TAINWALA PERSONAL CARE PRODUCTS PVT LTD,MUMBAI vs. DCIT CIRCLE 3(3)(1), MUMBAI

On the facts and circumstances of the case, and in Law, the Asst. Director of Income Tax, CPC Bengaluru erred in rejecting the option of Section 115BAA for the procedural lapse in not filing Form 10IC.

On the facts and circumstances of the case and in law the AO failed to appreciate that: a. The Assessee has opted for Section 115BAA and filed the return and tax audit accordingly. b. The mere fact that form 10IC is not filed cannot be sole reason to deny the Assessee of the beneficial provision. c. The Section 115BAA is a beneficial provision which cannot be denied due to procedural lapse.

The appellant, therefore, prays that the Assessee's return please be processed with the benefit U/s 115BAA and the demand deleted.

The appeal concerns the denial of the concessional tax rate under Section 115BAA of the Act due to the non-filing of Form 10IC, which is a mandatory procedural requirement under Rule 21AE of the Income Tax Rules, 1962. 4. The ld.CIT(A) has elaborately discussed the whole issue stating that the assessee filed its Income Tax Return (ITR) on 13.03.2022, declaring a total income of Rs.8,49,58,240/- and opting for the beneficial provisions of Section 115BAA. Along with the ITR, it also submitted its tax audit report in Form 3CD, reflecting its intention to avail of the concessional tax regime. However, while processing the return under Section 143(1) of the Act, the claim under Section 115BAA was disallowed due to the omission to file Form 10IC, and the income was assessed under Section 115JB based on book profits, resulting in a gross tax liability of Rs 92,69,260/-.Before him, it was contented that procedural lapse of not filing Form 10IC should not override the substantive benefit conferred by Section 115BAA.The intention to opt for Section 115BAA was bona fide and evident from the tax audit report filed within the statutory timelines. The omission to file Form 10IC was a genuine clerical error and not a deliberate act. The assessee further submitted that denial of the benefit solely on procedural grounds would defeat the very purpose of introducing Section 115BAA, which aims to incentivize businesses through reduced tax rates.

1 The ld.CIT(A) though admitted that assessee's intention to avail of the concessional tax regime under section 115BAA was bona fide and substantiated by the tax audit report filed within the prescribed timelines, however, the provisions of Section 115BAA(5) explicitly require the filing of Form 10IC on or before the due date specified under Section 139(1).Referring to the Central Board of Direct Taxes (CBDT), through Circular No. 17 of 2024 dated 18.11.2024, it is stated that the Circular recognized the challenges faced by taxpayers in complying with procedural requirements and provided a mechanism to condone such lapses. The Circular allows taxpayers to file a condonation application for the late submission of Form 10IC before the competent authority. Accordingly, though the appeal was dismissed solely on the procedural ground of non-filing of Form 10IC, the assessee was granted liberty to file a condonation application before the appropriate authority under the provisions of the aforementioned CBDT Circular. The assessee was advised to act promptly and file the condonation application along with supporting documents to demonstrate its eligibility for the concessional tax regime under Section 115BAA.

We have carefully considered all relevant facts of the case. Section 115BAA of the Income Tax Act, 1961 offers a reduced tax rate for domestic companies. Rule 21AE (1) of the Income Tax Rules allows a domestic company to benefit from lower tax rates by filing Form 10IC. By doing so the company will be charged a 22% tax rate under the Income Tax Act 1961 and will receive all benefits under Section 115BAA. Form 10IC must be submitted by the 'due date' for filing the company's return for the previous year.

1 Before us, while the ld.DR has relied on the orders of authorities below, the ld.AR of the assessee has made oral arguments and also made written submission in support of the grounds of appeal. It is submitted by way of an affidavit that Income Tax Portal was not accepting submission of 10 IC for AY 2021-22 anymore. The ld.AR has also relied on certain decisions of co-ordinate benches and High Court in support of the contention that filing of form is not mandatory. We find that the assessee company has not filed the relevant Form in time. However, no reasons have been stated for the delayed action when return and audited accounts were filed in time. It is also not known whether any grievance application was submitted to CPC when the system was not accepting its application within the extended time prescribed by the CBDT Circular(supra). We find that CBDT has extended the time limit for condonation of delay for the Form IC on at least three occasions, the latest being Circular no.17/2024 dated 18.11.2024 providing for deadline of 31.03.2025 or three months from the date of Circular. It is submitted that the Form needed to be e-filed but the Income Tax portal was not allowing uploading of the Form of earlier years.

2 We also find that there has been substantial compliance of the requirement under Section 115BAA of the Act, as evident from the fact that while filing the returns, it was declared/stated by the assessee that the option to discharge the tax was exercised under Section 115BAA of the Act and taxes were in fact paid @ 22% without claiming deductions as contemplated under Section 115BAA of the Act. In this regard, it may be relevant to refer to the Hon'ble Supreme Court, in the case of Dilip Kumar (2018) 9 SCC, wherein while deciding the Doctrine of Substantial Compliance held as under:

3 The authorities below failed to appreciate that if the failure to consider the claim of option to discharge tax under section 115BAA on the ground of failure on the fact of the petitioner to file Form 10-IC within the period stipulated under section 115BAA would cause genuine hardship to the assessee. The CBDT's Circulars extending the due dates for filing such forms in earlier years indicate a recognition of such procedural difficulties. These Circulars indicate a degree of administrative flexibility and a recognition that procedural lapses should not necessarily lead to the denial of substantive benefits. Moreover, denying the benefit based solely on this lapse would be against the principles of equity and justice, especially when there is no dispute regarding the assessee's eligibility for the lower tax rate. Considering the principle of beneficial interpretation, the procedural requirements should not override substantive benefits. The Courts have taken a lenient view on procedural lapses when substantive benefits are involved. Supreme Court rulings always emphasized that the making of a claim of deduction is mandatory, but timing/format is directory.

4 August, 2024 in ITA No.1675/Mum/2024.Relevant parts of the order are extracted below for ready reference:

5 The co-ordinate bench of ITAT, Kolkata has taken also considered No.1010/Kol/2023:

We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the assessee vide written submission made the assessee has filed the return of income on 29.12.2020 thereby applying the tax rate as per Section 115BAA of the Act. The only fault of the assessee was that the assessee has not filed Form 10IC alongwith the said return. It is not disputed that for claiming tax rate under Section 115BAA of the Act, the Assessment Year 2020-21 is the very the first Assessment Year and due to the fault on the part of the System as mentioned by the assessee, it would have happened that the assessee has not filed the Form alongwith the return of income. It is not the case of the Revenue that the assessee is not entitled for the tax rate under Section 115BAA of the Act. If the assessee had filed Form 10IC within the prescribed time alongwith return of income, as held by various Hon'ble High Courts including the jurisdictional High Court, the CIT(A) has co-terminus power as that of the Assessing Officer. The CIT(A) is required to consider the report in Form 10IC and, therefore, it will be appropriate to take on record the Form 10IC and consider the same in consonance with the return of income filed by the assessee and after verifying the same, the Assessing Officer will adjudicate the issue whether the assessee is entitled for tax rate as per Section 115BAA of the Act in Assessment Year 2020-21 or not. Needless to say, the assessee be given opportunity of hearing by following the principals of natural justice.”

In view of the above factual position of the case and also the legal proposition emerging from the cited decisions (supra), respectfully following them, the ground of appeal raised by the assessee is restored back to the file of ld. AO with a direction to take on record the Form 10IC and consider the same in consonance with the CBDT Circular(supra) and the return of income filed by the assessee and after verifying the same, he will adjudicate the issue whether the assessee is entitled for tax rate as per Section 115BAA of the Act in AY 2020-21 or not. Needless to say, the assessee would be given opportunity of hearing following the principles of natural justice and fairplay.

In the result, the appeal is allowed for statistical purposes.