Lichamanpura Gram Sewa Sahkari Samiti Ltd Vs PCIT (ITAT Jaipur)
Belated Return Closes the Door on Section 80P Deduction: Claim Made in Response to Notice u/s 148 Must Still Pass the Mandatory Test of Section 80A
Reassessment Triggered by Cash Deposits of ₹2.58 Crore
The assessee was a credit co-operative society engaged in providing credit facilities to its members. It had not originally filed its return of income for AY 2019-20.
Based on information received through the Insight portal identifying the assessee as a high-risk non-filer, the Department noticed cash deposits aggregating to ₹2,58,57,401 in its bank account. Consequently, proceedings were initiated by issuing notice u/s 148.
In response, the assessee filed its return and explained that the cash deposits arose in the ordinary course of its credit co-operative activities. It furnished its profit & loss account, audit report, cash book, bank statements and other supporting records. The assessee claimed deduction of its income u/s 80P and returned nil taxable income.
The AO accepted the explanation concerning the cash deposits and also allowed the deduction claimed u/s 80P. No addition was consequently made.
The PCIT, however, noticed that the return had not been filed within the time prescribed u/s 139(1). It had been filed only on 13.04.2023 in response to the notice u/s 148. Since Section 80AC mandates timely filing of the return as a condition for claiming deduction under the relevant provisions of Chapter VI-A, the PCIT considered the allowance of deduction u/s 80P to be contrary to law.
The assessment was accordingly set aside u/s 263 with a direction to frame the assessment afresh.
PCIT Can Act on AO’s Proposal, Provided He Examines the Record Himself
The assessee initially challenged the very assumption of jurisdiction u/s 263. It argued that the PCIT had acted merely on a proposal received from the AO and had not independently called for and examined the assessment records.
The Tribunal rejected this contention. The revision notice specifically recorded that the PCIT had acted “on perusal of the assessment records and the proposal received from the Assessing Officer.” There was nothing to establish that the PCIT had mechanically acted only upon the AO’s proposal.
The receipt of a proposal from the AO does not by itself invalidate revision proceedings. What is necessary is that the PCIT must independently examine the record and form his own prima facie opinion. That requirement stood satisfied in the present case.
The assessee’s further argument that the notice described the assessment order merely as “prima facie erroneous” was also rejected. At the stage of issuing notice u/s 263, a prima facie satisfaction is sufficient. The PCIT had specifically recorded that the allowance of deduction without examining Section 80AC rendered the order both erroneous & prejudicial to the interests of Revenue.
Inquiry Into Cash Deposits Is Not Inquiry Into Section 80AC
The assessee contended that the AO had examined the claim u/s 80P during reassessment proceedings and had therefore taken a plausible view.
However, when specifically called upon by the Tribunal, the assessee could not produce any query raised by the AO concerning the admissibility of deduction u/s 80P in the light of Section 80AC.
The Tribunal drew a clear distinction between an inquiry concerning the source of cash deposits and an inquiry concerning the legal eligibility for deduction u/s 80P. Merely because the assessee furnished accounts and explained that the deposits arose from its co-operative activity did not establish that the AO examined whether the return had been filed within the mandatory timeline.
An AO is not merely an adjudicator but also an investigator. If he fails to examine a statutory condition that goes to the root of the deduction, the order becomes erroneous. Explanation 2 to Section 263 squarely applies where an order is passed without conducting an inquiry or verification which ought to have been made.
A View Contrary to Section 80AC Is Not a Plausible View
For AY 2019-20, Section 80AC expressly provided that no deduction under the relevant heading of Chapter VI-A could be allowed unless the return was furnished on or before the due date specified u/s 139(1).
The assessee admittedly failed to comply with this condition. Therefore, the allowance of deduction by the AO could not be protected as one of two possible or plausible views. A view directly contrary to an unambiguous statutory provision cannot be called a plausible view.
The Tribunal also distinguished its earlier decision in Thikariya Gram Sewa Sahkari Samiti Ltd. In that case, the question was whether the deduction could be disallowed through a prima facie adjustment u/s 143(1)(a) for AY 2019-20, before clause (v) was suitably amended. The present case arose from a regular reassessment u/s 147 and not from the restricted adjustment mechanism u/s 143(1). Hence, that decision did not assist the assessee.
Section 80P Issue Was Part of the Reason for Reopening
The assessee relied upon CIT v. Jet Airways Ltd., CIT v. Ranbaxy Laboratories Ltd. & CIT v. Shri Ram Singh to argue that when no addition was made on the issue for which the assessment was reopened, the AO could not examine another issue.
The Tribunal accepted the general legal proposition but found it inapplicable. The claim u/s 80P was not an unrelated issue discovered independently during reassessment. It arose directly from the assessee’s explanation that the cash deposits represented receipts from its co-operative credit activity and that the resultant income was deductible u/s 80P.
Therefore, examination of the deduction was part & parcel of taking the original cash-deposit issue to its logical conclusion. The AO was duty-bound to examine the claim with reference to Section 80AC.
The Tribunal consequently upheld the PCIT’s order u/s 263 and dismissed the assessee’s appeal.
Author’s Comments
This decision highlights that eligibility for deduction u/s 80P and the procedural manner of making a disallowance are two different issues. The inability to disallow a claim through limited processing u/s 143(1) does not mean that the deduction is legally allowable in scrutiny or reassessment proceedings.
After the amendment applicable from AY 2018-19, timely filing of the return u/s 139(1) is a substantive statutory condition for claiming deduction u/s 80P. A return filed belatedly, including one filed in response to notice u/s 148, does not ordinarily cure that failure.
The practical lesson is equally clear: a co-operative society may fully establish the nature of its income and still lose the entire Section 80P deduction merely because its return was not filed within the due date u/s 139(1). Procedural delay can thus produce a substantial tax consequence.
Cases Discussed
- CIT Vs. Jet Airways India Ltd. — Bombay High Court, 331 ITR 236 (Bom.).
- Ranbaxy Laboratories Ltd. Vs. CIT — Delhi High Court, 336 ITR 136 (Del.).
- CIT Vs. Shri Ram Singh — Rajasthan High Court, 306 ITR 343 (Raj.).
- Gee Vee Enterprises Vs. Addl. CIT — Delhi High Court, 99 ITR 375 (Del.).
- Malabar Industrial Co. Ltd. Vs. CIT — Supreme Court, 243 ITR 83 (SC).
- Thikariya Gram Sewa Sahkari Samiti Ltd. Vs. AO — ITAT Jaipur, ITA Nos. 772 & 773/JPR/2023, dated 27.03.2024.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, JAIPUR BENCH
The present appeal has been filed by the assessee against the order passed by the Office of the Principal Commissioner of Income Tax PCIT Jaipur 02(hereinafter referred to as “Ld. PCIT”), dated 11.03.2026 under Section 263 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”).
2. The grounds raised read as under:-
1. That the Impugned order u/s 263 of the Act dated 11.03.2026 and notice u/s 263 are bad in law, illegal, invalid, void-ab-intio on facts of the case, for want of or without jurisdiction, and also barred by limitation and various other reasons and hence the same may kindly be quashed.
2. That the Id. Pr. CIT-2, Jaipurisgrossly erred in law as well as on the facts of the case in invoking S. u/s 263of the Act. The same is being purely contrary to the provisions of law, therefore the impugned order u/s 263 as well as notice u/s 263 of the Act may kindly be quashed.
3. That the Ld. Pr. CIT-2, Jaipur is grossly erred in law as well as on the facts of the case in taking the action u/s 263 of the Act on the allegations that:
(a). The deduction of Rs.6,34,145/- u/s 80P(2) is not allowable to the assessee as per Sec. 80AC, being return not filed u/s 139 rather filed u/s 148.
Which are contrary to the facts, without considering the material evidences available on record in their true perspective and sense and such a finding being perverse, the impugned action is bad in law without jurisdiction and being void ab initio, the impugned order u/s 263 may kindly be quashed.
4. That the Id. Pr. CIT-2, Jaipur is grossly erred in law as well as on the facts of the case in observing that the deduction of Rs.6,34,145/-u/s 80P(2) is not allowable to the assessee as per Sec. 80AC, being return not filed u/s 139 rather filed u/s 148, which are contrary to the facts, without considering the material evidences available onrecord in their true perspective and sense and such a finding being perverse, hence we request to allow the deduction of Rs.6,34,145/-u/s 80P(2) and oblige.
5. The appellant prays your honors indulgence to add, amend or alter all or any of the grounds of the appeal on or before the date of hearing.
3. The order of the Ld. PCIT reveals that he found the order passed for the impugned year in the case of the assessee u/s 147 of the Act to be erroneous causing prejudice to the Revenue for having allowed the assessee’s claim of deduction u/s 80P of the Act, which otherwise was not allowable to the assessee in terms of Section 80AC of the Act, since the assessee had failed to file its return of income in the time prescribed u/s 139(1) of the Act, which was the requirement to be fulfilled for claiming deduction u/s 80P of the Act as stated in Section 80AC of the Act. The Ld. PCIT, noting the assessee to have failed to fulfil the conditions of Section 80AC of the Act, found the assessee to be not eligible to claim deduction u/s 80P of the Act, but however, he found the AO to have allowed the assessee’s claim of deduction u/s 80P of the Act in contravention of the provisions of law and therefore he assumed jurisdiction for revision of the order passed by the AO u/s 263 of the Act.
4. The order of the Ld. PCIT reveals that he found the AO to have not examined the admissibility of the assessee’s claim of deduction u/s 80P of the Act and accordingly he held that the AO had passed the order without making inquiries/verification which should have been made or by allowing any relief without inquiry into the claim and referring to Explanation 2 to Section 263 of the Act, he held that the order passed by the AO was to be deemed to be an order erroneous and causing prejudice to the Revenue in terms of Section 263 of the Act.
5. Thus to put it briefly, the order passed by the AO in the case of the assessee for the impugned year u/s 147 of the Act was found to be erroneous so as to cause prejudice to the Revenue by the Ld. PCIT for having allowed a legally impermissible claim of deduction u/s 80P of the Act, due to no inquiry being conducted by the AO while allowing the said claim.
6. Show cause notice was issued to the assessee by the ld. PCIT in this regard, in response to which the assessee contended that the order was not erroneous since:-
- The claim had been examined by the AO and,
- The AO had taken a plausible view by allowing assessee’s claim of deduction u/s 80P of the Act.
7. Both the contentions of the assessee were rejected by the Ld. PCIT, noting that the AO had blindly accepted the assesses claim of deduction u/s 80P of the Act without taking into consideration the strict timeline provided u/s 80AC of the Act, and that the provisions of Section 80AC of the Act were clear and the assessee had categorically failed the said provisions and therefore, the AO could not be said to taken a plausible view on the issue. Accordingly, the ld. PCIT set aside the assessment order and directed the AO to initiate afresh assessment de novo.
8. Before us, several arguments were made by the ld. Counsel for the assessee challenging the assumption of jurisdiction by the Ld. PCIT u/s 263 of the Act on the following grounds:-
- The Ld. PCIT had assumed jurisdiction u/s 263 of the Act on the basis of proposal made by the AO to him and not on the basis of any examination of the records of the assessee himself, as stipulated by the law u/s 263 of the Act.
- The notice issued u/s 263 of the Act found the assessment order to be prima facie erroneous, while as per Section 263 of the Act the order must not only be found to be erroneous but also pre judicial to the interest of the Revenue while assuming jurisdiction to issue notice u/s 263 of the Act.
9. Further, besides challenging the assumption of jurisdiction u/s 263 of the Act as above, Ld. AR has contested the order passed u/s 263 of the Act on the following grounds:-
- That it was not a case of no inquiry as the AO had conducted inquiries before allowing the claim of deduction u/s 80P of the Act and there was no question therefore of holding the order deemed to be erroneous in terms of Explanation 2 to Section 263 of the Act.
- The issue of allowability of claim of deduction u/s 80P of the Act was beyond the scope of assessment order passed u/s 147 of the Act since it was reopened on the ground of cash having been found deposited in the bank account of the assessee, on which account the AO was satisfied with the explanation furnished by the assessee of the said cash pertaining to the credit cooperative activity carried out by the assessee and no addition made. That Courts in various decisions have held that where no addition is made on the issue of reopening resorted to by the AO, there remains no power or jurisdiction with the AO to make addition on any other count. Reliance was placed on the decision of the Hon’ble Bombay High Court in the case of in the case of CIT vs Jet airways Ltd 331 ITR 236 (Bom). Hon’ble Delhi High Court in the case of CIT vs Ranbaxy Laboratories 336 ITR 136 (Delhi) Hon’ble Rajasthan High Court in the case of CIT Vs. Shri Ram Singh [306 ITR 343] and other decisions of the ITAT also for the aforestated proposition of law.
10. Ld. DR however supported the order of the Ld. PCIT.
11. We have heard both the parties.
12. Taking up first the challenge to the assumption of jurisdiction raised by the ld. Counsel for the assessee on the ground that the Ld. PCIT himself had not perused the records of the assessee before assuming jurisdiction to issue notice u/s 263 of the Act but had relied on the report of the AO in this regard and that the ld. PCIT had prima facie found the order passed to be erroneous while as per law, he was required to find the order both erroneous and pre-judicial to the interest of the Revenue, the ld. Counsel for the assessee in this regard substantiated his arguments by drawing our attention to the notice issued by the Ld. PCIT u/s 263 of the Act placed before us at paper book page No.68 and 69 wherein he drew our attention to para 2 to contend that the Ld. PCIT had assumed jurisdiction on the basis of proposal received from AO and to para 7 to point out that he had found the assessment order prima facie to be erroneous. The said para 2 and 7 are reproduced hereunder:-
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2. On perusal of the assessment records and the proposal received from the Assessing Officer it is observed that you have claimed a deduction under section 80P of the Act amounting to Rs. 6,71,580/- in your Return of Income filed on 13.04.2023. The Assessing Officer accepted this claim and assessed your total income at Rs. Nil..
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7. In view of the above the assessment order prima facia is found to be erroneous as the assessing officer has erred in correctly computing the revised total income u/s 147 r.w.s 144B of the Act. Therefore, in exercise of powers vested u/s 263 of the Act, the undersigned call upon to show cause as to why the assessment should not be revised suitably. You may appear in person or through an Authorized Representative before the undersigned at Room No.111, New Central Revenue Building, Janpath, Jaipur on 17.02.2026 at 15:30. Alternatively, you may send the reply on the registered email of Pr. Commissioner of Income Tax-2, Jaipur which is – [email protected] on or before given date and time herein.
13. We donot find any merit in the contention of the Ld. Counsel for the assessee whatsoever. Admittedly, as per Section 263 of the Act, the ld. PCIT is to assume jurisdiction for revision of orders, if he considers any order passed by the AO to be erroneous insofar as it is pre judicial to the interest of the Revenue if so found on calling for and examining the records of the assessee. The provisions of Section 263(1) in this regard are reproduced hereunder:-
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Revision of orders prejudicial to revenue.
263. (1) The Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer or the Transfer Pricing Officer, as the case may be, is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including,—
(i) an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment; or
(ii) an order modifying the order under section 92CA; or
(iii) an order cancelling the order under section 92CA and directing a fresh order under the said section.
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14. The contentions of the ld. Counsel for the assessee that the Ld. PCIT did not call for and examine the records of the assessee but relied on the proposal received from the AO for assuming jurisdiction u/s 263 of the Act, we find is blatantly incorrect. Para 2 of the notice issued by the ld. PCIT itself reveals the Ld. PCIT to have recorded the fact of having perused the assessment records and found the assessee to have been wrongly allowed the claim of deduction u/s 80P of the Act. Clearly there is nothing on record to suggest that the Ld. PCIT assumed jurisdiction u/s 263 of the Act only on the basis of report/proposal of the AO. Therefore, the contention of the assessee that the Ld. PCIT had assumed jurisdiction incorrectly on the basis of proposal of the AO is found to be factually incorrect and accordingly rejected.
15. The other contention of the ld. Counsel for the assessee that the notice issued u/s 263 of the Act merely noted the Ld. PCIT to have found the assessment order prima facie erroneous and noterroneous so as to cause prejudice is also found to be incorrect. In para 5 of the notice issued, the Ld. PCIT, we have noted has categorically stated that by allowing the assessee’s deduction u/s 80P of the Act without verifying the applicability of Section 80AC of the Act, the order passed appears to be erroneous and prejudicial to the interest of the revenue. Therefore the Ld. PCIT has clearly recorded his satisfaction of the assessment order both being erroneous and pre judicial to the interest of the Revenue. The contention of the ld. Counsel for the assessee that only prima facie satisfaction is recorded by the Ld. PCIT , we find, is of no consequence since it is only prima facie satisfaction which is sufficient for assuming jurisdiction u/s 263 of the Act and after conducting all inquiries by affording due opportunity to the assessee, the Ld. PCIT has to record his finding by affording due opportunity to the assessee of the order being erroneous and pre judicial to the interest of the Revenue. Therefore, this argument of the ld. Counsel for the assessee that the Ld. PCIT had not recorded his satisfaction of the order passed by the AO being erroneous and prejudicial to the interest of the Revenue while assuming jurisdiction to issue notice u/s 263 of the Act is found to be devoid of any merits and is also rejected.
16. In the light of the above, both the arguments of the ld. Counsel for the assessee contending that the assumption of jurisdiction u/s 263 of the Act was not in accordance with law stand rejected.
17. Taking up the next contention of the ld. Counsel for the assessee that the order passed by the ld. PCIT did not satisfy the conditions of Explanation 2 to Section 263 of the Act to treat the order as erroneous so as to cause prejudice to the Revenue ;the contention of the ld. Counsel for the assessee is to the effect that the Explanation 2 to Section 263 of the Act deems orders to be erroneous insofar as they are prejudicial to the interest of the Revenue if the order is passed without making inquiries or verification which should have been made or the order is passed allowing any relief without inquiring into the claim (besides other conditions stated therein) and both these conditions were not satisfied in the case of the assessee. Explanation 2 to Section 263 of the Act is reproduced hereunder for clarity:-
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Revision of orders prejudicial to revenue.
263…….
Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer or the Transfer Pricing Officer, as the case may be, shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner,—
(a) the order is passed without making inquiries or verification which should have been made;
(b) the order is passed allowing any relief without inquiring into the claim;
(c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or
(d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.
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18. The case of the ld. Counsel for the assessee is that the order passed by the AO in the present case was after conducting inquiries and verification and the relief allowed to the assessee was not without conducting any inquiry into the claim of the assessee. That therefore, both the conditions of sub-clause (a) and (b) to Explanation 2 to Section 263 of the Act were not satisfied in the present case and the ld. PCIT had erred therefore in holding order passed by the AO to be erroneous for having allowed the claim of deduction u/s 80P of the Act without verifying the said claim in the light of the provisions of Section 80AC of the Act.
19. To substantiate his contentions, that the issue was examined during assessment proceedings, he drew our attention to the reply filed to the AO during assessment proceedings placed before us at paper book page No.46 to 52 contending that the assessee therein had justified its claim of deduction in respect of income of cooperative societies u/s 80P of the Act.
20. At this juncture ld. Counsel for the assessee was asked at bar to demonstrate whether any specific query in relation to the allowability of the assessee’s claim of deduction u/s 80P of the Act r.w.s 80AC of the Act was raised by the AO during the assessment proceedings. To this no satisfactory reply was furnished by the ld. Counsel for the assessee before us, nor any document filed proving that any query in this regard was raised by the AO to the assessee during the assessment proceedings.
21. Therefore, it stands established as a matter of fact that while allowing the assessee’s claim of deduction u/s 80P of the Act in the proceedings conducted u/s 147 of the Act, no inquiry was made by the AO with regards to allowability of the said claim in the light of the provisions of Section 80AC of the Act.
22. Before proceeding we may add that is imperative to bring out the facts of the case as recorded in the order passed u/s 148 of the Act. That the assessee is a credit cooperative society and initially had filed no return of income. Subsequently, as per the information received in the insight portal under risk management strategy for identifying the high risk non-filer cases formulated by the CBDT through Insight module, it was noted that the assessee had made cash deposits of Rs.2,58,57,401/- in its bank account. Accordingly the case of the assessee was reopened by issuing notice u/s 148 of the Act.
23. During assessment proceedings the assessee submitted to be in the business of credit cooperative with the object of providing credit facilities to its members. The assessee filed return of income in response to notice u/s 148 of the Act and also submitted its profit and loss account, audit report, savings accounts and farmers, cash book etc as well as bank statement of the bank in which cash was noted to be deposited to substantiate the source of cash deposited in bank account as being from its business of providing credit. In the return of income filed by the assessee, the assessee had claimed deduction of its entire income u/s 80P of the Act. During assessment proceedings, the AO was satisfied with the reply of the assessee that the deposits in the bank account emanated in the course of business of providing credit facilities to its members conducted by the assessee society. Accordingly no addition was made to the income of the assessee and the income returned by the assessee of Rs.6,74,145/- which was claimed as deducted u/s 80P(2) of the Act was allowed by the AO.
24. The ld. PCIT found this assessment order to be erroneous since he noted that in terms of provision of Section 80AC of the Act claim of deduction u/s 80P of the Act was allowable only in case the return of income is filed by the assessee within the time prescribed u/s 139(1) of the Act. The relevant provision of Section 80AC of the Act applicable for the impugned year is reproduced hereunder:-
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Deduction not to be allowed unless return furnished.
80AC. Where in computing the total income of an assessee of any previous year relevant to the assessment year commencing on or after—
(i) the 1st day of April, 2006 but before the 1st day of April, 2018, any deduction is admissible under section 80-IA or section 80-IAB or section 80-IB or section 80-IC or section 80-ID or section 80-IE;
(ii) the 1st day of April, 2018, any deduction is admissible under any provision of this Chapter under the heading “C.—Deductions in respect of certain incomes”,
no such deduction shall be allowed to him unless he furnishes a return of his income for such assessment year on or before the due date specified under sub-section (1) of section 139.
…….
25. He therefore noted that since the facts were very well before the AO that the assessee had not filed return of income in time u/s 139(1) of the Act for validly claiming deduction u/s 80P of the Act, but had filed return of income only in response to the notice issued u/s 148 of the Act, the AO, without examining this aspect of the eligibility of claim of deduction u/s 80P of the Act r.w.s. 80AC of the Act, had wrongly allowed the assessee’s claim of deduction u/s 80P of the Act. For this reason he held the assessment order to be erroneous so as to cause prejudice to the Revenue.
26. Having stated the facts as above, and noting that admittedly, no query or inquiry was conducted by the AO vis-à-vis the eligibility of claim of deduction u/s 80P r.w.s. 80AC of the Act, we find no merit at all in the contention of the ld. Counsel for the assessee that the claim of deduction u/s 80P of the Act was allowed by the AO to the assessee after conducting all inquiries and verification. The ld PCIT in this regard, we have noted from page 12 of the order, has rejected this contention of the assessee rightly, noting that merely because queries were raised by the AO regarding cash deposits does not satisfy the requirements of law, if the AO fails to apply his mind to the specific legal issue of the admissibility of deduction u/s 80P of the Act. His findings in this regard are as under:-
1. Distinction between “Making Inquiry” and “Proper Adjudication”: The assessee contends that documents were submitted and the AO verified the cash deposits. However, mere raising of queries regarding cash deposits does not satisfy the requirement of the law if the AO fails to apply his mind to the specific legal issue of the admissibility of the 80P deduction. In Gee Vee Enterprises vs. Addl. CIT [1975] 99 ITR 375 (Del), the Hon’ble High Court held that the position of the AO is not merely that of an adjudicator but also that of an investigator. If the AO fails to conduct an inquiry which he was required to conduct, the order becomes erroneous. In this case, the AO blindly accepted the claim u/s 80P without checking it against the strict timeline provisions of the Act. This constitutes a “lack of proper inquiry” and an incorrect application of law.
B. Violation of Binding Statutory Provision (Section 80AC): The assessee claims the AO took a “plausible view.” A view which is directly contrary to the explicit provisions of the Income Tax Act cannot be termed as a “plausible view.” Effective from Assessment Year 2018-19, Section 80AC (ii) was amended to mandate that: “…no such deduction shall be allowed to him unless he furnishes a return of his income for such assessment year on or before the due date specifiedunder sub-section (1) of section 139.” By allowing the deduction on a return filed on 13.04.2023 (years after the 139(1) deadline), the AO committed a gross error of law. As held in Malabar Industrial Co. Ltd., an order passed without applying the correct legal principles or on an incorrect assumption of law is erroneous.
C. Prejudice to Revenue: The incorrect allowance of the deduction of Rs. 6,71,580/-has directly resulted in the under-assessment of income and non-levy of legitimate tax. Thus, the order is prejudicial to the interest of the revenue.
27. In the light of the above, it is clear that the present was a case of no inquiry conducted by the AO regarding the eligibility of the claim of the assessee of deduction u/s 80P r.w.s. 80AC of the Act.
28. At this juncture, it is also pertinent to take up the other contention of the ld. Counsel for the assessee that the assessee otherwise was eligible to claim of deduction u/s 80P r.w.s 80AC of the Act. That the AO had taken a plausible view in this regard.
29. The provision of Section 80AC have been reproduced above in our order and it categorically states that for claiming deduction u/s 80P of the Act i.e. deduction prescribed under Chapter VIA of the Act, the assessee mandatorily has to file his return of income within the time prescribed u/s 139(1) of the Act. The provision of law in this regard, is very clear and there is no ambiguity in the same. In the facts of the present case, the assessee admittedly has not filed his return of income claiming deduction u/s 80P of the Act within the time prescribed u/s 139(1) of the Act. Therefore, the assessee has clearly violated the provisions of Section 80AC of the Act and was not eligible for deduction u/s 80P of the Act. We fail to understand how the allowability of the claim by the AO, in the light of the legal position and facts of the case as noted above, constituted a plausible view. Ld. Counsel for the assessee supported his contentions by citing various decisions before us more particularly the decision of the Jaipur Bench of the ITAT in the case of Thikariya Gram Sewa Sahkari Samiti Ltd Vs. AO in ITA Nos.772 and 773/JPR/2023 dated 27.03.2024. The findings of the ITAT in the said case are reproduced in the submissions filed by the assessee before the ld. PCIT which were placed before us at paper book page No.53-67. On perusal of the findings of the ITAT in this regard, we have noted that in the facts of the said case the deduction u/s 80P of the Act was denied by way of an adjustment made u/s 143(1) of the Act, noting that the return of income was filed beyond the date prescribed u/s 139(1) of the Act. The Hon’ble ITAT in the said case held the adjustment was made to be not as per law noting that the same did not come within the purview of prima facie adjustment u/s 143(1)(a) of the Act. The ITAT noted that sub-clause (v) to Section 143(1)(a) of the Act provided for disallowance of deduction under Chapter VIA if the return is furnished beyond due date specified under section 139(1) of the Actonly w.e.f. 01.04.2021 when the same was introduced to the said section by way of an amendment. Noting so the ITAT held that the said amendment was not in force for the year impugned before it i.e. AY 2019-20 and accordingly, the AO was not entitled as per law to make any adjustment on account of deduction claimed under Chapter VIA for non-furnishing of returns within time prescribed u/s 139(1) of the Act.
30. The facts of the case are clearly distinguishable from the facts of the present case. Since in the said case the issue of allowing of claim u/s 80P of the Act on account of the claim having been made in a return filed beyond the time prescribed u/s 139(1) of the Act have been considered in the intimation made u/s 143(1) of the Act, wherein it was found that for the impugned year the section did not prescribe any such adjustment to be made. In the facts of the present case, the claim of deduction u/s 80P of the Act was being examined in a regular assessment being framed u/s 147 of the Act. Therefore, the ratio laid down in the said decision is not applicable in the facts of the present case. The contention of the ld. Counsel for the assessee therefore, that the AO had taken a plausible view also is found to be devoid of merits and is rejected.
31. To conclude therefore, contention of the Ld. Counsel for the assessee that the AO had made inquiry on the issue during assessment proceedings and had taken a plausible view are found to be devoid of merits and rejected.
32. Taking up the final argument made by the ld. Counsel for the assessee that the inquiry into the eligibility of claim u/s 80P of the Act r.w.s. 80AC of the Act was beyond the scope of power of the AO in the assessment framed u/s 147 of the Act and therefore, the assessment order could not be held to be erroneous for the AO having made no inquiry on this issue is now being taken up.
33. Admittedly, the case of the assessee was reopened on account of cash found deposited in his bank account. No adjustment on account of the said issue was made to the income of the assessee. However, the facts of the case revealed that no return of income was filed by the assessee within the time prescribed u/s 139(1) of the Act and return of income declaring income from its cooperative activities amounting to Rs.2,58,57,401/- was filed only in response to notice u/s 148 of the Act and the said amount was claimed as deductable u/s 80P of the Act.
34. The contention of the assessee is that Courts have consistently held that when no addition is made on the reasons recorded for reopening the case of the assessee, the AO cannot make any other addition or disallowance of any other issue. That the moment the AO is satisfied with the explanation of the assessee on the reasons recorded for reopening the case of the assessee, the AO loses his jurisdiction to frame assessment and no other addition or disallowance can be made in the hands of the assessee. He has relied on the decision of Hon’ble Bombay High Court in the case of in the case of Jet airways Ltd (Supra). Hon’ble Delhi High Court in the case of Ranbaxy Laboratories Ltd. (Supra) and Hon’ble Rajasthan High Court in the case of Shri Ram Singh (Supra) for this proposition. Stating so, the ld. Counsel for the assessee has contended that in the facts of the present case also the AO could not have made any other addition or disallowance in the case of the assessee. That it was beyond the powers of the AO to have examined the eligibility of the deduction claimed by the assessee u/s 80P r.w.s. 80AC of the Act.
35. We have considered the contentions raised by the ld. Counsel for the assessee and we do not find any merit in the same. The thrust of the arguments is that it is legally settled that once the AO loses his jurisdiction to frame assessment u/s 147 of the Act, being satisfied with the explanation of the assessee regarding the income found to have escaped assessment, he cannot make any other addition or disallowance with respect to any other issue. That this is a settled proposition of law there is no quarrel with the same. However, in the present case the issue of allowability of claim of deduction u/s 80P r.w.s. 80AC of the Act cannot be said to be a different issue being taken up by the AO in the present case u/s 147 of the Act.
36. Undoubtedly and admittedly, the assessee originally had filed no return of income and the AO had come in possession of information that there were huge cash deposits in his bank account. Accordingly, he recorded reasons for escapement of income of the assessee based on this information and reopened the case of the assessee. The assessee contended before the AO that he was a cooperative society and the cash deposits were from activity of providing credit facilities to his members and that he had earned income to the tune of Rs.2,58,57,401/- which was liable for claim of deduction u/s 80P of the Act. The AO undoubtedly, was satisfied with the explanation of the assessee, but the issue of deduction u/s 80P of the Act arose during the course of inquiring into the issue of cash deposits in the bank account of the assessee. The assessee had clearly not filed any return of income originally and the AO was not aware of any such claim made by the assessee. He was aware of the fact that assessee has huge cash deposits in his bank account. While inquiring the same, it transpired that all the deposits were from the business of conducting its cooperative activity and he made no addition of the same finding the profits returned by the assessee from this activity to be correct. However, the assessee claimed deduction of said profits u/s 80P of the Act in the reassessment proceedings itself and was part and parcel of the issue of cash deposits in the bank account of the assessee, for which reason the assesses case was reopened. The claim of deduction u/s 80P of the Act has been made by the assessee while contending to the AO that the cash deposits were from his cooperative activity from which he had earned profits which were eligible for deduction u/s 80P of the Act. There is no doubt that the claim of deduction u/s 80P of the Act is directly related to the issue of cash deposits in Bank..
37. Therefore, this claim of deduction u/s 80P of the Act cannot be said to be a separate issue from the issue for which the reopening of the case was resorted to by the AO. The AO was duty bound to have examined the eligibility of the claim as per law to arrive at a logical end to the reopening of the case. If the contention of the ld. Counsel for the assessee is considered to be correct, the situation would be very absurd, since the AO would be precluded from examining the validity of the claim of deduction u/s 80P of the Act which arose for the first time only during the proceedings initiated by him u/s 147 of the Act and had direct co-relation with issue of cash deposits found deposited in the bank account of the assessee. There was no question therefore of the said claim to be different from the issue picked up by the AO for reopening the case. The propositions therefore relied upon by the ld. Counsel for the assessee are distinguishable on facts, since in the facts of the said case, the AO had picked up totally different issues from which the reopening was resorted to and that was held to be without jurisdiction by the various High Courts finding the AO to be satisfied with the issue for which reopening was initially resorted to.
38. In the light of the same, the argument of the ld. Counsel for the assessee that the AO had no power to examine the issue of allowability of claim of deduction u/s 80P of the Act r.w.s 80AC of the Act and therefore there was no error in the order of the AO for having not examined the same stands rejected.
39. To conclude, we hold that Ld. PCIT had rightly found the assessment order passed in the case of the assessee u/s 147 of the Act to be erroneous so as to cause prejudice to the Revenue for having allowed assessee’s claim of deduction u/s 80P of the Act without inquiring into the eligibility of the said claim with respect to the provisions of Section 80AC of the Act. The order passed by the ld. PCIT is therefore upheld.
40. In effect, the appeal of the assessee is dismissed.
Order pronounced in the Open Court on 15.09.2026
