KREATE KONNECT E SOLUTIONS PRIVATE LIMITED,VADODARA vs. THE DY.CIT, CIRCLE-1(1)(1), VADODARA

1. On the facts and in the circumstances of the case and in law, the Id. Commissioner of Income Tax, Appeal (ADDL/ICIT (A)-5 CHENNAI) has grossly erred in dismissing the appeal & confirming the Intimation order u/s. 143(1) of the Act without considering the facts that the appellant should not be deprived of the benefit of concessional tax regime u/s. 115BAA of the Act as filing form 10IC is mere a procedural aspect to avail the benefit of concessional tax regime u/s. 115BAA of the Act. the Id. Commissioner of Income Tax, Appeal (ADDL/ICIT (A)- 5 CHENNAI) has also has grossly erred in considering the facts that the appellant has filed Form 10IC for AY. 2021-22 on or before 30.06.2022, in accordance with the Circular No.6/2022 dated 17.03.2022 in F.No.173/32/2022-ITA-

1. 1.

2. On the facts and in the circumstances of the case and in law, the Id. Commissioner of Income Tax, Appeal (ADDL/JCIT (A)-5 CHENNAI) has grossly erred in considering the facts that without prejudice, the appellant should be granted benefit of concessional tax rate of 25% instead of 30% u/s. 115BA of the Act as the turnover of the appellant was less than Rs. 400 Crore in previous years.

4. During the course of hearing, the learned Authorised Representative (“AR”) reiterated the facts as recorded in the orders of CPC and the CIT(A), and submitted that the assessee had duly exercised the option for concessional taxation under section 115BAA by selecting the relevant field in Part A–GEN of the return of income (ITR-6), which was filed on 04.11.2020 within the time prescribed under section 139(1) of the Act. The AR submitted that although Form No. 10-IC was not filed electronically for A.Y. 2020–21, the intention to opt for section 115BAA was unambiguously recorded in the return, and the computation of income was made accordingly at the concessional rate. He submitted that the omission to file Form 10-IC was inadvertent and procedural in nature, and did not reflect any contrary intention or default on the part of the assessee. The AR further placed reliance on the Form No. 3CD tax audit report filed along with the return of income, wherein in Clause 8(a), the assessee had clearly stated its election to be governed by section 115BAA. This declaration, being part of the statutory tax audit report under section 44AB, was submitted to demonstrate the bona fide intention and affirmative act of the assessee in opting for the concessional tax regime.

4.1 The AR further invited attention to CBDT Circular No. 6/2022 dated 17.03.2022, which clarified that certain e-forms, including Form 10-IC, which could not be filed within the prescribed time due to technical difficulties on the portal, could be filed on or before 30.06.2022. He submitted that the assessee had availed the benefit of this relaxation for A.Y. 2021–22, and that a similar benefit should be extended to A.Y. 2020– 21 on principles of equity and consistency. Although the assessee was not able to file Form 10-IC for A.Y. 2020–21 within the extended window, the AR submitted that such relief granted by the CBDT was intended to avoid hardship in genuine cases and should be interpreted liberally in favour of the assessee.

4.2 Without prejudice to the above, the AR submitted that the assessee was in any case entitled to concessional tax rate of 25% under the first proviso to section 115BA, as its turnover during the relevant previous year was less than Rs.400 crore. He submitted that the assessee fulfilled all conditions prescribed for the 25% rate under the general provisions applicable to domestic companies, and that such alternate plea was expressly raised before the CIT(A), but no finding was recorded in the appellate order. The AR submitted that this failure to adjudicate an alternative legal plea renders the CIT(A)'s order non-speaking and legally unsustainable.

4.3 In support of his contentions, the AR placed reliance on the following judicial precedents: i. Traxit Engineers Pvt. Ltd. v. ITO [ITA No. 2793/Mum/2023, dated 06.12.2023], wherein the Co-ordinate Bench restored the matter to the AO for verifying whether Form 10-IC was filed within the extended time permitted under the CBDT Circular, and if so, to allow the benefit of section 115BAA. ii. Neptunus Power Plant Services Pvt. Ltd. v. ADIT, CPC [ITA No. 2796/Mum/2023, dated 18.12.2023], where the Co-ordinate Bench held that in case the benefit under section 115BAA could not be granted due to procedural lapse, the assessee’s eligibility under section 115BA at 25% tax rate should be examined and allowed. 4.4 In light of the above submissions, the AR prayed that the impugned order of the CIT(A) be set aside and appropriate directions be issued to the AO to either allow the assessee’s claim for concessional tax rate under section 115BAA, treating the omission to file Form 10-IC as procedural, or in the alternative, to allow tax at the rate of 25% under section 115BA after verification of turnover.

6.1 It is not in dispute that the assessee filed its return of income for A.Y. 2020–21 within the due date prescribed under section 139(1) of the Act. In Part A–GEN of ITR-6, under item (e) of Filing Status, the assessee clearly selected the option for taxation under section 115BAA. The return was accordingly prepared, disallowing all specified deductions and exemptions under sub-section (2) of section 115BAA, and computing tax at the rate of 22% plus applicable surcharge and cess.

6.2 Furthermore, the assessee's tax auditor had duly reported the assessee's option under section 115BAA in Clause 8(a) of Form No. 3CD (tax audit report), which was filed contemporaneously with the return of income. The computation of income, the manner of tax calculation, and the disclosures made were fully aligned with the scheme and conditions prescribed under section 115BAA. Thus, the assessee’s intention to be 6.3 The Department, however, denied the benefit of concessional taxation solely on the ground that Form No. 10-IC, as mandated under Rule 21AE(2) was not uploaded electronically within the prescribed time. The CIT(A), while confirming the CPC’s action under section 143(1), rejected the assessee’s grievance and declined to condone the lapse, holding the form to be a mandatory requirement without which the option under section 115BAA could not be deemed validly exercised. Though we respectfully note the findings recorded by the CIT(A), upon an independent and comprehensive appraisal of the factual and legal matrix, we find ourselves unable to concur with the view so taken. In our considered opinion, the conclusion reached by the CIT(A) is not sustainable in law or on facts for the cumulative reasons discussed in subsequent paras.

6.4 Section 115BAA of the Act offers a concessional tax regime of 22% (plus surcharge and cess) to any domestic company, subject to the condition that it opts for the regime “in the prescribed manner” on or before the due date under section 139(1). Rule 21AE of the Income-tax Rules, 1962 prescribes that such option shall be exercised by filing Form No. 10-IC electronically. Form 10-IC, as notified, requires the assessee to furnish the following key declarations: a. That the company is a domestic company as defined in section 2(22A); b. That the company is not claiming any of the deductions/incentives/exemptions listed under clause (i) of sub- section (2) of section 115BAA, such as Deduction under sections 10AA, 32(1)(iia), 35(1)(ii)/(iia)/(iii), 35(2AA), etc.; c. That the company is not set up by splitting up or reconstruction of an existing business (subject to exception); d. That the company will compute total income without set-off of losses or depreciation attributable to the above disallowed deductions; e. Declaration that the company has exercised the option under section 115BAA for the relevant assessment year; 6.5 In the present case, although the assessee did not file Form No. 10- IC electronically within the due date (or extended date prescribed in CBDT Circular No. 6/2022), the substance of all the above declarations was already made by the assessee through contemporaneous filings, as detailed below:

• In Part A–GEN of the ITR-6, under item (e) “Filing Status”, the assessee selected “Yes” to the query: “Whether the company has opted for taxation under section 115BAA?”. This is the primary declaration that Form 10-IC is intended to record. • The computation of total income filed along with the return excluded all disallowable deductions, including additional depreciation under section 32(1)(iia), deductions under sections 10AA, 35(1)(ii), etc., thereby complying with the conditions of sub-section (2) of section 115BAA. • In the tax audit report (Form No. 3CD), specifically under Clause 8(a), the auditor disclosed that the assessee has opted to be taxed under section 115BAA. This amounts to third-party statutory attestation of the assessee’s declaration. • The income was computed under “normal provisions” at the rate of 22% plus surcharge and cess, and no MAT provisions were invoked, consistent with section 115JB(5A) read with 115BAA(1), which excludes companies opting for section 115BAA from MAT. • The return was filed on or before the due date under section 139(1), satisfying the primary temporal condition laid down in section 115BAA(5). • Most significantly, for A.Y. 2021–22, the assessee duly uploaded Form 10-IC electronically within the prescribed time, indicating that its election under section 115BAA was part of a consistent tax position, and not an afterthought. 6.6 The above record clearly demonstrates that every substantive component of Form 10-IC was already embedded in the return of income and audit documentation, and no ambiguity arises regarding the assessee’s intent, eligibility, or compliance. Thus, the belated filing (or non-filing) of the Form was merely procedural and cannot be allowed to override the well- documented substantive compliance with section 115BAA.

8 6.7 Furthermore, it is relevant to record that the assessee had not received the intimation under section 143(1) dated 18.12.2021, and it came to know about the demand only when the refund for A.Y. 2022–23 was adjusted against the outstanding demand of A.Y. 2020–21. Upon such discovery, the assessee promptly filed an appeal before the CIT(A), albeit with delay. The CIT(A), after examining the explanation, was satisfied with the cause shown and condoned the delay. This sequence of events i.e. non- receipt of intimation, discovery through refund adjustment, and expeditious appellate filing, further evidences that the assessee’s conduct has been bona fide throughout, and that there was no intentional or negligent omission to comply with procedural requirements. Accordingly, we hold that the assessee had substantively complied with all the key declarations and requirements embedded in Form 10-IC through other contemporaneous filings. The omission to electronically upload the form within the timeline, in our view, is a procedural irregularity which does not vitiate the valid and timely exercise of option under section 115BAA. This approach also aligns with judicial guidance which discourages penal consequences where the assessee’s conduct is bona fide and fully evidenced in the return and supporting documents, as recognised in the decisions discussed in subsequent paragraphs.

A. The CBDT, vide Circular No. 6/2022 dated 17.03.2022, acknowledged the hardship caused to domestic companies due to procedural lapses in filing Form 10-IC for A.Y. 2020–21. In exercise of its powers under section 119(2)(b), the Board directed that delay in filing Form 10-IC be condoned, provided three conditions are satisfied: a. The return for A.Y. 2020–21 was filed on or before the due date under section 139(1), b. The assessee opted for section 115BAA in “Filing Status” of ITR-6, c. The form was subsequently filed electronically by 30.06.2022. Crucially, the Circular does not expressly state whether these conditions are to be read cumulatively or if partial compliance with substantial intent can suffice. In this regard, the Hon’ble Calcutta High Court in PCIT v. Fastner Commodeal Pvt. Ltd. [ITAT/267/2024, dated 10.01.2025],[TS-5010-HC- 2025(Calcutta)-O] observed that – “The Circular does not specifically state as to whether all three conditions have to be cumulatively complied with or the condition of the assessee can be condoned with regard to partial compliance or part compliance of the conditions in the Circular.”

The assessee in this case meets the first two conditions. Although Form 10-IC could not be uploaded within the relaxed cut-off of 30.06.2022, and the non-uploading was not deliberate or mala fide, but owing to first year of technical portal issues, which were prevalent at that time and even acknowledged by the CBDT itself. It would defeat the very spirit of the Circular to penalize an assessee who otherwise made timely and bona fide disclosure. B. It is also pertinent that the assessee has validly filed Form 10-IC for the subsequent assessment year, which reinforces the continuity and genuineness of its intent to be governed by section 115BAA regime. This conduct-based evidentiary continuity lends further credibility to the assessee’s claim for the year under consideration, and negates any allegation of afterthought or tax arbitrage. C. The principle that procedural lapses should not defeat substantive claims is now well-settled by a catena of decisions:

- In CIT v. G.M. Knitting Industries (P) Ltd. [TS-477-SC-2015], the Hon’ble Supreme Court upholding the judgement of Hon’ble Bombay High Court held that non-filing of Form 3AA with return was not fatal when the same was filed during assessment. The Court emphasized substance over form and approved the ITAT’s liberal view. - In Fastner Commodeal Pvt. Ltd. v. PCIT [Calcutta High Court, ITA 267/2024, order dated 10.01.2025] [TS-5010-HC-2025(Calcutta)- O], the Hon’ble High Court restored the matter to the file of the Assessing Officer to enable the assessee to file Form No. 10-IC, noting that the assessee had made attempts to file the said form electronically but was unable to do so within the permitted timeframe. The Court directed the Assessing Officer to consider the belated filing and dispose of the matter in accordance with law, after verifying whether other conditions for availing benefit under section 115BAA were satisfied. In contrast, in the present case, the assessee was not even aware of the intimation under section 143(1) dated 18.12.2021, and came to know about the demand only when the refund for A.Y. 2022–23 was adjusted in 2023. By that time, the time window prescribed in CBDT Circular No. 6/2022 dated 17.03.2022, which condoned delay in filing Form 10-IC until 30.06.2022 had already expired. Thus, the non-filing was not due to negligence, but because the assessee was never put to notice of the adverse adjustment and hence had no opportunity to rectify the omission within the prescribed time. - In Traxit Engineers Pvt. Ltd. v. CPC [ITA No. 2793/Mum/2023], the ITAT Mumbai Bench accepted the assessee’s claim under section 115BAA despite belated filing of Form 10-IC, holding that declaration in ITR and Form 3CD constituted valid compliance. - Similar relief was also granted by ITAT in Neptunes Power Plant Services Pvt. Ltd. v. CPC [ITA No. 2796/Mum/2023], noting that procedural non-compliance must not override genuine substantive compliance.

These decisions collectively uphold a liberal interpretation of procedural requirements, especially in the context of optional tax regimes like section 115BAA, where the claim is not in the nature of exemption or deduction, but only a rate-based option. While in the cases of the decisions of Co0ordinate Bench as cited above, the Form No. 10-IC was admittedly filed belatedly, the respective Benches granted relief on the strength of substantive compliance discernible from the contemporaneous records. In the present case as well, the assessee has demonstrably complied with all substantive requirements of section 115BAA and the accompanying rules, and hence deserves similar consideration. These decisions reaffirm the principle that form should not triumph over substance, particularly in tax matters involving beneficial provisions where the assessee’s conduct is bona fide and revenue is not prejudiced. We therefore respectfully follow the above decisions and adopt a similar approach in the present case.

D. Although the Revenue has not relied upon the decision of the Hon’ble Supreme Court in PCIT v. Wipro Ltd. [TS-544-SC-2022] we have consciously examined the same in the interest of completeness. In that case, the Court denied deduction under section 10B for failure to file Form 56F within due date. However, the case is clearly distinguishable for the following reasons: - Section 10B is an exemption provision, subject to strict statutory preconditions. - The assessee in Wipro had not filed the statutory form at all, nor indicated such claim in audit reports or return and claimed the same in revised return of income. - In contrast, the present case involves a rate-of-tax option, not a deduction, and the assessee has made contemporaneous disclosures in both the ITR and tax audit report.

Hence, the judgment in case of Wipro Ltd.(supra) does not apply to the facts before us.

6.8 In light of the foregoing discussion and on a holistic appraisal of the factual and legal matrix, we are of the considered view that the assessee had validly exercised the option for taxation under section 115BAA of the Income-tax Act, 1961 for the assessment year 2020–21. The declaration opting for the concessional tax regime was clearly recorded in Part A-GEN of the ITR-6, and further reiterated in Clause 8(a) of the tax audit report in Form No. 3CD, thus evidencing the assessee’s consistent and contemporaneous intention to be governed by the said provision. The omission to file Form No. 10-IC within the time stipulated under Rule 21AE or within the condonation window allowed under CBDT Circular No. 6/2022 dated 17.03.2022 is, in our view, a procedural lapse which does not vitiate the substantive compliance already demonstrated. It is undisputed that the assessee was not served with the intimation under section 143(1) dated 18.12.2021 and only became aware of the resultant demand when its refund for A.Y. 2022–23 was adjusted, at which point the window for filing Form 10-IC in terms of the CBDT Circular had already expired. This renders the omission involuntary and devoid of any element of deliberate non- compliance. This view finds support from consistent judicial precedents as discussed above where it has been held that substantive compliance, as evidenced from the ITR and tax audit report, is sufficient, and that procedural defects alone cannot defeat a legitimate claim, particularly when the conduct of the assessee is bona fide and revenue is not prejudiced.

6.9 However, for the sake of completeness of record and to ensure that the requisite formality under Rule 21AE is complied with, we deem it appropriate to restore the matter to the file of the Assessing Officer. The assessee shall file Form No. 10-IC before the Assessing Officer during the course of such proceedings. The Assessing Officer shall verify the relevant factual matrix and ensure that all other conditions for availing the benefit of concessional taxation under section 115BAA are duly satisfied. Upon such verification, the Assessing Officer shall allow the benefit of concessional tax rate of 22% plus applicable surcharge and cess under section 115BAA of the Act for the assessment year under consideration, in accordance with law.