Facts of the Case

The assessee, Amolik Housing Pvt. Ltd., filed its return of income for Assessment Year 2019-20 claiming deduction under Section 80IBA of the Income-tax Act, 1961 amounting to ₹6,88,70,539.

While processing the return under Section 143(1), the Centralized Processing Centre (CPC), Bengaluru disallowed the deduction claimed under Section 80IBA.

The assessee challenged the adjustment before the Commissioner of Income Tax (Appeals) / National Faceless Appeal Centre (NFAC). However, the CIT(A)/NFAC upheld the disallowance made by CPC.

Aggrieved by the order of the CIT(A)/NFAC, the assessee filed an appeal before the Income Tax Appellate Tribunal (ITAT), Delhi Bench.

 

Issues Involved

Whether deduction claimed under Section 80IBA can be disallowed while processing the return under Section 143(1) for Assessment Year 2019-20 based on the amendment introduced by the Finance Act, 2021.

 

Petitioner’s Arguments (Assessee)

  • The deduction claimed under Section 80IBA falls under Chapter VI-A, Part C of the Income-tax Act.
  • The disallowance was made under Section 143(1)(a) during processing of the return.
  • The power to disallow such deductions during processing was introduced through an amendment in Section 143(1)(a)(v) by the Finance Act, 2021.
  • The said amendment came into effect from 01.04.2021.
  • Since the relevant Assessment Year was 2019-20, the amendment could not be applied retrospectively.

 

Respondent’s Arguments (Department)

  • The disallowance was correctly made while processing the return under Section 143(1).
  • The CPC was justified in disallowing the deduction claim as part of the return processing mechanism.
  • The action taken by CPC and upheld by CIT(A)/NFAC was valid in the circumstances of the case.

 

Court Order / Findings

  • The deduction claimed under Section 80IBA falls under Chapter VI-A, Part-C.
  • The amendment allowing such deductions to be disallowed during processing was inserted through Finance Act, 2021 in Section 143(1)(a)(v).
  • The amendment came into effect from 01.04.2021.
  • There was no material to show that the amendment had retrospective effect.

Since the assessment year involved was 2019-20, the amendment could not be applied.

Accordingly, the Tribunal reversed the orders of the lower authorities and held that the disallowance of deduction under Section 80IBA through Section 143(1) processing was not valid.

 

Important Clarification

  • The amendment introduced by the Finance Act, 2021 in Section 143(1)(a)(v) enabling disallowance of certain deductions under Chapter VI-A during return processing is prospective in nature.
  • Such adjustment cannot be made for assessment years prior to 01.04.2021.

Therefore, deductions under Section 80IBA could not be disallowed through Section 143(1) processing for AY 2019-20.

 

Section Involved

  • Section 80IBA – Deduction for profits from housing projects
  • Section 143(1) – Processing of return
  • Section 143(1)(a)(v) – Adjustment relating to deductions under Chapter VI-A (as amended by Finance Act 2021)
  • Chapter VI-A Part C – Deductions in respect of certain incomes

Link to download the order -  https://itat.gov.in/public/files/upload/1735642460-uxTC6A-1-TO.pdf

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