coch/2021 Aroor Co-Operative Urbn Society 6 Sahakari Patpedhi limited ITA No3939/Mum/2017. Copy attached-Annexure 4 and Honorable ITAT Amritsar Bench in the case Jammu Rural Bank Vs ITO ITA No 192/ Asr/2004 Copy attached - Annexure 5. Considering the above it is prayed to the Hon’ble Tribunal to allow the appeal deleting the addition made and granting deduction u/s 80P.” 4. On the other hand, the learned D.R. relied on the orders of the lower authorities. Further she submitted that as per Section 80AC of the Act the assessee has filed his return of income belatedly. The adjustment/ disallowance can also be made as per Section 143(1)(a) of the Act. Therefore, he is not entitled for deduction under Section 80P of the Act. Further she submitted that the profit computed by the assessee is Rs.1,07,804/- only as per the Profit & Loss Account which is the profit from the business and profession of the assessee whereas the assessee has claimed deduction under Section 80P of the Act of Rs.11,36,064/- which are also required to be verified. 5. After hearing both the parties and perusing the material on record, firstly we have to decide as to whether the adjustment/disallowance can be made under Section 143(1)(a) or not. We observe that the assessee has filed the return of income belatedly after the due date for filing of return of income and claimed deduction on the entire income earned during the year as per Chapter VIA of the Act. He filed his return of income on 14.02.2017 whereas the due date was 17.10.2016. The return of income filed by the assessee was processed by the Central Processing Center on 16.03.2018 by raising demand of Rs.4,61,720/- by disallowing the claim of deduction under Chapter VIA of Rs.11,36,060/-. We also observe that Section 80AC of the Act has been amended by Finance Act 2018 w.e.f. 01.04.2018 and issue before us is related to AY 2016-17. Considering to the submission of the learned D.R. we observe that similar issue has been decided by the Hon’ble High Court of Madras in the case of AA520 Veerappampalayam Primary Agricultural Cooperative Credit Society Ltd. Vs. Deputy Commissioner of Income-tax reported in (2022) 138 taxmann.co m 571 ITA No. 188/Coch/2021 Aroor Co-Operative Urbn Society 7 (Madras). In this case the assessee filed his return of income belatedly and return was processed under Section 143(1)(a) of the Act by observing that “in schedule Chapter VI-A, under Part-C deduction in respect of certain incomes, in Sl.No. 2.1 deduction is claimed under Section 80P however return is not filed within due date”. Against this observation the assessee filed writ petition before the Hon’ble Madras High Court and the writ petition has been dismissed by observing as under: - “7. The scope of an 'intimation' under section 143(1)(a) of the Act, extends to the making of adjustments based upon errors apparent from the return of income and patent from the record, Thus to say that the scope of 'incorrect claim' should be circumscribed and restricted by the Explanation which employs the term 'entry' would, in my view, not be correct and the provision must be given full and unfettered play. The explanation cannot curtail or restrict the main thrust or scope of the provision and due weightage as well as meaning has to be attributed to the purposes of section 143(1)(a) of the Act. Respectfully following the order cited above we reject the contention raised by the assessee that the disallowance cannot be made under Section 143(1)(a) of the Act. 6. We further observe that Section 80AC(ii) has been amended by the Finance Act, 2018, w.e.f. 01.04.2018. The case before us is related to AY 2016-17. Accordingly the amendment will not apply in this case for the impugned assessment year. A similar issue has been decided by the Hon’ble Jurisdictional High Court in the case of Chirackkal Service Cooperative Bank Ltd. Vs. CIT (2016) 384 ITR 490 (Ker) wherein it has been held as under: - “3. ITA.No.212 of 2013 was admitted on 21.11.2013 and the following substantial questions of law were formulated at the time of admission for consideration: (A) Whether on the facts and in the circumstances of the case under consideration, the Tribunal is correct in law in deciding against the assessee, the issue regarding entitlement for exemption under section 80P, ignoring the fact that the assessee is a primary agricultural credit society? ITA No. 188/Coch/2021 Aroor Co-Operative Urbn Society 8 (B) Whether the Tribunal is justified in denying the exemption under section 80P of the Income Tax Act, 1961, on the mere ground of belated filing of return by the assessee? (C) Whether a return filed by the assessee beyond the period stipulated under section 139(1)/(4) or section 142(1)/148 can be held as non est in law and invalid for the purpose of deciding exemption under section 80P of the Income Tax Act, 1961? (D) Whether the Tribunal is correct in law or is justified in restricting the provisions for bad and doubtful debt at the 7.5% of the gross total income, on the reason that the assessee is not entitled for the status of rural branch to claim 10% of the aggregate average advances as bad and doubtful debt, under section 36(1)(viia) of the Income Tax Act, 1961? ................... .................. 19. Section 80A(5) provides that where the assessee fails to make a claim in his return of income for any deduction, inter alia, under any provision of Chapter VIA under the heading "C.-Deductions in respect of certain incomes", no deduction shall be allowed to him thereunder. Therefore, in cases where no returns have been filed for a particular assessment year, no deductions shall be allowed. This embargo in section 80A(5) would apply, though section 80P is not included in section 80AC. This is so because, the inhibition against allowing deduction is worded in quite similar terms in sections 80A(5) and 80AC, of which section 80A(5) is a provision inserted through the Finance Act 33/2009 with effect from 1.4.2013 after the insertion of section 80AC as per the Finance Act of 2006 with effect from 1.4.2006. This clearly evidences the legislative intendment that the inhibition contained in sub-section 5 of section 80A would operate by itself. In cases where returns have been filed, the question of exemptions or deductions referable to section 80P would definitely have to be considered and granted if eligible. 20. Here, questions would arise as to whether belated returns filed beyond the period stipulated under section 139(1) or section 139(4) as well as following sections 142(1) and 148 proceedings could be considered for exemption. If those returns are eligible to be accepted in terms of law, going by the provisions of the statute and the governing binding precedents, it goes without saying that the claim for exemption will also stand effectuated as a claim duly made as part of the returns so filed, for due consideration. 21. When a notice under section 142(1) is issued, the person may furnish the return and while doing so, could also make claim for deduction referable to section 80P. Not much different is the ITA No. 188/Coch/2021 Aroor Co-Operative Urbn Society 9 situation when pre-assessment enquiry is carried forward by issuance of notice under section 142 (1) or when notice is issued on the premise of escaped assessment referable to section 148 of the IT Act. This position notwithstanding, when an assessment is subjected to first appeal or further appeals under the IT Act or all questions germane for concluding the assessment would be relevant and claims which may result in modification of the returns already filed could also be entertained, particularly when it relates to claims for exemptions. This is so because the finality of assessment would not be achieved in all such cases, until the termination of all such appellate remedies. Under such circumstances, the Tribunal was not justified in denying exemption under section 80P of the IT Act on the mere ground of belated filing of return by the assessee concerned. A return filed by the assessee beyond the period stipulated under section 139(1) or 139(4) or under section 142(1) or section 148 can also be accepted and acted upon provided further proceedings in relation to such assessments are pending in the statutory hierarchy of adjudication in terms of the provisions of the IT Act. In all such situations, it cannot be treated that a return filed at any stage of such proceedings could be treated as non est in law and invalid for the purpose of deciding exemption under section 80P of the IT Act. We thus answer substantial questions of law B and C formulated and enumerated above. 7. The issue before us is similar to the issue decided by the jurisdictional High Court. Therefore the assessee is eligible to claim deduction under Section 80P of the Act even if he has filed the return of income belatedly. Respectfully following the above judgement we hold that the assessee is eligible for deduction under Section 80P of the Act. 8. Further on perusal of the orders of the lower authorities we observe that the lower authority has disallowed the provisions made by the assessee. During the course of arguments the learned A.R. drew our attention on the financial statements and computation of income filed by the assessee. On perusal of the computation of income the assessee has itself disallowed to the extent of Rs. 13,53,853/- and the details has been given on the bottom side of computation of income which is as under: - Reserve for current years’ interest arrears 697468 Reserve for bad and doubtful debts 162673 Depreciation 235285 Reserve for deposit list difference 200 Provision for leave salary 44108 ITA No. 188/Coch/2021 Aroor Co-Operative Urbn Society 10 Reserve for furniture list difference 574 Provision for gratuity 213545 Total 13,53,853 Similarly the reserve for previous years’ interest of Rs.140476/- and reserve for bad a doubtful debt of Rs.95,588/- which does not for the current year’s income has also been reduced. The details are also given in the computation of income. Finally the assessee has computed income from business at Rs. 4,21,117/- to which the assessee has claimed deduction under Section 80P(2)(a) of the Act. We do not find any infirmity on the computation of income as computed by the assessee under the head ‘business income’. Since the assessee is eligible for deduction under Section 80P of the Act following the judgement of the Hon’ble High of Kerala (supra), accordingly we allow the deduction claimed under Section 80P of the Act. Ground is allowed. 9. In the result, the appeal filed by the assessee is partly allowed. Dictated and pronounced in the open Court on 29 th July, 2022. Sd/- Sd/- (George George K.) (Laxmi Prasad Sahu) Judicial Member Accountant Member Cochin, Dated: 28 th June, 2022 Copy to: 1. The Appellant 2. The Respondent 3. The CIT(A) -NFAC, DELHI 4. The CIT- 5. The DR, ITAT, Cochin 6. Guard File By Order //True Copy// Assistant Registrar, ITAT, Cochin n.p.