Continuous Non-compliance of Taxpayer: ITAT Gives Final Chance

The Income Tax Appellate Tribunal (ITAT) recently highlighted the importance of taxpayer compliance in a landmark case involving claims under Section 80P of the Income Tax Act. Observing repeated non-compliance by the assessee, the tribunal remitted the matter back to the Commissioner of Income Tax (Appeals) [CIT(A)] for one final opportunity to present supporting documents and evidence. This decision underscores the significance of timely cooperation with tax authorities and adherence to legal procedures.

Background of the Case

The case involves the Payakaraopeta Women’s Mutually Aided Coop Thrift & Credit Society Limited, a cooperative society registered under the Andhra Pradesh Mutually Aided Cooperative Societies Act, 1965. The society had filed its return of income for Assessment Year (AY) 2010-11, declaring NIL income while claiming a full deduction of Rs. 47,94,183 under Section 80P of the Income Tax Act.

However, the Assessing Officer (AO) disallowed certain deductions, specifically:

• Interest earned on Fixed Deposits: Rs. 22,15,164

• Bank balance: Rs. 6,20,450

• Loan advanced to staff members: Rs. 5,35,735

The AO passed the order under Section 143(3) of the Act on 22nd November 2012, partially disallowing the claimed deduction.

Appellate Proceedings

First Appeal

Aggrieved by the AO’s order, the assessee approached the CIT(A). Unfortunately, due to repeated non-appearance and failure to submit required documents, the CIT(A) dismissed the appeal ex-parte.

ITAT Intervention

The assessee then filed an appeal before the ITAT, which, in its 2017 order, set aside the CIT(A)’s dismissal and remitted the matter for a fresh hearing, emphasizing the assessee’s right to be heard.

Continued Non-Compliance

Even after ITAT’s direction, the assessee repeatedly failed to comply with notices issued under Section 250 of the Act. Consequently, the CIT(A) once again dismissed the appeal ex-parte on 24th March 2025.

The assessee’s counsel then approached ITAT, arguing that the assessee was not provided an adequate opportunity to substantiate the claim and requested a final chance to present evidence.

ITAT’s Observations

The two-member ITAT bench, comprising S. Balakrishnan (Accountant Member) and Sandeep Singh Karhail (Judicial Member), noted the following:

• Repeated non-compliance left the CIT(A) with no choice but to dismiss the appeal ex-parte.

• In the interest of justice, the tribunal decided to remit the matter to CIT(A) for one final opportunity.

• CIT(A) is directed to adjudicate the appeal within 90 days.

• The assessee is strictly cautioned to cooperate with the proceedings. Failure to do so will allow CIT(A) to decide on the merits based on existing records.

The appeal was allowed for statistical purposes, ensuring the assessee is granted a fair final chance to substantiate its claim.

Section 80P and Its Implications

Section 80P of the Income Tax Act provides deductions to cooperative societies for income earned from certain activities, such as:

• Profits and gains from business with members

• Interest from loans given to members

• Income from mutual aid operations

Proper documentation and adherence to procedural requirements are essential to claim this deduction. Cases like this highlight the importance of timely response to notices and submission of accurate financial records to avoid disallowance.

Lessons for Taxpayers

1. Timely Compliance is Crucial
   Ignoring tax notices or missing hearings can result in ex-parte dismissals, negatively affecting claims and deductions.

2. Maintain Proper Documentation
   For cooperative societies or any organization claiming deductions under Section 80P, accurate records of interest income, loans, and bank balances are mandatory.

3. Active Participation in Proceedings
   Taxpayers must ensure attendance in hearings and provide all requested details to avoid adverse orders.

4. Tribunal Relief is Conditional
   While ITAT may provide a final opportunity, repeated non-compliance can lead to a loss of rights and decisions being taken on available records.

5. Plan Ahead for Compliance
   Establishing a compliance calendar for all tax-related filings and responses ensures that deadlines are met, and appeals are effectively managed.

Practical Guide for Cooperative Societies

• Keep Detailed Records: Maintain separate accounts for loans, deposits, and member transactions.

• Verify Claims Before Filing: Ensure that all deductions claimed under Section 80P are legitimate and backed by documentation.

• Respond to Notices Promptly: Avoid repeated non-appearance in hearings to prevent ex-parte orders.

• Seek Expert Advice: Tax professionals or chartered accountants can guide societies through complex tax provisions.

• Monitor Tribunal Orders: Stay updated with ITAT and CIT(A) communications to ensure compliance.

Conclusion

The ITAT’s decision in this matter reinforces that continuous non-compliance is risky, even for legitimate claims under Section 80P. Taxpayers, particularly cooperative societies, must actively participate in proceedings, maintain proper documentation, and respond to notices on time.

While the tribunal provided a final opportunity, it comes with a caution: failure to cooperate can result in adverse decisions. This case serves as a reminder for taxpayers to prioritize compliance, documentation, and proactive engagement with the Income Tax Department to safeguard their claims.