FORTREA SCIENTIFIC PRIVATE LIMITED,PUNE vs. ACIT, MUMBAI

“Ground No. 1 (Allowing deduction u/s. 10AA of the Act ignoring the fact that the assessee failed in filing form 56F along with return of income) 4. The brief facts in relation to this ground of appeal are that during the course of assessment proceedings, the Assessing Officer observed that the assessee did not e-file its form 56F claiming deduction u/s. 10AA of the Act as required under Rule 12(2) of the Income Tax Rules. The assessee submitted before the Assessing Officer that e-filing of form 56F had started from assessment year 2014-15 and this was the first year where the Income Tax Rules required the assessee to e-file from 56F. The assessee have got the audit report from the auditor under form 56F but had inadvertently omitted to submit the same under the mistaken belief that it could be filed during the course of assessment as and when requisitioned by the Assessing Officer. The assessee further submitted that none e-filing of form 56F is just a procedural lapse and deduction should not be disallowed on this ground alone. Further, the assessee also submitted physical copy of form 56F to the Assessing Officer during the course of assessment proceedings. However, the Assessing Officer deniedthe claim of deduction u/s. 10AA of the Act to the assessee on the ground that procedural lapse under Rule 12 of the Income Tax Rules is not permissible since the assessee failed to e-file form 56F despite the directions as per Rule 12(2) deduction u/s. 10AA of the Act is not allowable to the assessee. The Assessing Officer further held that date of audit report in form 56F cannot be relied upon since the assessee did not intentionally file form 56F with the return of income. Further, the Assessing Officer held that filing of & ITA No. 5701/Mum/24 form 56F is mandatory and the contention of the assessee that e-filing of form 56F is directory cannot be accepted. Accordingly, the Assessing Officer disallowed the deduction claimed by the assessee u/s. 10AA of the Act amounting to Rs. 2,14,03,816/- In appeal, the ld. CIT(A) allowed the claim of the assessee on the basis of various decisions relied upon by the assessee which held that the filing of form 56F is directory in nature and failure to furnish form 56F along the return of income should not lead to denial of deduction u/s. 10AA of the Act. While allowing the appeal of the assessee, ld. CIT(A) observed as under:- "Ground No. 1 relates to denial of deduction u/s 10AA of the Act on account of failure to file Form 56F electronically along with the ITR. According to the AO, the appellant was to follow Rule 12(2) mandatorily.

The appellant during the appellate proceedings filed submissions in this regard And stated that filing of Form 56F was only a directory one and not a mandatory requirement to claim deduction. The appellant relied on certain decisions as can be seen from the submissions supra. I have carefully considered the material facts and also the submissions of the appellant along with the decisions relied upon. The appellant not filed Form 56F electronically along with the retum but, the same was submitted during the assessment proceedings. The case laws relied upon by the appellant squarely applicable to the facts of the case and the action of the AO in denying the direction u/s 10AA of the Act on this count appears to be incorrect. Filing of Form 56F is held to be directory in nature and failure to furnish along with return should not lead to denial of deduction u/s 10AA of the Act. Reliance is placed on the following decisions for the above proposition. i) DIC Fine Chemicals (P.) Ltd. (107 taxmann.com 213) (Kol) ii) Gujarat Oil & Allied Industries (201 ITR 325)(Guj) iii) XXavient Software Solutions (1) Ltd. (ITA No.140/Del/2017) Considering the above discussion and also relying on the decisions, it is held that the AO is incorrect in denying the deduction, hence, this ground of appeal is allowed."

5. The Department is in appeal before us against the aforesaid order passed by ld. CIT(A) granting relief to the assessee. The Department submitted before us that language of Rule 12(2) of the Income Tax Rules is clearly unambiguous. The ld. Departmental Representative submitted as per the aforesaid Rule, the assessee was required to e-file form 56F along with the return of income and non-compliance of this mandatory requirement would lead to denial of deduction u/s. 10AA of the Act. The ld. Departmental Representative further placed reliance on the case of Summit India Water Treatment and Services Ltd. vs. PCIT 107 taxmann.com 444 (Ahmedabad Trib) which held that furnishing of form 3CEB report electronically is mandatory as per Rule 12(2) of the Income Tax Rules. In response, the counsel for the assessee submitted that it is a settled law that the requirement of filing form56F is directory in nature and failure to & ITA No. 5701/Mum/24 furnish form 56F along with return of income could not be basis to deny benefit u/s. 10AA of the Act specially when Form 56F has been filed at the assessment stage when such claim was being considered by the Assessing Officer. The counsel for the assessee placed reliance on several decisions on this issue.

"This being the case, it is obvious that the beneficial purpose of the exemption contained in Section 3(1)(b) must be given full effect to, the line of authority being applicable to the facts of these cases being the line of authority which deals with beneficial exemptions as opposed to exemptions generally in tax statutes. This being the case a literal formalistic interpretation of the statute at hand is to be eschewed. We must first ask ourselves what is the object sought to be achieved by the provision, and construe the statute in accord with such object. And on the assumption that any ambiguity arises in such construction, such ambiguity must be in favour of that which is exempted. Consequently, for the reasons given by us, we agree with the conclusions reached by the impugned judgments of the Division Bench and the Full Bench” 6.2 In IPCA Laboratory Ltd. v. Dy. CIT (2004) 12 SCC 7421 the Supreme Court in the said judgment observed that section 80HHC has been incorporated with a view to provide incentive to export houses and this section must receive liberal interpretation. In Bajaj Tempo Ltd. v. CIT [1992] 3 SCC 78, the Supreme Court while interpreting section 15C of the Income- tax Act. 1922 observed that the section, read as a whole, was a provision, & ITA No. 5701/Mum/24 directed towards encouraging industrialization by permitting an assessee setting up a new undertaking to claim benefit of not paying tax to certain extent on the capital employed. The Gujarat High Court in the case of Kishorbhai Harjibhai Patel v. ITO [2019] 107 taxmann.com 295 (Gujarat) held that section 54F is a beneficial provision and is applicable to an assessee when the old capital asset is replaced by a new capital asset in the form of a residential house. Once an assessee falls within the ambit of a beneficial provision, then the said provision should be liberally interpreted. In the case of State of Gujarat v. S.A. Himnani Distributors (P.) Ltd. [2014] 43 taxmann.com 358 (Gujarat), the Gujarat High Court held that when State is inclined to give some tax benefit to tax payers, terms or provisions of policy should be interpreted in a liberal manner and with an intention to see that purpose for which policy is framed is fulfilled and beneficiaries is helped and the interpretation must not be such which would frustrate objective of policy. Section 10AA of the Act is a beneficial provision aimed at encouraging exports of goods and services by setting up of industrial units in special economic zones. In our view, benefit of section 10AA should not be denied on account of a procedural/technical default by the assessee or his chartered accountant, if otherwise the assessee is eligible to claim deduction under the said exemption provision. 6.3 Another notable issue for consideration is that recently the Hon'ble Supreme Court was confronted with the claim of benefit u/s 108 in Pr. CIT v. Wipro Ltd. (2022) 140 taxmann.com 223/288 Taxman 491/446 ITR 1. The assessee furnished original return taking the benefit of section 10B and did not carry forward the loss. Thereafter, a revised return was filed foregoing the claim of deduction u/s 10B. The AO rejected the withdrawal of exemption under section 10B by holding that assessee did not furnish the necessary declaration in writing before due date of filing return of income, which was an essential requirement for not claiming the benefit of section 10B. The Hon'ble High Court decided the issue in favour of the assessee by holding that the requirement of filing the declaration was mandatory but filing it along with the return of income u/s 139(1) was a directory requirement. The matter was brought by the Revenue before the Hon'ble Supreme Court. The assessee, inter alia, relied on the judgment of the Apex Court in G.M. Knitting Industries (P.) Ltd. (supra). Their Lordships held that the requirement of filing the report in support of deduction u/s 10B was not a directory but a mandatory requirement. It further held that both the conditions of - filing the declaration and filing it before the time limit u/s 139(1) - were mandatory and had to be cumulatively satisfied. Rejecting the reliance on G.M. Knitting Industries (P.) Ltd. (supra), the Hon'ble Supreme Court held that that decision was relevant in the context of deduction provisions and not the exemption provisions as given under Chapter III of the Act.

& ITA No. 5701/Mum/24 6.3.1. In our view, the aforesaid decision would not apply to assessee's set of facts and would not preclude / prohibit the assessee from claiming deduction u/s 10AA of the Act, for the following reasons:

(i) Firstly, in the case of Wipro Limited supra, the issue for consideration before the Hon'ble Supreme Court was that in the original return of income, the assessee had claimed deduction under section 10B of the Act, whereas in the revised return filed under section 139(5) of the Act, assessee did not claim deduction under section 10B of the Act, and instead claimed benefit of carry forward of losses. It was in light of these facts that the Hon'ble Supreme Court held that on a plain reading of section 10B(8) of the Act, it is clear that where assessee claimed benefit under section 10B(8) by furnishing declaration in revised return much after due date prescribed under section 139(1), same was to be denied as requirement of furnishing declaration before AO before due date of filing original return under section 139(1) was a mandatory condition not directory. However, notably, there is no such equivalent/similar provision in section 10AA of the Act, which gives an option to the assessee to file a declaration before the due date of return of income under section 139(1) of the Act, to the effect that the provisions of this section may not be made applicable to him, for the impugned assessment year. Therefore, going by the strict language of section, the relevant statutory provisions on which the decision of Wipro was based, were on a different footing. Further, the issue for consideration in the Wipro case is also distinguishable, since in the assessee's case, it had claimed benefit of deduction u/s. 10AA in the original return of income (and only Form 56F was omitted to be e-filed along with return of income), whereas the issue for consideration in Wipro case supra was that once the assessee had claimed benefit of section 10B in the original return of income, whether such benefit could be foregone/withdrawn by filing declaration u/s. 10B(8) of the Act in the revised return of income filed u/s 139 (5) of the Act (and the assessee could in turn avail the benefit of carry forward losses in the revised return of income)

(ii) Secondly, the Hon'ble Supreme Court in the case of Wipro Limited held that section 10B of the Act is an exemption provision and hence, assessee claiming such exemption has to be strictly comply with the exemption provisions. However, notably, the Hon'ble Supreme Court in the case of CIT v. Yokogawa India Ltd 391 ITR 274 (Supreme Court), held that section 10A of the Act is a "deduction provision" and not an "exemption provision" Therefore, apparently there seems to be a difference of opinion to whether section 10A/B provisions qualify as "Exemption' or Deduction" provisions. Therefore, since it is well-settled principle of law that deduction provisions, which have been introduced in the Statute to provide incentive to the assessee, should be construed "liberally", in our considered view, once it is not disputed that the instant set of facts, the assessee claimed the benefit of provisions under section 10AA in the return of income (which in our view is a mandatory/directory requirement), the benefit of section 10AA cannot be denied only on the ground that the assessee could not file Form 56F along with the return of income (being a procedural requirement), especially when Form 56F has been (iii) Besides the above, in the case of G. M. Knitting Industries (P.) Ltd. case supra, the Hon'ble Supreme Court further held that even though necessary certificate in Form 10CCB along with return of income had not been filed but same was filed before final order of assessment was made, assessee was entitled to claim deduction under section 80-1B of the Act as well. Therefore, in light of the decision of Yokogawa supra (which is held that section 10A of the Act is a "deduction provision not an "exemption provision") and the decision of G. M. Knitting Industries case supra, which have been rendered on a similar facts as that of the assessee i.e. claim of deduction was made in the original return of income itself, in our view, the ratio laid down in the Wipro Ltd case would not disentitle assessee to claim benefit of section 10AA of the Act, since it has been rendered on a different set of facts. Therefore in our considered view, once such claim has been made in the original return of income and assessee has also furnished Form 56F during the course of assessment proceedings itself, before the assessment was finalized. The assessee should not be denied the benefit of s. 10AA of the Act. It is a well settled principle of law that if there is any ambiguity regarding interpretation of a Statutory provision, an interpretation favourable to the assessee may be taken, especially when we are dealing with Statutory provisions aimed at giving some incentive to the assessee. 6.4. Another aspect for consideration is that whether there is sufficient compliance once assessee has filed the revised Form 56F during the course of assessment proceedings. In the case of M/s. ACN Info-Tech vs. ACIT instead of claiming deduction u/s. 10AA of the Act, the assessee claimed deduction u/s. 10B of the Act in the income tax return. The A O. rejected the claim on the ground that assessee did not file form 56F along with return of income and had filed form 56G instead. The ld. A.R argued that the AO ought to have allowed the deduction u/s 10AA since the assessee had filed form 56F during assessment proceedings which was a pure technical mistake. The Tribunal held that benefit of deduction should not be disallowed as the assessee had duly filled the conditions for claiming exemption u/s. 10AA of the Act. In the case of ITO v. Accentia Technologies 50 taxmann.com 89 (Mum), the Mumbai Tribunal held that deduction under section 10A cannot be denied merely because at time of filing of return, claim had mistakenly been made under section 108 of the Act. The Gujarat High Court in the case of Zenith Processing Mills v CIT 219 ITR 721 (Guj) held that provision of section 80J(6A) to extent it requires furnishing of auditor's report in prescribed form along with return, is directory in nature and not mandatory. Further, assessee can be permitted to produce such report at later stage when question of disallowance arises during course of assessment proceedings. In the instant case, the A.O has denied s. 10AA benefit on account of an inadvertent error on the part of the assessee in not e-filing Form 56F along- with return of income. We are therefore of the view that there is sufficient & ITA No. 5701/Mum/24 compliance if the Form 56F has been filed during the course of assessment proceeding, since there is no material objective to be achieved by the assessee in not e-filing the same, once the same was already available with the assessee. 6.5 In view of the above, we are of the considered view that CIT(A) has not erred in facts and in law in allowing the claim of the assessee that deduction u/s 10AA of the Act cannot be denied simply on the ground that the assessee did not e-file form 56F along with the return of income, when the assessee furnished form 56F to the ld Assessing Officer during the assessment proceedings when the claim of deduction u/s. 10AA of the Act was being examined by the ld. Assessing Officer.”

5.1. Following the above said decision of the Co-ordinate Bench of the Tribunal supra, we hold that the filing of Form No.56F is directory in nature and in any case, the same has been filed prior to the due date for filing return of income. Accordingly, we set aside the order passed by the Ld.CIT(A) and direct the AO to allow deduction u/s.10AA of the Act to the assessee for this year.

Order pronounced in the open court on 18-12-2024 Sd/- Sd/- [ANIKESH BANERJEE] [B.R. BASKARAN] JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated: 18-12-2024 TNMM Copy to :

Dy./Asst. Registrar, ITAT, Mumbai