2013 (2) TMI 208 - AT - Income Tax

Deduction u/s 80P - when the taxpayers have not filed the returns of income within the time limit provided u/s 139(1) or 139(4) or within the time specified in the notice u/s 142(1) of the Act, whether such taxpayers are entitled for deduction u/s 80P - invoking the provisions of section 80A(5) - Held that - Section 139(1) make it mandatory for every taxpayer whose total income exceeds the maximum amount which is not chargeable to income-tax before grant of deductions u/s 10A, 10B and deduction under Chapter VIA of the Act to file the return of income. As in the present case all the taxpayers income exceeded the maximum amount which is not chargeable to income-tax before grant of deduction under Chapter VIA therefore, it is not only mandatory but also statutory requirement that all the taxpayers have to file the return of income before the due date prescribed u/s 139(1). Under section 80A(5), the legislature made it mandatory that the claim under Chapter VIA under the heading C.- Deductions in respect of certain income has to be made in the return. If the contention of the assessee is accepted, then the person, who files the return of income and fails to make a claim of deduction in the return of income either by ignorance or otherwise may not get the benefit, but a person who has not filed the return of income may be in a better position to claim the benefit. It is settled principles of law that in order to avail benefits under the beneficial provision, the conditions provided by the legislature has to be complied with. Therefore,the mandatory provisions contained in section 139(1) r.w.s. 80A(5) it is mandatory for every cooperative society for claiming deduction u/s 80P to file the return of income and to make a claim of deduction in the return itself - against assessee. Notice ought to have been issued u/s 148 - Held that - A bare reading of section 147, clearly shows that, the assessing officer has to believe that the income chargeable to tax has escaped assessment. Section 148(2) makes it mandatory to record reason for such belief. Therefore, the jurisdiction to issue notice u/s 147 is the belief of the assessing officer with regard to escapement of income from assessment. Therefore, the taxpayer cannot compel the assessing officer to issue notice u/s 148 for regularization of the return filed belatedly. When the assessment proceedings are admittedly pending on the date of filing of belated return no one could say that any income chargeable to tax has escaped assessment. Unless and until, the assessment proceedings initiated by the assessing officer by issuing notice u/s 142(1) culminated either by an assessment order or otherwise by operation of law, it not be able to be said that any part of income chargeable to tax has escaped assessment. Thus as no income could be said to be escaped assessment at that point of time the contention of the taxpayer that notice ought to have been issued u/s 148 for regularizing the returns filed u/s 139(4) has no merit at all. Disallowance u/s 40a(ia) - applicability of provisions of section 194A - assessee contested being a registered as co-operative societies - Held that - As decided in Moolamattom Electricity Board Employees Co-operative Bank Ltd, In Re & Ors 1998 (7) TMI 53 - KERALA HIGH COURT for the purpose of understanding the cooperative society, the meaning that is given in section 2(19) of the Income-tax Act has to be considered and not otherwise. The co-operative societies are not controlled and governed by RBI and they are registered under the provisions of the State Co-operative Societies Act. Therefore, the Kerala High Court found that the co-operative societies are exempt from provisions of section 194A. Also see Income-tax Officer & Anr v. Thodupuzha Urban Co-operative Bank Ltd & Anr 2003 (7) TMI 49 - KERALA HIGH COURT - addition u/s 40(a)(ia) is deleted - in favour of assessee. Disallowance of contribution made to pension fund and gratuity fund - taxpayers are not eligible for exemption u/s 36(1)(iv) - Held that - Section 2(38) of the Income-tax Act defines recognized provided fund. which was recognized by the Chief Commissioner or Commissioner as per the rules contained in Part A of the Fourth Schedule to the Income-tax Act is considered to be a recognized provident fund. The second part of section 2(38) clearly states that when a provident fund established under a scheme framed under the Employees Provident Funds Act, 1952, then that fund also has to be treated as recognized provident fund. When the contributions are made to group gratuity fund established by the LIC of India and the funds established by the State government and if it could not be considered as recognized fund within the meaning of section 2(38) such payment has to be allowed u/s 37(1) since it relates to the business expenditure as found by the Madras High Court in the case of C.I.T. v. Kattabomman Transport Corporation Ltd 1998 (9) TMI 2 - MADRAS HIGH COURT . Therefore, the orders of lower authorities are set aside and the issue is remitted back to the file of the assessing officer to examine the scheme of the funds established by the LIC group gratuity fund and the funds established by the State Government in exercise of its executive powers u/s 80A of the Kerala Co-operative Societies Act and thereafter decide the issue in accordance with law. Disallowance of bad debt u/s 36(1)(viia) - Held that - Section 36(1)(viia) provides for deduction of bad and doubtful debt made by a scheduled bank or a non scheduled bank or a co-operative bank other than primary agricultural credit society or primary co-operative agricultural rural development bank not exceeding 7 % of the total income computed before making deduction under chapter VIA of the Act. In this case, the specific claim of the taxpayers is that they are not bank but they are primary agricultural credit society. Therefore, obviously, the provisions of section 36(1)(viia) are not applicable to the taxpayers. As AO has already allowed part of the provision for bad and doubtful debts therefore, the taxpayers cannot have any grievance. Accordingly, the orders of the lower authorities are confirmed.

Summary

Issues Involved:
1. Deduction under Section 80P of the Income-tax Act.
2. Disallowance under Section 40(a)(ia) of the Income-tax Act.
3. Disallowance of contributions to pension and gratuity funds.
4. Deduction for bad debts under Section 36(1)(viia) of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Deduction under Section 80P of the Income-tax Act:
The primary issue in all the appeals was the eligibility for deduction under Section 80P of the Income-tax Act. The taxpayers did not file their returns within the prescribed time under Section 139(1) or 139(4) or in response to notices under Section 142(1). The taxpayers argued that the returns were filed before the completion of assessment proceedings and thus should be considered by the assessing officer. They contended that Section 80A(5) does not mandate filing within the due date but merely requires a claim in the return of income. The Tribunal, however, concluded that the returns must be filed within the time limits specified under Sections 139(1), 139(4), or in response to notices under Sections 142(1) or 148. Returns filed beyond these time limits cannot be considered valid for claiming deductions under Section 80P. The Tribunal emphasized that the legislative intent of Section 80A(5) was to prevent multiple deductions and ensure claims are made in the return of income. Therefore, the Tribunal upheld the disallowance of the deductions claimed under Section 80P.

2. Disallowance under Section 40(a)(ia) of the Income-tax Act:
The taxpayers argued that as primary agricultural credit societies, they were exempt from the provisions of Section 194A, which mandates the deduction of tax at source on interest payments. They contended that they were not banks but co-operative societies registered and classified as primary agricultural credit societies. The Tribunal referred to judgments of the Kerala High Court, which held that co-operative societies registered under the State Co-operative Societies Act and not governed by the RBI are exempt from Section 194A. Consequently, the Tribunal concluded that the taxpayers were exempt from the provisions of Section 194A and deleted the disallowance under Section 40(a)(ia).

3. Disallowance of contributions to pension and gratuity funds:
The taxpayers contended that contributions to the LIC Group Gratuity Scheme and pension funds established by the State Government should be allowed as deductions. The Tribunal noted that for a fund to be recognized under Section 2(38), it must be approved by the Commissioner or Chief Commissioner or established under the Employees' Provident Fund Act. The Tribunal found that contributions to funds not recognized under these criteria could still be allowed as business expenditure under Section 37(1). The Tribunal remitted the issue back to the assessing officer to examine the nature of the funds and decide accordingly.

4. Deduction for bad debts under Section 36(1)(viia) of the Income-tax Act:
The taxpayers claimed deductions for bad and doubtful debts under Section 36(1)(viia), which provides for such deductions for scheduled and non-scheduled banks, excluding primary agricultural credit societies. The Tribunal noted that the taxpayers were classified as primary agricultural credit societies and thus not eligible for deductions under Section 36(1)(viia). The Tribunal upheld the disallowance of the claim for bad debts.

Conclusion:
The Tribunal partly allowed the appeals concerning the disallowance under Section 40(a)(ia) and contributions to pension and gratuity funds, remitting the latter issue for further examination. However, it dismissed the appeals concerning the deduction under Section 80P and bad debts under Section 36(1)(viia), upholding the assessing officer's decisions. The stay applications filed by the taxpayers were dismissed as infructuous.