Can You Claim Section 80P Deduction During Assessment Even If It Was Not Claimed in the Original ITR? ITAT Pune Says Yes
Important Relief for Cooperative Societies: Section 80P Claim Can Be Raised During Assessment Proceedings for Pre-AY 2018-19 Cases
One of the most frequently litigated issues involving cooperative societies is whether a deduction under Section 80P of the Income-tax Act can be claimed if it was not claimed in the original Income Tax Return (ITR).
Tax authorities often reject such claims on the ground that the deduction was not claimed in the return or that the return itself was filed belatedly. However, a recent decision of the Income Tax Appellate Tribunal (ITAT), Pune Bench, has once again reaffirmed an important legal principle that substantive tax benefits cannot be denied merely because the claim was raised during assessment proceedings instead of in the original return, particularly for years prior to AY 2018-19.
The ruling is expected to benefit thousands of cooperative credit societies facing similar disputes across the country.
The Key Question
Can an assessee claim deduction under Section 80P during assessment proceedings even if it was not claimed in the original Income Tax Return?
For assessment years prior to AY 2018-19, the answer, according to the Pune Tribunal, is Yes.
Background of the Case
The assessee, a cooperative society, claimed deduction under Section 80P during the assessment proceedings.
The Revenue rejected the claim primarily on two grounds:
• The deduction had not been claimed in the original return of income.
• Interest earned from investments with cooperative banks was allegedly not eligible for deduction under Section 80P.
The matter ultimately reached the ITAT Pune.
Tribunal’s First Important Finding:
Section 80AC Amendment Is Prospective
One of the major issues before the Tribunal was the applicability of Section 80AC.
The Revenue attempted to apply the amended provisions of Section 80AC, which require filing the return within the prescribed due date as a mandatory condition for claiming deductions under Chapter VI-A, including Section 80P.
The Tribunal rejected this contention.
It held that the stringent amendment to Section 80AC became effective only from Assessment Year 2018-19.
Therefore, for Assessment Year 2015-16, the amended condition had no application.
This is a crucial distinction because many assessments relating to earlier years continue to be litigated.
Tribunal’s Second Important Finding:
Timing of the Claim Is Directory, Not Mandatory
The Tribunal reaffirmed a well-settled legal principle.
While claiming a deduction under Chapter VI-A is undoubtedly necessary, the timing of making the claim is directory rather than mandatory.
In other words, the deduction need not necessarily be claimed only in the original return.
A valid claim may also be made:
• during assessment proceedings,
• before the Commissioner (Appeals),
• or even before the Tribunal, subject to the facts and applicable law.
This approach ensures that genuine deductions are not denied merely because of procedural omissions.
Why This Principle Is Significant
This finding extends beyond Section 80P.
The reasoning may be relevant wherever taxpayers inadvertently omit legitimate deductions in their original returns but subsequently raise them during assessment or appellate proceedings.
Courts have consistently emphasized that the objective of assessment proceedings is to determine the correct taxable income, not merely to identify procedural lapses.
Interest from Cooperative Banks Also Eligible Under Section 80P(2)(d)
The Tribunal also dealt with another recurring controversy.
The Revenue argued that interest earned from investments with cooperative banks is not eligible for deduction under Section 80P.
The Pune Bench disagreed.
Following its consistent line of decisions, the Tribunal held that:
• Interest earned by a cooperative credit society from investments with other cooperative banks or cooperative societies qualifies for deduction under Section 80P(2)(d).
The Tribunal distinguished the facts from the Supreme Court’s decision in Totgars Cooperative Sale Society Ltd., observing that the Totgars ruling dealt with a different factual situation and cannot automatically be applied to every case involving interest income.
Difference Between Totgars and Section 80P(2)(d)
Many assessments routinely cite the Totgars judgment while denying deduction.
However, several High Courts and Tribunals have clarified that Totgars primarily concerned:
• interest earned on surplus funds invested with nationalized banks, and
• deduction claimed under Section 80P(2)(a)(i).
Where the investment is with another cooperative society or cooperative bank, Section 80P(2)(d) operates differently.
This distinction continues to be recognized in numerous judicial decisions.
Practical Implications for Cooperative Societies
The ruling provides valuable guidance for cooperative societies involved in pending assessments or appeals.
For Assessment Years prior to 2018-19:
• Failure to claim Section 80P deduction in the original return does not automatically extinguish the claim.
• The deduction may still be raised during assessment proceedings.
• Appellate authorities can also entertain such claims.
• The amended provisions of Section 80AC cannot be applied retrospectively.
Additionally, interest earned from investments with cooperative banks may continue to qualify for deduction under Section 80P(2)(d), depending upon the facts of each case.
Broader Legal Principle
The Tribunal’s decision reinforces an important doctrine of tax jurisprudence:
Assessment proceedings exist to determine the correct tax liability. Legitimate deductions should not be denied merely because they were omitted from the original return, particularly where the law applicable to the relevant assessment year does not impose such a restriction.
This principle has application across several deduction provisions under the Income-tax Act.
Key Takeaways
• Section 80P deduction can be claimed during assessment proceedings for years prior to AY 2018-19, even if omitted from the original return.
• The amendment to Section 80AC requiring timely filing of return is prospective and applies only from AY 2018-19 onwards.
• The timing of making a deduction claim is directory and not mandatory for earlier assessment years.
• Interest earned from investments with cooperative banks/cooperative societies may qualify for deduction under Section 80P(2)(d).
• The Totgars decision does not automatically govern every case involving interest income of cooperative societies.
Conclusion
The ITAT Pune’s decision is another significant ruling reaffirming that substantive tax benefits should prevail over procedural lapses.
For cooperative societies, the judgment offers important relief by clarifying that legitimate deductions under Section 80P cannot be rejected merely because they were not claimed in the original return for years prior to AY 2018-19. Equally significant is the Tribunal’s reaffirmation that interest earned from investments with cooperative banks and cooperative societies can qualify for deduction under Section 80P(2)(d), where the statutory conditions are fulfilled.
As numerous assessments involving cooperative societies remain pending, this decision is likely to become an important precedent in disputes concerning Section 80P, Section 80AC, delayed deduction claims, and the taxability of interest income.
The copy of the order is as under:
