2022 (7) TMI 1385 - AT - Income Tax

Disallowance u/s 143(1)(a) - deduction u/s 80P - whether the adjustment/disallowance can be made under Section 143(1)(a) or not? - HELD THAT - As decided in AA520 VEERAPPAMPALAYAM PRIMARY AGRICULTURAL COOPERATIVE CREDIT SOCIETY LIMITED 2021 (4) TMI 1169 - MADRAS HIGH COURT 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, 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) - we reject the contention raised by the assessee that the disallowance cannot be made under Section 143(1)(a) of the Act. Deduction u/s 80P - Belated filing of return - Assessee is eligible to claim deduction u/s 80P even if he has filed the return of income belatedly. Respectfully following the case THE CHIRAKKAL SERVICE CO-OPERATIVE BANK LTD. 2016 (4) TMI 826 - KERALA HIGH COURT we hold that the assessee is eligible for deduction u/s 80P of the Act.

Issues Involved:
1. Applicability of amended Section 80AC for AY 2016-17.
2. Applicability of Section 80AC to Section 80P.
3. Exclusion of earlier year provisions and reserves reversed in the profit and loss account from income computation.
4. Deduction under Section 80P on gross total income and enhancement due to addition made to the income.
5. Validity of adjustments/disallowances under Section 143(1)(a).

Issue-wise Analysis:

1. Applicability of amended Section 80AC for AY 2016-17:
The Tribunal observed that Section 80AC of the Act was amended by the Finance Act 2018, effective from 01.04.2018. Since the assessment year in question is 2016-17, the amendment does not apply. The Tribunal referenced the jurisdictional High Court decision in Chirackal Service Cooperative Bank Ltd. vs. CIT, which held that deductions under Chapter VIA, including Section 80P, could be claimed even if the return was filed belatedly.

2. Applicability of Section 80AC to Section 80P:
The Tribunal noted that the CIT(A) erroneously applied Section 80AC to Section 80P. The Hon'ble High Court of Kerala in Chirackal Service Cooperative Bank Ltd. vs. CIT clarified that the inhibition in Section 80A(5) would apply but not Section 80AC for AY 2016-17. Thus, the assessee is eligible to claim deduction under Section 80P even if the return was filed late.

3. Exclusion of earlier year provisions and reserves reversed in the profit and loss account from income computation:
The Tribunal found that the assessee had correctly followed the accounting method by adding back provisions and reserves created during the year and deducting those reversed from earlier years. The lower authorities' disallowance of Rs.11,36,060/- was incorrect as the assessee had already accounted for these in the computation of income, resulting in a business income of Rs.4,21,117/-, which was eligible for deduction under Section 80P.

4. Deduction under Section 80P on gross total income and enhancement due to addition made to the income:
The Tribunal held that the assessee's computation of income, which included the reversal of earlier years' provisions and reserves, was accurate. The assessee was entitled to a deduction under Section 80P on the business income of Rs.4,21,117/-. The Tribunal allowed the deduction claimed under Section 80P, in line with the High Court's decision.

5. Validity of adjustments/disallowances under Section 143(1)(a):
The Tribunal addressed whether adjustments under Section 143(1)(a) could disallow deductions under Section 80P. The Tribunal referred to the Hon'ble Madras High Court decision in Veerappampalayam Primary Agricultural Cooperative Credit Society Ltd. vs. DCIT, which upheld that adjustments based on apparent errors in the return could be made under Section 143(1)(a). However, since Section 80AC(ii) was amended effective from AY 2018-19, it was not applicable for AY 2016-17. Thus, the Tribunal concluded that the disallowance under Section 143(1)(a) was not justified for the assessment year in question.

Conclusion:
The Tribunal allowed the appeal partly, holding that the assessee was entitled to the deduction under Section 80P despite the belated filing of the return. The disallowance of Rs.11,36,060/- under Section 143(1)(a) was not justified, and the assessee's method of accounting for provisions and reserves was upheld. The Tribunal's decision was pronounced on 29th July 2022.

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