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Facts
The assessee, a domestic company, filed its return for AY 2020-21 claiming the concessional 22% tax rate under Section 115BAA but failed to file Form 10-IC. CPC initially applied 25% tax but later, through a Section 154 rectification order, increased it to 30%, despite the assessee's turnover being below ₹400 crores, which made it eligible for 25% under general provisions of the Finance Act, 2019.
Held
The Tribunal found that the CPC's application of a 30% tax rate was a mistake apparent from the record under Section 154. It ruled that the correct rate for the assessee, even without Section 115BAA benefit, should be 25% based on its turnover. The orders of the lower authorities were set aside, and CPC was directed to recompute tax at 25%.
Key Issues
Whether the application of 30% tax rate by CPC, instead of 25%, constitutes a mistake apparent from the record rectifiable under Section 154, especially when the assessee's turnover was below the threshold for the higher rate as per the Finance Act, 2019.
Sections Cited
154, 115BAA, 139(1), 143(1)
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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri Inturi Rama Rao & Shri Sonjoy Sarma
O R D E R Per Sonjoy Sarma: This appeal is filed by the assessee against the order passed under Section 154 of the Income-tax Act, 1961, by the CPC, Bengaluru, and confirmed by the Commissioner of Income Tax (Appeals), for the assessment year 2020–21 vide order dated 28.11.2024.
The primary grievance of the assessee is the enhancement of the tax rate from 25% to 30% by the CPC under section 154, despite the assessee being otherwise eligible for the lower tax rate in terms of the Finance Act, 2019.
Brief Facts of the case are that the assessee is a domestic company engaged in business and had filed its return of income Eco Vision Properties Pvt Ltd for the assessment year 2020–21 on 14.10.2020 under section 139(1) of the Act, declaring a total income of ₹59,85,700. While filing the return, the assessee claimed the benefit of concessional tax rate under Section 115BAA of the Act, which prescribes a flat rate of 22% for domestic companies that forgo certain deductions and incentives, provided they furnish Form 10-IC. However, the assessee inadvertently failed to file Form 10-IC electronically along with the return of income. Consequently, while processing the return under section 143(1) of the Act, CPC Bengaluru denied the benefit under section 115BAA of the Act and computed the tax liability at the rate of 25%, relying on the general provisions of the Finance Act, 2019 applicable to domestic companies.
Subsequently, CPC Bengaluru suo motu passed a rectification order under section 154 of the Act on 24.09.2021, revising the applicable tax rate from 25% to 30%, thereby raising an additional demand.
Aggrieved by the above order, the assessee filed multiple rectification applications before CPC Bengaluru pointing out that, although Form 10-IC was not filed, its total turnover was well below ₹400 crores in the financial year 2017–18, and therefore the applicable rate of tax under paragraph E of Part I of the First Schedule to the Finance Act, 2019 was only 25%, and not 30%.
However, CPC rejected the rectification applications vide order dated 05.05.2023, citing that the claim now being made under Section 115BAA amounts to a fresh claim and cannot be considered under the rectification provision, CPC also alleged that no mistake apparent from the record existed warranting rectification.
Eco Vision Properties Pvt Ltd 7. The assessee then preferred an appeal before the CIT(A) against the rectification order under section 154, contending that the grievance was not about claiming the benefit under section 115BAA, but about the erroneous enhancement of the tax rate to 30%, which was factually and legally incorrect.
However, CIT(A) upheld the CPC’s decision, observing that in absence of Form 10-IC, the assessee could not be allowed the benefit of section 115BAA and the rectification did not qualify under section 154 of the Act as there was no apparent error.
Aggrieved by the order of the CIT(A), the assessee has come up in appeal before this Tribunal. The primary contention of the assessee is that even if benefit under section 115BAA is denied due to non-filing of Form 10-IC, the CPC erred in applying the 30% tax rate, which applies only to domestic companies having turnover exceeding ₹400 crore in FY 2017–18, as per paragraph E of Part I of the First Schedule to the Finance Act, 2019. The assessee’s turnover in FY 2017–18 was only ₹2.98 lakhs, and for AY 2020–21 was ₹1.35 crores, far below the ₹400 crore threshold. The ld. AR, therefore, stated that application of the 30% rate is a mistake apparent from the record, and rectification claim made by the assessee under section 154 was justified.
On the other hand, the ld. DR relied on the decisions of the authorities below and supported the addition made by the authorities below.
We have heard the rival contentions of both the parties and carefully perused the material available on record. We find that the undisputed fact is that the assessee did not file Form 10-IC along with the return and, as such, assessee was not allowed the benefit Eco Vision Properties Pvt Ltd of section 115BAA of the Act. The CPC, while processing the return under section 143(1), initially applied the 25% rate of tax, which is the default rate for domestic companies having turnover not exceeding ₹400 crore in the relevant previous year. However, in the rectification order under section 154 of the Act dated 24.09.2021, CPC revised the rate to 30%, citing the absence of Form 10-IC. This, in our considered view, is not legally sustainable. We note that the tax rate of 30% applies only to companies having turnover exceeding ₹400 crore in FY 2017–18, as per paragraph E of the First Schedule to the Finance Act, 2019. The assessee has produced audited financial statements and tax audit reports evidencing that its turnover in FY 2017–18 was only ₹2.98 lakhs. We further note that even without claiming the benefit of section 115BAA, the correct rate of tax applicable to the assessee is 25%, and not 30%. We find that the only issue before us is whether the application of 30% tax rate by CPC under section 154 is a mistake apparent from the record. In our opinion, it is the factual data of the assessee’s turnover in FY 2017–18 was available on record and not disputed. The CPC’s application of 30% rate, without considering this material, constitutes an error apparent from the record, which is rectifiable under section 154 of the Act. We also find that the CIT(A) while confirming the CPC’s action, erred in treating the assessee’s rectification request as an attempt to claim new benefit under section 115BAA of the Act is not the case. The assessee only sought correction of the incorrect tax rate applied under general provisions of the Finance Act, 2019. We therefore hold that the reasoning adopted by CPC and upheld by the CIT(A) is untenable in law and facts. The denial of rectification has resulted in excessive taxation contrary to the statutory rate applicable under the Finance Act. In view of the above, we are of Eco Vision Properties Pvt Ltd the considered opinion that the application of 30% tax rate by CPC is a mistake apparent from the record under section 154. The correct rate of tax applicable to the assessee, not covered under section 115BAA but having turnover below ₹400 crore in FY 2017– 18, is 25%, as per paragraph E of the Finance Act, 2019. The rectification requested by the assessee should have been allowed. Accordingly, we set aside the orders of the lower authorities and direct the CPC to recompute the tax at the rate of 25% on the assessee’s total income for the assessment year 2020–21.
In the result, the appeal of the assessee is allowed.
Order pronounced on 11.06.2025.