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Facts
The assessee, Kumar Medicare Pvt. Ltd., engaged in medical activities, filed its return of income opting for a concessional tax rate under Section 115BAA. The return was processed under Section 143(1), and a demand was raised because Form No. 10IC was not filed, which is required to claim the concessional rate. The assessee's application for rectification was rejected by CPC Bengaluru and subsequently by the CIT(A).
Held
The Tribunal observed that the assessee fulfilled all conditions for the concessional tax rate under Section 115BAA except for filing Form No. 10IC. Citing the principle of beneficial interpretation and lenient views on procedural lapses, the Tribunal noted that the procedural requirement of filing the form should not override the substantive benefit. The Tribunal also found that the assessee was not given a proper opportunity to be heard before the intimation order was passed.
Key Issues
Whether the assessee can claim the concessional tax rate under Section 115BAA despite not filing Form No. 10IC, considering the principle of beneficial interpretation and lack of opportunity for hearing?
Sections Cited
115BAA, 143(1), 154, 10 2A, 115JB, 139(1), 250
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: SHRI AMIT SHUKLA & SHRI GAGAN GOYAL
PER GAGAN GOYAL, A.M: This appeal by assessee is directed against the order of National Faceless Appeal Centre (for short “NFAC”) Delhi dated 08.03.2024 passed u/s. 250 of the Income Tax Act, 1961 (in short ‘the Act’) for A.Y. 2020-21. The assessee has raised the following grounds of appeal:-
The learned Asst. Director of Income tax CPC in its intimation order sec 143 (1) dated 18.12.2021 and then in rectification order sec 154 dated 07.07.2022 erred in not allowing the rate of tax as per Sec 115BAA of 22 percent on grounds of non- filing of form 10 1CC.
Without prejudice to ground no 1 The learned ITO CPC in its intimation order sec 143 (1) and then in rectification order sec 154 dated 07.07.2022 has erred in applying the normal rate of tax 30 percent whereas the correct rate is 25 percent since the turnover of the company in financial year 18 19 and in the current financial year is less than 400 crores.
Without prejudice to ground no 1 The Learned Asst Director of Income Tax erred in not deducting share of profit from firm of Rs. 88, 88,576/- net figure (share of profit Rs 18950744 less share of firm tax debited Rs 1,00, 62,168/-) which is exempt under section 10 2A which should be reduced from the book profit while calculating MAT under explanation to section 115JB. The appellant craves to add to amend to alter any of the above grounds.
The brief facts of the case are that the assessee company is engaged in medical activities and having income from operations and share of profit from JK well women LLP, wherein the assessee is a partner of 40% share. The appellant filed its return of income at Rs. 57, 50,310/-. The return of the assessee was processed u/s. 143(1) of the Act vide intimation dated: 18.12.2021and a demand of Rs. 11,19,310/- was raised as the assessee has not filed Form No. 10IC to claim concessional rate of tax u/s. 115BAA of the Act @ 22%, instead of paying tax at regular rate of tax @ 30%.
The assessee being aggrieved with this intimation issued u/s. 143(1) of the Act, filed an application with the CPC, Bengaluru u/s. 154 of the Act for rectification of intimation issued u/s. 143(1) of the Act ignoring the provisions of section 115BAA of the Act with a plea that as the assessee’s turnover is less than Rs. 400 Crores, even in absence of Form No. 10IC, tax rate should be 25% instead of 30%. The CPC, Bengaluru rejected the application u/s. 154 of the Act filed by the assessee vide its order dated: 07.07.2022. The assessee being further aggrieved preferred the appeal before the Ld. CIT (A), who in turn confirmed the order of the CPC, Bengaluru u/s. 154 of the Act. The assessee being further aggrieved with this order preferred the present appeal before us.
We have gone through the record alongwith order of CPC, Bengaluru and order of the Ld. CIT (A). It is observed that the assessee filed its return of income well within the time prescribed u/s. 139(1) of the Act and opted for concessional rate of tax @ 22% u/s. 115BAA of the Act in its return of income. It is pertinent to mention here that this is the first year of operation of section 115BAA of the Act and COVID period was also there. For ready reference we are reproducing herein below the provisions of section 115BAA of the Act alongwith relevant rule as under:
Section - 115BAA, Income-tax Act, 1961 - FA, 2023 Tax on income of certain domestic companies. 115BAA. (1) Notwithstanding anything contained in this Act but subject to the provisions of this Chapter, other than those mentioned under section 115BA and section 115BAB, the income-tax payable in respect of the total income of a person, being a domestic company, for any previous year relevant to the assessment year beginning on or after the 1st day of April, 2020, shall, at the option of such person, be computed at the rate of twenty-two per cent, if the conditions contained in sub-section (2) are satisfied: Provided that where the person fails to satisfy the conditions contained in sub-section (2) in any previous year, the option shall become invalid in respect of the assessment year relevant to that previous year and subsequent assessment years and other provisions of the Act shall apply, as if the option had not been exercised for the assessment year relevant to that previous year and subsequent assessment years. (2) For the purposes of sub-section (1), the total income of the company shall be computed, —
(i) without any deduction under the provisions of section 10AA or clause (iia) of sub- section (1) of section 32 or section 32AD or section 33AB or section 33ABA or sub-clause (ii) or sub-clause (iia) or sub-clause (iii) of sub-section (1) or sub-section (2AA) or sub- section (2AB) of section 35 or section 35AD or section 35CCC or section 35CCD or under any provisions of [Chapter VI-A other than the provisions of section 80JJAA or section 80M];
(ii) without set off of any loss carried forward or depreciation from any earlier assessment year, if such loss or depreciation is attributable to any of the deductions referred to in clause (i);
(iii) without set off of any loss or allowance for unabsorbed depreciation deemed so under section 72A, if such loss or depreciation is attributable to any of the deductions referred to in clause (i); and (iv) by claiming the depreciation, if any, under any provision of section 32, except clause (iia) of sub-section (1) of the said section, determined in such manner as may be prescribed.
(3) The loss and depreciation referred to in clause (ii) and clause (iii) of sub-section (2) shall be deemed to have been given full effect to and no further deduction for such loss or depreciation shall be allowed for any subsequent year: Provided that where there is a depreciation allowance in respect of a block of asset which has not been given full effect to prior to the assessment year beginning on the 1st day of April, 2020, corresponding adjustment shall be made to the written down value of such block of assets as on the 1st day of April, 2019 in the prescribed manner, if the option under sub-section (5) is exercised for a previous year relevant to the assessment year beginning on the 1st day of April, 2020. (4) In case of a person, having a Unit in the International Financial Services Centre, as referred to in sub-section (1A) of section 80LA, which has exercised option under sub-section (5), the conditions contained in sub-section (2) shall be modified to the extent that the deduction under section 80LA shall be available to such Unit subject to fulfilment of the conditions contained in the said section. Explanation. —For the purposes of this sub-section, the term "Unit" shall have the same meaning as assigned to it in clause (zc) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005).
(5) Nothing contained in this section shall apply unless the option is exercised by the person in the prescribed manner on or before the due date specified under sub-section (1) of section 139 for furnishing the returns of income for any previous year relevant to the assessment year commencing on or after the 1st day of April, 2020 and such option once exercised shall apply to subsequent assessment years: Provided that in case of a person, where the option exercised by it under section 115BAB has been rendered invalid due to violation of conditions contained in sub-clause (ii) or sub-clause (iii) of clause (a), or clause (b) of sub-section (2) of said section, such person may exercise option under this section: Provided further that once the option has been exercised for any previous year, it cannot be subsequently withdrawn for the same or any other previous year. Rule - 21AE, Income-tax Rules, 1962 Exercise of option under sub-section (5) of section 115BAA. 21AE. (1) The option to be exercised in accordance with the provisions of sub- section (5) of section 115BAA by a person, being a domestic company, for any previous year relevant to the assessment year beginning on or after the 1st day of April, 2020, shall be in Form No. 10-IC. (2) The option in Form No. 10-IC shall be furnished electronically either under digital signature or electronic verification code. (3) The Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems), as the case may be, shall—
(i) specify the procedure for filing of Form No. 10-IC;
(ii) specify the data structure, standards and manner of generation of electronic verification code, referred to in sub-rule (2), for verification of the person furnishing the said Form; and (iii) be responsible for formulating and implementing appropriate security, archival and retrieval policies in relation to the Form so furnished.
In view of the above provisions, it is observed that the assessee is fulfilling all the conditions except filing of Form No. 10IC. 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. The assessee duly claimed the benefit in its return of income filed in Form No. ITR-6 and return was filed well within the time prescribed u/s. 139(1) of the Act.
The provisions of Section 143(1) of the Act are clear in their requirement that prior to passing an intimation order, the Assessing Officer must provide the taxpayer with a reasonable opportunity to present their case and address any concerns or discrepancies. It is incumbent upon the tax authorities to afford taxpayers a fair hearing and a chance to clarify or contest any issues related to their tax assessment. In this specific case, it was not provided with any such opportunity to be heard. As observed that the assessee has not filed Form No. 10IC for claiming concessional rate of tax but on the other hand CPC, Bengaluru also has not followed the procedure prescribed by the law. It is reasonably assumed that the if the CPC, Bengaluru would have followed the procedure, i.e. giving the assessee a reasonable opportunity of hearing, the assessee would have filed the Form No. 10IC before the CPC, Bengaluru and this technical requirement would have been completed.
In view of this, the Jurisdictional AO is directed to give a fresh opportunity to the assessee ignoring this adjustment made by the CPC, Bengaluru and the assessee is directed to file the form no. 10IC electronically/before the Jurisdictional AO to comply with the rules. Once the assessee filed the Form No.
10IC, the Jurisdictional AO is directed to revise the tax computation of the assessee in compliance with the provisions of section 115BAA of the Act. With these remarks Ground Nos. 1 & 2 raised by the assessee are allowed for statistical purposes.
As far as Ground No. 3 is concerned, as the assessee has opted for concessional rate of tax u/s. 115BAA of the Act, i.e. only normal income is relevant and to be considered, hence system blocked the operational part of return relating to MAT provisions. As the issue relating to availability of section 115BAA has already been decided in favour of the Assessee, this ground of appeal raised by the assessee became infructuous; hence the same is dismissed without any findings on merits of the same.
In the result, based on above, the appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 21st day of August, 2024.
Sd/- Sd/- (AMIT SHUKLA) (GAGAN GOYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, दिन ांक/Dated: 21/08/2024 Dhananjay, Sr. PS Copy of the Order forwarded to: अपील र्थी/The Appellant , 1. प्रदिव िी/ The Respondent. 2. आयकर आयुक्त CIT 3. दवभ गीय प्रदिदनदि, आय.अपी.अदि., मुबांई/DR, ITAT, Mumbai 4.
ग र्ड फ इल/Guard file. 5. BY ORDER, //True Copy// (Asstt. Registrar) ITAT, Mumbai