No Deductions for Late Tax Returns: Court Upholds Strict Deadline for Co-op Societies

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Case Name

AA520 Veerappampalayam Primary Agricultural Co-operative Credit Society Limited (Rep. by its Secretary) vs. Deputy Commissioner of Income Tax and Ors. (High Court of Madras)

W.P. Nos.7038, 7043, 4901, 4441, 4448, 6455 & 7014 of 2020 and 17938, 17963, 17954, 17944, 17957, 17950, 20711, 20767 & 25806 of 2019 and WMP. Nos. 8392, 8393, 8395, 8400, 8401, 8403, 7625, 7622, 5799, 5801, 7623, 5257, 5259, 5266, 5267, 8366, 8369, 14346, 16166, 16167, 16171, 16225 & 16226 of 2020, 17360, 17379, 17367, 17343, 17346, 17352, 19868, 19869, 19934, 19937, 25253, 25254 of 2019 and 2654 of 2021

Date: 7th April 2021

Key Takeaways

• Strict Deadline for Deductions: If a taxpayer files their return after the due date, they cannot claim deductions under Part C of Chapter VIA (including Section 80P (of Income Tax Act, 1961)).
• Section 80AC(ii) (of Income Tax Act, 1961) is Clear: The law explicitly states that these deductions are only available if the return is filed on time.
• Section 143(1)(a) (of Income Tax Act, 1961) Adjustments: The Central Processing Centre (CPC) can make adjustments to returns if errors or incorrect claims are apparent, including denying deductions for late returns.
• No Relief for Non-Responsive Taxpayers: The Societies did not respond to notices or participate in the assessment process, which weakened their case.
• Court’s Approach: The court emphasized that the law must be applied as written, and there’s no room for exceptions based on the explanation or technicalities.

Issue

Can a taxpayer claim deductions under Part C of Chapter VIA (such as Section 80P (of Income Tax Act, 1961)) if they file their income tax return after the prescribed due date?

Facts

• Who: The petitioners are various Co-operative Societies (Primary Agricultural, Thrift, Employees, etc.).
• What Happened: For the assessment year 2018-19, these Societies filed their income tax returns after the deadline set under Section 139 (of Income Tax Act, 1961).
• What They Claimed: They claimed deductions under Section 80P (of Income Tax Act, 1961) (and possibly other sections in Part C of Chapter VIA).
• Tax Department’s Response: The Central Processing Centre (CPC) issued notices proposing to disallow these deductions, citing that the returns were filed late.
• Petitioners’ Conduct: The Societies did not respond to the notices or participate in the assessment process. They only approached the court after the tax department started recovery proceedings.

Arguments

Petitioners (Co-operative Societies)

• Main Argument: The adjustment under Section 143(1)(a) (of Income Tax Act, 1961) is only for patent errors or incorrect claims apparent from the return. They argued that the date of filing is not an “entry” in the return, so the deduction should not be disallowed on this basis.
• Legal Point: They relied on the explanation to Section 143(1)(a) (of Income Tax Act, 1961), which defines “incorrect claim” as one based on an entry in the return, and argued that the date of filing is not such an entry.

Respondents (Income Tax Department)

• Main Argument: Section 80AC(ii) (of Income Tax Act, 1961) clearly states that deductions under Part C of Chapter VIA are only allowed if the return is filed on time. Since the returns were late, the deductions cannot be allowed.
• Legal Point: The date of filing is apparent from the return, and the CPC is within its rights to make this adjustment under Section 143(1)(a) (of Income Tax Act, 1961).

Key Legal Precedents & Provisions

• Section 80AC(ii) (of Income Tax Act, 1961): No deduction under Part C of Chapter VIA is allowed if the return is not filed within the due date.
• Section 143(1)(a) (of Income Tax Act, 1961): Allows the CPC to make adjustments for apparent errors, including disallowing deductions for late returns.
• Explanation to Section 143(1)(a) (of Income Tax Act, 1961): Defines “incorrect claim” for the purpose of adjustments.
• No specific case law names are cited in the judgment, but the court relies heavily on the statutory language of the above sections.

Judgement

• Decision: The High Court dismissed the petitions of the Co-operative Societies.
• Reasoning: The court held that Section 80AC(ii) (of Income Tax Act, 1961) is clear—no deduction under Part C of Chapter VIA is allowed for belated returns. The date of filing is apparent from the return, and the CPC is right to make this adjustment under Section 143(1)(a) (of Income Tax Act, 1961).
• Conduct of Petitioners: The court also noted the Societies’ lack of cooperation and delayed approach to the court as further reasons not to interfere.
• Order: The writ petitions were dismissed, and all related miscellaneous petitions were closed.

FAQs

Q1: Can I claim deductions under Section 80P (of Income Tax Act, 1961) if I file my return late?

A: No, as per Section 80AC(ii) (of Income Tax Act, 1961), you cannot claim deductions under Part C of Chapter VIA (including Section 80P (of Income Tax Act, 1961)) if your return is filed after the due date.

Q2: What is Section 143(1)(a) (of Income Tax Act, 1961) and how does it apply here?

A: Section 143(1)(a) (of Income Tax Act, 1961) allows the tax department to make adjustments to your return for apparent errors, including disallowing deductions if the return is filed late.

Q3: Does the date of filing count as an “entry” in the return?

A: The court held that the date of filing is apparent from the return and is sufficient for the CPC to make adjustments under Section 143(1)(a) (of Income Tax Act, 1961).

Q4: What if I don’t respond to notices from the tax department?

A: Not responding weakens your case. The court noted that the Societies’ lack of response and cooperation was a factor in dismissing their petitions.

Q5: Is there any exception to this rule?

A: No, the court applied the law strictly as written. There is no exception for late filing in this context.

These 16 writ petitions have been filed by Co-operative Societies, being

either Primary Agricultural Co-operative Credit Societies, Thrift Societies,

Employees Societies or other categories of Co-operative Societies, and challenge intimations under Section 143(1) (of Income Tax Act, 1961), 1961 (in short ‘Act’).

The year of assessment in all cases is 2018-19.

2. The admitted facts are:

(i) None of the Societies have filed returns of income within the time

stipulated under Section 139 (of Income Tax Act, 1961) and returns have been filed belatedly on various dates,

(ii) The Central Processing Centre (CPC), upon receipt of the returns filed,

had issued communications proposing an adjustment in terms of Section 143(1)(a) (of Income Tax Act, 1961). The reason for the proposed adjustment is ‘error/incorrect

claim/inconsistency’ and the details are set out in Part A of the communication reading as follows:

PART -A Adjustment u/s.143(1)(a) (of Income Tax Act, 1961)

(ii) Incorrect Claim u/s.143(1)(a)(ii) (of Income Tax Act, 1961)

Sl. No. Schedule Error Description Amount in Income Tax Return Amount as

computed Variance on account of Proposed adjustment

1 Schedule VIA In schedule VI-A, under Part- C deduction in respect of certain incomes, in Sl.No.2.1 deduction is claimed under Section 80P (of Income Tax Act, 1961) however return is not filed within due date 1537745 0 1537745

(iii) None of the petitioner societies have either responded to the notices or furnished any explanation in regard to the proposed alleged adjustment.

(iv) In view of the utter silence on the part of the petitioner, the proposals have come to culminate in the intimations impugned in these writ petitions.

3. The challenge to the intimations is on the ground that they do not confirm to the prescription of Section 143(1)(a) (of Income Tax Act, 1961). Mr.Sudhakar and

Mr.Prakasam, Mr.Karthikeyan not being present before the Court, would argue

that the provisions of Section 143(1)(a) (of Income Tax Act, 1961) can only be invoked in cases where there are (i) patent arithmetical errors, (ii) an incorrect claim, such incorrect claim being apparent from any information/entry contained in the return,

(iii) disallowance of loss claimed if the returns were filed beyond the due date, (iv) disallowance of expenditure indicated in the audit report but not taken into account in computing total income (v) disallowance of deduction claimed under specified provisions of the Act if the return was filed beyond due date or

(vi) additional income appearing in Form 26AS or 16A or 16, which has not been taken into account in computing total income. According to them, there is no error as aforesaid that emanates from the returns of income filed by the petitioners and as such, the invocation of Section 143(1)(a) (of Income Tax Act, 1961) is itself flawed.

4. Per contra, Mrs.Hema Muralikrishnan, learned Senior Standing Counsel

for the Revenue would argue that the error arises from the fact that the returns of income have been filed belatedly and beyond the dates stipulated under Section 139 (of Income Tax Act, 1961). There is no doubt or dispute in this regard. Hence, the claim under Section 80P (of Income Tax Act, 1961) could not have been putforth in the light of provisions contained in Section 80AC(ii) (of Income Tax Act, 1961) as it stood post amendment with effect from 01.04.2018.

5. Learned counsel for the petitioners would than argue that the Explanation under Section 143(1)(a) (of Income Tax Act, 1961) explains ‘an incorrect claim' for the purpose of Clause (ii) of Section 143(1)(a) (of Income Tax Act, 1961), as meaning a claim

based on an entry in a return of income. According to them, the date of return does not constitute an 'entry' and hence no adjustment is called for on this score.

6. Section 143(1)(a) (of Income Tax Act, 1961) reads thus:-

'143.(1) Where a return has been made undersection 139, or in response to a

notice under sub-section (1) ofsection 142, such return shall be processed in the following manner, namely:—

(a) the total income or loss shall be computed after making the following

adjustments, namely:—

(i) any arithmetical error in the return;

(ii) an incorrect claim, if such incorrect claim is apparent from any information in the return;

(iii) disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was furnished beyond the due date specified under sub-section (1) ofsection 139;

(iv) disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return;

(v) disallowance of deduction claimed undersections 10AA,80-IA,80-IAB,80-

IB,80-IC,80-IDorsection 80-IE, if the return is furnished beyond the due date specified under sub-section (1) ofsection 139; or

(vi) addition of income appearing in Form 26AS or Form 16A or Form 16 which

has not been included in computing the total income in the return:

Provided that no such adjustments shall be made unless an intimation is given to the assessee of such adjustments either in writing or in electronic mode:

Provided further that the response received from the assessee, if any, shall be considered before making any adjustment, and in a case where no response is received within thirty days of the issue of such intimation, such adjustments shall be made:'

7. The scope of an 'intimation' under Section 143(1)(a) (of Income Tax Act, 1961), 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 Income Tax Act, 1961).

8. The provisions of Section 80AC(ii) (of Income Tax Act, 1961) make it clear that any deduction that

is claimed under Part C of Chapter VIA would be admissible only if the return of income in that case were filed within the prescribed due date. Thus no claim under any of the provisions of Part C of Chapter VIA would be admissible in the case of a belated return. There is no dispute on this position. The date of filing of a return of income would be apparent on the face of return and upon a perusal thereof, it would be clear as to whether the return is a valid return, having been filed within the statutory time limit, or a belated one. This is mechanical exercise and one that can be carried out by the CPC, very much within the scope of Section 143(1)(a)(ii) (of Income Tax Act, 1961).

9. The conduct of the petitioners is also relevant. Not only have the

returns been filed belatedly but the petitioners have also chosen not to co-operate in the conduct of assessment. They are admittedly in receipt of the defect notices from the CPC, but have not bothered to respond to the same. The writ petitions have themselves been filed belatedly and after the elapse of more than six to eight months from the dates of impugned orders, in all cases. It is only when the Revenue has initiated proceedings for recovery by attachment of bank accounts have the petitioners approached this Court. This factor also strengthens my resolve that these are not matters warranting interference in terms of Article under Section 226 (of Income Tax Act, 1961) of the Constitution of India, quite apart from the decision that I have arrived at on the legal issue.

10.These writ petitions are dismissed and connected Miscellaneous Petitions are also closed.

11. W.M.P. Nos.14346, 16166, 16167, 16171, 16225, 16226 of 2020 and

2654 of 2021 have been filed by the Revenue seeking to vacate the stay originally granted by this Court. The MPs do not figure in the main list and I have hence directed that the same be listed today by way of a special list. The MPs also stand closed in light of my order as above. No costs.