Section 80P Deduction Can Be Claimed During Assessment Proceedings Even If Not Claimed in ITR: ITAT
Pune ITAT holds that for AY 2015-16, delayed or additional claim of Section 80P deduction could not be rejected merely because it was not made in the original return; Section 80AC amendment was prospective
Can a cooperative society claim deduction under section 80P during assessment proceedings when the deduction was not claimed in the original Income Tax Return?
And what happens if the return itself was not filed within the prescribed time?
A recent ruling of the Pune Bench of the Income Tax Appellate Tribunal provides an important answer, particularly for assessment years before AY 2018-19.
The Tribunal held that the stringent condition introduced in section 80AC, requiring timely filing of the return for claiming certain Chapter VI-A deductions, was not applicable retrospectively.
More importantly, the Tribunal reaffirmed that while making a claim for a deduction is mandatory, the timing of making that claim is directory. Therefore, a legitimate deduction under section 80P could be raised during assessment or appellate proceedings even if it was not claimed in the original return.
The ruling also reiterates the Pune ITAT’s consistent position regarding interest earned by a cooperative society from investments with other cooperative societies/cooperative banks under section 80P(2)(d).
The controversy: The deduction was not in the original return
The assessee was a cooperative society claiming deduction under section 80P.
The relevant assessment year was:
AY 2015-16
The Revenue denied the deduction on the ground that the assessee had not filed the return and, therefore, the statutory conditions for claiming the deduction were not satisfied.
The Revenue also disputed the eligibility of interest income earned from investments with cooperative banks/cooperative societies for deduction under section 80P.
The assessee, however, raised the claim during the assessment proceedings and argued that the deduction could not be denied merely because it had not been claimed in the original ITR.
This raised an important question:
Is a Chapter VI-A deduction lost forever if the taxpayer does not claim it in the original return?
For AY 2015-16, the Tribunal answered:
No.
Section 80P: A valuable deduction for cooperative societies
Section 80P provides deductions to eligible cooperative societies in respect of specified incomes.
Among other provisions, section 80P(2)(d) provides deduction in respect of:
interest or dividends derived by the cooperative society from its investments with any other cooperative society.
This provision has generated considerable litigation, particularly concerning interest income earned by cooperative societies from investments/deposits with cooperative banks.
But before examining the interest issue, there was a more fundamental procedural question:
Can the deduction itself be claimed when it was not claimed in the original return?
The answer depends significantly upon the assessment year involved.
The importance of AY 2015-16
This is where section 80AC becomes crucial.
Section 80AC was amended by the Finance Act, 2018.
The amendment made timely filing of the return a stringent condition for claiming deductions under specified provisions, including section 80P.
However, this amendment was made applicable from:
AY 2018-19 onwards.
The present case concerned:
AY 2015-16.
Therefore, the amended provision could not be applied retrospectively to deny the deduction.
This distinction was central to the Tribunal’s decision.
What exactly changed under Section 80AC?
The amended section 80AC effectively provides that certain deductions under Chapter VI-A, including section 80P, shall not be allowed unless the assessee furnishes the return of income on or before the due date specified under section 139(1).
This is a significant condition.
But the crucial point is:
That condition was not applicable to AY 2015-16.
Therefore, the Revenue could not take a provision introduced with effect from AY 2018-19 and use it to deny a deduction for AY 2015-16.
This is a classic example of why the assessment year and effective date of an amendment matter enormously in tax litigation.
The Tribunal’s first major finding
The Pune ITAT accepted the assessee’s argument that the amended section 80AC had only prospective applicability.
Therefore:
For AY 2015-16, the amended section 80AC could not be invoked to deny section 80P deduction merely because the return was not filed within the prescribed time.
This is particularly relevant to older assessments where the Revenue attempts to apply the current statutory condition to an earlier assessment year.
The second question: Can the claim be made during assessment proceedings?
This is perhaps the more interesting aspect of the decision.
The assessee had not claimed the deduction in the original return.
The Revenue argued that the deduction should therefore not be entertained.
But the Tribunal relied upon settled judicial principles to distinguish between:
Making a claim
and
When the claim is made.
The Tribunal observed, in substance, that while the assessee must satisfy the substantive conditions for claiming a Chapter VI-A deduction, the timing of raising the claim is directory in the circumstances applicable to the relevant year.
Thus, a valid statutory deduction does not necessarily disappear merely because the taxpayer failed to mention it in the original ITR.
Mandatory claim, directory timing
This distinction is extremely useful.
Imagine that a cooperative society is legally entitled to ₹20 lakh deduction under section 80P.
But due to an omission, the deduction is not claimed in the return.
Does the omission automatically mean:
“The deduction is permanently lost”?
For AY 2015-16, according to the Tribunal’s reasoning:
Not necessarily.
The taxpayer can raise the claim during the assessment proceedings, subject of course to establishing eligibility and satisfying the substantive requirements of section 80P.
In other words:
The deduction must be legally available.
But:
The stage at which the claim is made is not necessarily fatal.
Section 80P is about eligibility, not merely return formatting
This principle is particularly important for Chapter VI-A deductions.
The tax officer has to determine the correct taxable income in accordance with law.
If the assessee demonstrates that a particular income qualifies for statutory deduction, the mere fact that the claim was omitted from the original return should not automatically determine the tax liability for years to which the amended section 80AC does not apply.
The Tribunal therefore looked beyond the procedural omission and examined the substantive entitlement.
The interest income controversy
There was another important issue.
The assessee had earned interest income from investments with cooperative banks/cooperative societies and claimed deduction under section 80P(2)(d).
The Revenue disputed the claim.
This area has been heavily litigated following the Supreme Court’s decision in Totgars Cooperative Sale Society Ltd. v. ITO.
But the Pune ITAT has repeatedly distinguished the factual situation where a cooperative society earns interest from investments made with another cooperative society/cooperative bank.
Why Totgars does not automatically end the matter
The Revenue frequently relies upon the Totgars decision to argue that interest income earned by a cooperative society is not eligible for section 80P deduction.
But the factual nature of the investment matters.
Section 80P(2)(d) specifically deals with:
Interest or dividends derived by a cooperative society from investments with another cooperative society.
Therefore, the Tribunal has consistently examined whether the recipient and payer entities satisfy the relevant statutory requirements rather than treating every type of interest income identically.
The Pune Bench has reiterated its view that interest earned by a credit cooperative society from investments with other cooperative banks/societies can qualify for deduction under section 80P(2)(d), depending upon the facts.
A simple distinction
Consider two situations.
Situation 1
A cooperative society earns interest from an investment with another cooperative society.
Section 80P(2)(d) specifically addresses such income.
Situation 2
A cooperative society earns interest from some other source which does not fall within section 80P(2)(d).
The result may be different.
Therefore, merely labelling something as “interest income” is not enough.
The source of interest is crucial.
Why this matters for credit cooperative societies?
Credit cooperative societies commonly maintain surplus funds and make deposits or investments with cooperative banks or other cooperative institutions.
Such interest income can become a significant component of their taxable income.
The question whether such income qualifies under section 80P(2)(d) can therefore have a substantial financial impact.
The Pune ITAT’s consistent approach provides useful support where the investment is with an eligible cooperative society/cooperative bank and the factual requirements are satisfied.
The Revenue’s argument on return filing
The Revenue’s position effectively attempted to combine two arguments:
1. The return was not filed as required; and
2. The deduction was not claimed in the original return.
For AY 2015-16, however, the Tribunal found that the amended section 80AC could not be retrospectively invoked.
The absence of the deduction claim in the original return was also not considered fatal where the claim was subsequently raised during assessment proceedings and was otherwise legally allowable.
Thus, both objections required to be examined in the context of the law applicable to the relevant assessment year.
A very important caution: Don’t apply today’s law to yesterday’s assessment
This case highlights a common issue in tax litigation.
Tax provisions frequently change.
A provision may be:
• inserted;
• substituted;
• amended;
• expanded; or
• made subject to additional conditions
from a particular assessment year.
Therefore, whenever the Revenue relies upon a current provision, the first question should be:
“From which assessment year is this provision applicable?”
In this case, that question made a major difference.
The stricter section 80AC condition was applicable from AY 2018-19, whereas the dispute concerned AY 2015-16.
What taxpayers should learn from this ruling
Suppose a cooperative society discovers during assessment that it failed to claim a legitimate section 80P deduction.
For an older assessment year such as AY 2015-16, the taxpayer should not automatically assume that the claim is lost.
The taxpayer should examine:
1. Was section 80AC applicable to that assessment year?
2. Was the return filed within the time prescribed for that year?
3. Was the deduction omitted from the original return?
4. Can the deduction be raised during assessment proceedings?
5. Does the underlying income actually satisfy section 80P?
6. In case of interest income, who was the payer—another cooperative society/cooperative bank or some other entity?
These factual and legal distinctions can determine the outcome.
What about the current law?
This ruling should not be read as saying that a cooperative society can freely ignore the return-filing requirement today.
The amendment to section 80AC is important.
For assessment years to which the amended provision applies, timely filing of the return can be a substantive statutory condition for claiming specified deductions.
Therefore, the decision is particularly valuable for:
Earlier assessment years to which the amended section 80AC did not apply.
This distinction should always be kept in mind before relying upon the ruling.
A useful litigation argument
The decision can be particularly useful in pending appeals involving older assessment years.
A taxpayer may structure the argument as follows:
Step 1: Identify the assessment year.
Step 2: Establish the law applicable to that assessment year.
Step 3: Demonstrate that the amended section 80AC was not yet applicable.
Step 4: Establish substantive eligibility under section 80P.
Step 5: Demonstrate that the claim was raised during assessment/appellate proceedings.
Step 6: Establish the nature and source of interest income.
This approach separates the procedural issue from the substantive eligibility issue.
The larger principle
There is an important broader tax principle hidden in this ruling:
A genuine statutory deduction should not ordinarily be confused with the manner in which it was claimed, unless the statute expressly makes such procedural compliance a condition of eligibility.
For AY 2015-16, section 80AC did not impose the later stringent condition.
Therefore, the Revenue could not use the subsequently amended law to defeat the assessee’s claim.
Conclusion
The Pune ITAT ruling provides an important relief to cooperative societies dealing with old assessment years.
The Tribunal accepted two significant propositions:
First – Section 80AC is prospective
The amendment making timely filing of the return a mandatory condition for claiming specified deductions, including section 80P, applies from AY 2018-19 and cannot be used to deny a section 80P claim for AY 2015-16.
Second – Timing of the claim is directory
Where the deduction is otherwise legally available, a claim raised during assessment or appellate proceedings cannot automatically be rejected merely because it was omitted from the original return, for the relevant pre-amendment years.
And there is a third practical takeaway:
Interest from investments with cooperative societies/cooperative banks deserves separate examination under section 80P(2)(d); it cannot automatically be denied merely by citing Totgars.
For cooperative societies, therefore, the message is clear:
An omission in the original return does not always mean that a legitimate Section 80P deduction is gone forever—especially when dealing with assessment years before the 2018 amendment to Section 80AC.
Key provisions: Sections 80P, 80P(2)(d) and 80AC
Assessment Year: 2015-16
Forum: ITAT Pune
Key issue: Claim of Section 80P deduction during assessment proceedings despite omission/non-filing of original return.
The copy of the order is as under:
