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Facts
The assessee company was incorporated on August 2, 2016, and filed its return for AY 2017-18 at a tax rate of 29%. The AO initially processed it at 29% but later issued a rectification order under Section 154, levying tax at 30% based on the Finance Act, 2017.
Held
The Tribunal held that the 29% tax rate under the Finance Act, 2017, is applicable only to domestic companies that existed in the previous year (2014-15) and had a turnover not exceeding Rs. 5 crore. Since the assessee was incorporated in 2016-17, it could not have had any turnover in 2014-15, thus falling under the 30% tax rate.
Key Issues
Whether the reduced tax rate of 29% under the Finance Act, 2017, applies to a company incorporated in the relevant financial year, or if it requires existence in the prior year for turnover calculation.
Sections Cited
250, 154, 234B, 234C, 143(1), 143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI VIKRAM SINGH YADAVSHRI SANDEEP SINGH KARHAIL
Date of Hearing – 03/11/2025 Date of Order - 07/11/2025
O R D E R PER SANDEEP SINGH KARHAIL, J.M.
The present appeal has been filed by the assessee against the impugned order dated 22/08/2024, passed under section 250 of the Income Tax Act, 1961 ("the Act") by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [“learned CIT(A)”], which in turn arose from the order passed under section 154 of the Act, for the assessment year 2017-18.
In this appeal, the assessee has raised the following grounds:
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1. In law and in facts and circumstances of the Appellant's case, the learned Commissioner of Income-tax (Appeals) has erred in points of law and facts.
2. In law and in facts and circumstances of the Appellant's case, the learned Commissioner of Income-tax (Appeals) has grossly erred in dismissing the ground of the appellant for charging tax @30% instead of @29% vide the order dtd. 22.03.2024 passed u/s 154 of IT Act.
3. In law and in facts and circumstances of the Appellant's case, the learned Commissioner of Income-tax (Appeals) has grossly erred in dismissing the ground of the appellant against charging interest u/s.234B of I.T. Act for Rs.22,98,228/-instead of Rs.21,25,466/-.
4. In law and in facts and circumstances of the Appellant's case, the learned Commissioner of Income-tax (Appeals) has grossly erred in dismissing the ground of the appellant against charging interest u/s.234C of I.T. Act for Rs. 17,06,136/-instead of Rs. 15,33,371/-.”
The solitary grievance of the assessee is against the charging of tax @ 30% instead of 29% vide order passed under section 154 of the Act.
The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee filed its return of income on 27.10.2017, declaring a total income at Rs.9,50,03,264/- and paid tax thereon @ 29%. The return filed by the assessee was processed vide intimation dated 04.03.2018 issued under section 143(1) of the Act levying the tax @29%. Subsequently, the return filed by the assessee was selected for scrutiny and vide order dated 18.12.2019 passed under section 143(3) of the Act, the total income of the assessee was assessed at the return income levying tax @29%. Thereafter, on 24.03.2021 and on 09.12.2023, a notice under section 154 of the Act was issued to the assessee on the basis that the applicable tax rate is 30% instead of 29% for the year under consideration. The assessee duly responded the said notices. The Assessing Officer (“AO”) vide order dated 22.03.2024 held that the tax is chargeable @ 30% instead of 29% and accordingly computed the total tax demand along with interest leviable under section 234B and section 234C of the Act.
In its appeal before the learned CIT(A) against the order passed under section 154 of the Act, the assessee submitted that, as per the Finance Act, 2017, the tax is payable @ 29% if the turnover of the domestic company is less than Rs.5 crore during the previous year 2014-15. The assessee further submitted that, since it was incorporated on 02.08.2016, its turnover for the previous year, 2014-15, was Rs. Nil, and hence, the tax rate applicable for the year under consideration is 29%.
The learned CIT(A), vide impugned order, disagreed with the submissions of the assessee and held that the provisions of the Finance Act, 2017, as placed reliance upon by the assessee, are not applicable as the assessee company was incorporated in the Financial Year 2016-17. Accordingly, the learned CIT(A) upheld the levy of tax @30% instead of 29% as claimed by the assessee. Being aggrieved, the assessee is in appeal before us.
During the hearing, the learned Senior Counsel, appearing for the assessee, by referring to the First Schedule to the Finance Act, 2017, submitted that in case of a domestic company, the rate of income tax shall be 29%, where the total turnover or the gross receipt in the previous year 2014- 15 does not exceed Rs. 5 crore. The learned senior counsel further submitted that the rate of tax of 30% is applicable in cases that are not covered under the aforementioned circumstances. It was further submitted that since the assessee company was incorporated on 02.08.2016, therefore, its total turnover in the previous year 2014-15 was Rs. Nil, and thus, the total income for the year under consideration is chargeable to tax @29%.
On the other hand, the learned Departmental Representative vehemently relied upon the impugned order and submitted that the income of the assessee for the year under consideration is only taxable @ 30% and thus supported the rectification order passed under section 154 of the Act.
We have considered the submission of both sides and perused the material available on record. In the present case, there is no dispute regarding the fact that the assessee company was incorporated on 02.08.2016. Since the income of the assessee for the year under consideration was taxed @ 29% vide order dated 18.12.2019 passed under section 143(3), the AO passed the rectification order under section 154 of the Act levying tax @ 30%. It is the plea of the assessee that, as per the provision of the First Schedule to the Finance Act, 2017, in case of a domestic company, the total income shall be chargeable to tax @29% where the turnover in the previous year 2014-15 does not exceed Rs.5 crore. Thus, as per the assessee, since it was incorporated only on 02.08.2016, its turnover for the previous year 2014-15 was Rs.Nil, and hence, the applicable tax rate for the year under consideration is 29%.
Before proceeding further, it is imperative to note the relevant provisions of the First Schedule to the Finance Act, 2017, which are reproduced as follows: -
Paragraph E In the case of a company, — Rates of income-tax In the case of a domestic company, — (i) where its total turnover or the gross receipt in the previous year 2014- 29 per cent of the total income 15 does not exceed five crore rupees; (ii) other than that referred to in item (i) 30 per cent of the total income;”
Therefore, from the careful perusal of the aforesaid provisions, it is evident that the rate of tax @ 29% on the total income is applicable in case of a domestic company, where the total turnover or the gross receipt in the previous year 2014-15 does not exceed Rs.5 crore. It is further provided that in cases which are not covered under the aforesaid circumstance, the applicable rate of tax shall be 30%. In order to support the contention that the assessee’s case is covered by clause (i) of the aforesaid provision, the learned Senior Counsel, during the hearing, also submitted that the turnover of a company can also be Rs.Nil in a case where the company itself was incorporated in the previous year 2014-15, and therefore, the assessee’s case should not be viewed differently.
Having considered the submissions of both sides and perused the material available on record, we do not find any merit in the submission of the assessee or the analogy drawn during the hearing, as in the present case, the assessee, being the juridical person, came into existence only on the date of its incorporation, i.e. 02.08.2016, falling within the previous year 2016-17. Therefore, there can be no question of the assessee having a turnover or gross receipts in the previous year 2014-15, i.e., prior to its coming into existence or incorporation. Accepting the assessee’s plea is similar to expecting an unborn child to have an income. Therefore, we are of the considered view that the provisions of clause (i) of Paragraph E of the First Schedule to the Finance Act, 2017, prescribing the tax rate of 29%, are only applicable in case of a domestic company which was in existence in the previous year 2014-15 and had a total turnover or gross receipt not exceeding Rs.5 crore. Thus, we do not find any infirmity with the findings of the learned CIT(A) that the above provisions are not applicable in the case of the assessee and its case only falls within the provisions of clause (ii), prescribing a tax rate of 30%.
Since vide order passed under section 143(3) of the Act, the tax was levied @ 29%, we are of the considered view that the same was an obvious mistake which was apparent from the record, as the assessee’s case clearly falls under clause (ii) of Paragraph E of the First Schedule to the Finance Act, 2017. Accordingly, we upheld the exercise of the jurisdiction by the AO under section 154 of the Act in levying the tax @30% in the present case.
As regards the decision in the case of Kluber Lubrication India Pvt. Ltd. vs. DCIT, reported in (2024) 166 taxmann.com 161 (Bangalore – Trib.), placed reliance upon by the learned Senior Counsel, we are of the considered view that the said decision is factually distinguishable as the issue whether the excise duty forms part of the turnover can only come up for consideration once the company is in existence. Thus, in light of the undisputed facts of the present case, we are of the considered view that this issue is not debatable and the order under section 154 of the Act was rightly passed levying the tax @30%. As a result, the impugned order passed by the learned CIT(A) is upheld, and the grounds raised by the assessee are dismissed.
In the result, the appeal by the assessee is dismissed. Order pronounced in the open Court on 07/11/2025