The Income Tax Appellate Tribunal (ITAT), Ahmedabad, has clarified that co-operative societies may still claim deductions under Section 80P of the Income Tax Act, 1961, even if they fail to file income tax returns. The Tribunal remanded the case for fresh assessment, emphasizing that eligibility for deduction should not be denied solely on procedural grounds like non-filing of returns.
Background & Facts
The Dispute
The appellant, The Vasudha Credit & Supply Co-operative Society Ltd., a co-operative society engaged in providing credit facilities to its members, was subjected to an income tax assessment for the Assessment Year 2017-18. The Assessing Officer (AO) made an addition of Rs. 25,56,407 to the assessee’s income on the ground that the society had not filed its return of income under Section 139 of the Income Tax Act. The assessee contended that the profit of Rs. 25,56,407, derived from interest received from its members, was eligible for deduction under Section 80P(2)(a)(i) of the Act.
Key Facts
- The assessee is a co-operative society registered under the Co-operative Societies Act, providing cash credit facilities to its members.
- Total deposits during the relevant period: Rs. 4,08,86,323 (via cash, cheque, and transfers).
- The assessee did not file its return of income for Assessment Year 2017-18 despite earning a net profit of Rs. 25,56,407.
- Notice under Section 142(1) was issued on 12.03.2018, but the assessee initially failed to comply. It responded only on 24.09.2019.
- The AO treated the profit as taxable income and made an addition of Rs. 25,56,407.
- The assessee claimed that the profit was exempt under Section 80P(2)(a)(i), which provides deductions for income derived by co-operative societies from providing credit facilities to members.
Procedural History
- 12.03.2018: Notice under Section 142(1) issued by the AO.
- 24.09.2019: Assessee responded to the notice, furnishing details and claiming exemption under Section 80P.
- Assessment Order: AO made an addition of Rs. 25,56,407, denying the exemption due to non-filing of return.
- Appeal before CIT(A): The Commissioner of Income Tax (Appeals) dismissed the appeal, upholding the AO’s order.
- 29.01.2026: Appeal filed before ITAT Ahmedabad (ITA No. 2474/Ahd/2025).
- 13.04.2026: ITAT pronounced its order, remanding the case for fresh assessment.
Relief Sought
The assessee sought:
- Exemption of Rs. 25,56,407 under Section 80P(2)(a)(i) of the Income Tax Act.
- Quashing of the AO’s order and the CIT(A)’s dismissal.
- A direction to the AO to re-examine the eligibility for deduction under Section 80P.
The Legal Issue
The central question was whether a co-operative society is entitled to claim deduction under Section 80P of the Income Tax Act even if it has not filed its return of income under Section 139 of the Act.
Arguments Presented
For the Appellant
- The assessee relied on the decision in M/s. Parthamika Krishi Pattina Sahakara Sangha Ltd. vs. ITO (ITA No. 614/Bang/2021), where the ITAT Bangalore held that Section 80A(5) (which denies deductions if returns are not filed) does not apply to Section 80P.
- The assessee argued that the mere non-filing of a return cannot disentitle it from claiming the deduction, as Section 80P is a substantive provision granting exemption to co-operative societies.
- The assessee contended that the AO and CIT(A) erred in not examining the substantive eligibility for deduction under Section 80P and instead focused solely on the procedural lapse of non-filing.
For the Respondent
- The Department relied on the assessment order and the CIT(A)’s order, arguing that the assessee’s failure to file a return disentitled it from claiming any deduction under Chapter VI-A of the Act, including Section 80P.
- The Department contended that Section 80AC, which mandates the filing of returns for certain deductions, should be interpreted broadly to include Section 80P.
The Court's Analysis
The ITAT Ahmedabad examined the legal framework governing deductions under Section 80P and the procedural requirements under Section 139 of the Income Tax Act. The Tribunal noted that Section 80P(2)(a)(i) provides a specific exemption for income derived by co-operative societies from providing credit facilities to their members. The key issue was whether this exemption could be denied solely on the ground that the assessee had not filed its return of income.
The Tribunal relied heavily on the decision in M/s. Parthamika Krishi Pattina Sahakara Sangha Ltd. vs. ITO, where the ITAT Bangalore had held:
"Section 80A(5) of the Act is applicable only when a return of income is filed by an assessee and a deduction under Chapter VI-A of the Act is not claimed in such return of income. It will not apply to a case where no return of income is filed. The provisions of Section 80AC of the Act, as we have already seen, contemplates denial of deduction in respect of certain provisions of Chapter VI-A of the Act, if a return of income is not filed by an assessee. Those provisions, as rightly contended by the learned Counsel for the assessee, do not apply to the claim for deduction under Section 80P of the Act."
The ITAT Ahmedabad adopted this reasoning and held that the Revenue authorities were not justified in denying the assessee’s claim for deduction under Section 80P solely on the ground of non-filing of the return. The Tribunal emphasized that the substantive eligibility for deduction under Section 80P must be examined independently of procedural requirements like filing returns.
The Tribunal observed that neither the AO nor the CIT(A) had examined the assessee’s eligibility for deduction under Section 80P on merits. It thus deemed it fit to remand the case to the AO for fresh assessment, directing the AO to examine:
- Whether the assessee’s income of Rs. 25,56,407 was derived from providing credit facilities to its members.
- Whether the assessee satisfied all other conditions for claiming deduction under Section 80P(2)(a)(i).
The Verdict
The ITAT Ahmedabad partly allowed the appeal for statistical purposes. The Tribunal set aside the orders of the AO and CIT(A) and remanded the case to the AO for fresh assessment. The AO was directed to examine the assessee’s eligibility for deduction under Section 80P(2)(a)(i) afresh, taking into account all relevant conditions and evidence.
What This Means For Similar Cases
Non-Filing of Return Does Not Automatically Disentitle Deduction Under Section 80P
- Co-operative societies can now argue that their eligibility for deduction under Section 80P should not be denied merely because they failed to file a return of income.
- The judgment reinforces that Section 80P is a substantive provision, and its applicability should be examined independently of procedural lapses like non-filing.
- Practitioners should cite this decision to challenge assessments where deductions under Section 80P have been denied solely on procedural grounds.
Remand for Fresh Assessment: A Second Chance for Assessees
- The ITAT’s decision to remand the case highlights that assessees may get an opportunity to present their case afresh if the initial assessment did not examine substantive eligibility.
- Assessees should ensure that all relevant evidence, such as proof of income derived from members and compliance with Section 80P conditions, is submitted during the fresh assessment.
- This judgment underscores the importance of distinguishing between procedural and substantive requirements in tax assessments.
Implications for Revenue Authorities
- Revenue authorities must now examine the substantive eligibility for deductions under Section 80P even if the assessee has not filed a return.
- The decision limits the scope of Section 80A(5) and Section 80AC, clarifying that these provisions do not apply to Section 80P.
- AO’s must ensure that assessments under Section 80P are based on merits rather than procedural defaults.
