Late return, full deduction: ITAT saves four co-op societies from CPC's axe.

Four co-operative societies, one common problem, and a tax deduction that almost vanished

Four co-operative societies from Gujarat's Amreli district — Ambaradi Seva Sahkari Mandali Ltd. and others — each filed their income tax returns for Assessment Year 2019-20 claiming deductions under Section 80P of the Income Tax Act. They all filed after the due date under Section 139(1), but within the extended window under Section 139(4). The CPC Bengaluru processed the returns under Section 143(1)(a) and disallowed the Section 80P deductions, treating them as "incorrect claims" solely because the returns were late. The CIT(A) NFAC upheld the disallowance. The societies faced losing their statutory deduction — a lifeline for genuine co-operative enterprises — over a timing issue.

What the CPC actually did

On 22 December 2020, the DCIT/ADIT (CPC), Bengaluru issued intimations under Section 143(1) for all four societies. The returns claimed deductions under Section 80P(2)(a)(i) (income from banking/credit facility to members), Section 80P(2)(a)(iv) (income from purchase/sale to members), Section 80P(2)(d) (income from investments with other co-operative societies), and Section 80P(2)(e) (income from letting of godowns/warehouses). The CPC made a prima facie adjustment under Section 143(1)(a)(ii), disallowing the entire deduction. The ground: the returns were filed after the due date under Section 139(1).

The societies moved first appeals to the CIT(A), National Faceless Appeal Centre (NFAC), Delhi. On 20 April 2022, the CIT(A) dismissed all four appeals, relying on Section 80AC(ii) of the Act. That provision, as amended by the Finance Act 2018, bars deductions under Part C of Chapter VIA — which includes Section 80P — if the return is not filed by the due date under Section 139(1). The CIT(A) held that the societies had not complied with that condition.

The arguments each side brought

Before the ITAT Rajkot Bench, the societies' counsel (the AR) argued that the prima facie adjustment under Section 143(1)(a)(ii) was itself impermissible. The deduction claimed was not "incorrect" on the face of the return — it was a legitimate claim supported by the societies' status as co-operative societies. The AR placed heavy reliance on the Kerala High Court's decision in Chirakkal Service Co-operative Bank Ltd. v. CIT (2016) 95 CCH 0197 / 68 taxmann.com 298, which held that the Tribunal was not justified in denying exemption under Section 80P merely because the return was filed belatedly.

The Revenue, represented by the DR, countered with the Madras High Court's decision in Veerappampalayam Primary Agricultural Co-operative Credit Society Ltd. v. DCIT (2021) 110 CCH 0219 / 138 taxmann.com 571, which held that Section 80AC(ii) makes it clear that deductions under Part C of Chapter VIA are admissible only if the return is filed within the due date under Section 139(1).

The witness rule the ITAT applied

The ITAT Rajkot Bench, comprising Ms. Suchitra Kamble (Author) and Shri Waseem Ahmed (Concurring), delivered its judgment on 10 February 2023. The Bench allowed all four appeals.

The core reasoning was straightforward. The ITAT held that the issue was squarely covered by the Kerala High Court's decision in Chirakkal Service Co-operative Bank Ltd. That decision held that a return filed beyond Section 139(1) or 139(4) or under Section 142(1) or 148 can be accepted and acted upon for allowing Section 80P claims, provided proceedings remain pending in the statutory hierarchy. The ITAT noted that the Madras High Court's decision in Veerappampalayam was distinguishable because it did not examine whether the assessee therein had filed the return beyond the due date of Section 139(4) or not. In the present case, the societies had filed their returns within the time allowed under Section 139(4).

The ITAT also addressed the amendment to Section 143(1)(a)(v) by the Finance Act 2021, effective 01.04.2021. Prior to that amendment, the CPC had no jurisdiction to make prima facie adjustments for belated returns under Section 143(1)(a)(ii). The disallowance of Section 80P deduction on the ground of belated filing did not constitute an "incorrect claim apparent from return" within the meaning of Section 143(1)(a)(ii) for AY 2019-20. The amendment, which specifically gave the AO jurisdiction to disallow deductions for belated returns, was prospective and did not apply to the assessment year in question.

THE PLAY: For AY 2019-20 and earlier years, a co-operative society that files its return under Section 139(4) can claim Section 80P deductions, and the CPC cannot disallow them via prima facie adjustment under Section 143(1)(a)(ii) — the amendment under Section 143(1)(a)(v) applies only from 01.04.2021.

Why this matters in practice

For advocates advising co-operative societies, this judgment provides a clear roadmap. If your client filed a belated return for AY 2019-20 or earlier, and the CPC disallowed Section 80P deductions via a Section 143(1) intimation, you have a strong case on appeal. The ITAT Rajkot has now followed the Kerala High Court's position, and the distinction from the Madras High Court's decision in Veerappampalayam — that it did not consider whether the return was filed within Section 139(4) time — gives you a factual wedge to avoid that adverse precedent.

For CFOs and founders of co-operative societies, the takeaway is equally practical. Filing a belated return under Section 139(4) does not automatically forfeit your Section 80P deduction for AY 2019-20 and earlier years. The CPC's automated system may flag the deduction as an "incorrect claim," but that adjustment is legally unsustainable. You should challenge such intimations at the CIT(A) stage, citing the Kerala High Court's decision and the ITAT Rajkot's judgment.

However, the landscape changed from 01.04.2021. The Finance Act 2021 amended Section 143(1)(a)(v) to specifically empower the AO to disallow deductions for belated returns. For AY 2021-22 onwards, the CPC's jurisdiction to make such adjustments is clear. The window of protection for belated returns under Section 80P is now closed for future years. Societies must file their returns by the Section 139(1) due date to preserve their deduction claims.

The bottom line

For AY 2019-20 and earlier, a co-operative society's Section 80P deduction cannot be denied merely because the return was filed after the Section 139(1) due date but within the Section 139(4) window — and the CPC's prima facie adjustment disallowing such deduction is legally impermissible.