DEPUTY COMMISSIONER OF INCOME-TAX, CORPORATE CIRCLE 1(1), CHENNAI vs. ASTROTECH STEELS PRIVATE LIMITED, CHENNAI

The Registry has noted delay of 4 days in the appeal, the condonation of which has been sought by the Ld. Sr. DR. Considering the period of delay, we condone the delay and admit the appeal for adjudication on merits. 3. The Ld. Sr. DR, at the outset, referred to the recent judgment of Hon'ble Supreme Court in the case of Pr. CIT Vs Wipro Ltd. (2022) 140 Taxmann.com 223 (SC) as well as other decisions in Checkmate Services P. Ltd Vs. CIT (2022) 143 Taxmann.com 178 (SC) & Britannia Industries Ltd Vs.CIT (2005) 148 Taxman 468 (SC) to support the case of the revenue that delay in filing of requisite form would result into denial of impugned deduction to the assessee. The copies of the decisions have been placed on record along with copy of Form No.56F. The Ld. Sr. DR submitted that this was the 6th year of claiming impugned deduction and still the assessee failed to fulfill the statutory requirement of filing requisite Form No.56F along with the return of income. Since there was violation of mandatory statutory requirement, the deduction as claimed u/s 10AA has rightly been denied to the assessee and Ld. CIT (A) erred in granting relief to the assessee. The Ld. AR, on the other hand, maintained that this being 6th year of deduction, the same could not be denied to the assessee. The Ld. AR also submitted that the copy of Form 56F was uploaded subsequently. The Ld. AR sought distinction in the facts of Pr. CIT Vs Wipro Ltd. (supra) by relying on the subsequent decision of Hon’ble Gujarat High Court in the case of CIT (E) vs. Gujarat Energy Development Agency (TCA No.35 of 2024 dated 15-01-2024). A copy of the same has been placed on record. The case was put up for clarification from time to time which was duly responded to by both the sides. Having heard rival submissions and upon perusal of case records, our adjudication would be as under. Proceedings before lower authorities 4. From rectification order passed u/s 154 by CPC on 28-01-2021, it could be seen that the extended due date for filing of return of income for the assessee was 31-10-2018. The assessee has filed return of income on 16-10-2018 which is well within extended due date of filing of return of income. The assessee claimed deduction u/s 10AA. However, aforesaid deduction has been denied by CPC to the assessee while processing return of income u/s 143(1) since requisite Audit Report in Form No.56F was not filed along with return of income. The said report has apparently been filed by the assessee on 20-12-2018 which was much before CPC raised the issue of disallowance.

Reliance was placed on the decision of Hon'ble Madras High Court in the case of CIT Vs Jayanthilal Patel (2001) (248 ITR 199) and Hon’ble Delhi High Court in the case of CIT Vs. Web Commerce India Pvt. Ltd (2009) (318 ITR 135) to support the submissions.

6. The Ld. CIT(A), following the decision of Kolkata Tribunal in the case of DIC Fine Chemicals P. Ltd Vs. DCIT in dated 12-06-2018 and the decision of Hyderabad Tribunal in ACIT vs. Hind Speed Technologies (ITA No.1600/Hyd/2014 dated 08-12-2017), concurred with the claim of the assessee and directed Ld. AO to allow the impugned deduction. Aggrieved as aforesaid, the revenue is in further appeal before us. Our findings and Adjudication 7. From the facts, it is very much clear that the assessee has filed original return of income within extended due date. In this return, the assessee has claimed impugned deduction u/s 10AA. It could thus be seen that no new claim was made by the assessee and this claim was very much made at the time of filing or original return of income only which has been filed within extended due date. The only deficiency on the part of the assessee is that it has failed to file requisite Form No.56F along with the return of income.

8. The provisions of Sec.10AA provide for certain deduction to an assessee who begins to manufactures or produce certain article / things within prescribed period. The sub-section (8) of Sec.10AA provides that the provisions of sub-section (5) and (6) of Section 10A shall apply to such an undertaking. The sub-section (5) of Sec.10A, as referred therein, provide as under: - (5) The deduction under this section shall not be admissible for any assessment year beginning on or after the 1st day of April, 2001, unless the assessee furnishes in the prescribed form, the report of an accountant as defined in the explanation below sub- section (2) of Sec.288 before the specified date referred to in section 44AB, certifying that the deduction has been correctly claimed in accordance with the provisions of this section.

Considering this provision, CPC has denied impugned deduction to the assessee. In the present case, the assessee admittedly has violated this mandatory condition of claiming benefit u/s 10AA.

9. The above condition, in our considered opinion, is directory and not mandatory in nature since filing of requisite form could be said to be procedural requirement and therefore, technical default in filing of the same would not jeopardize the claim of the assessee. It could be seen that the assessee has fulfilled all the other requirements to lay claim on this deduction in this year. In fact, it is the sixth year of claiming of impugned deduction.

10. The objective of requirement of Filing of Form 56F, in our considered opinion, is to enable the revenue to ascertain that the deduction has correctly been claimed by the assessee in accordance with law. The mere technical failure to comply with this condition would not, therefore, result into denial of deduction to the assessee. The assessee has already filed this form on 20-12-2018 as against prescribed date of 31-10-2018.

11. The Ld. Sr. DR has referred to the case of Hon’ble Supreme Court in the case of Pr. CIT Vs Wipro Ltd. (2022) 140 Taxmann.com 223 (SC). In this decision, the facts were that the assessee claimed exemption u/s 10B in the return of income. The assessee declared loss. Along with original return of income, it annexed a note stating that it was eligible to claim exemption u/s 10B and therefore, no loss was being carried forward. However, before Ld. AO, the assessee contended that it did not want to avail the benefit u/s 10B of the Act in terms of Sec.10B (8) of the Income Tax Act. The assessee also revised its return of income where this exemption was not claimed u/s 10B and the assessee claimed carry-forward of loss. The Ld. AO rejected the withdrawal of such exemption holding that the assessee did not furnish the declaration in writing before the due date of filing of return of income, which was 31- 10-2001. Finally, Ld. AO denied carry forward of loss u/s 72. The Ld. CIT(A) upheld the action of Ld. AO. The Tribunal decided this issue in assessee’s favour by observing that the requisite declaration as required u/s 10B (8) was filed by the assessee before due date as specified u/s 139(1). The Hon’ble High Court dismissed the appeal of the revenue and the revenue preferred furrier appeal to Hon’ble Supreme Court. It was submitted on behalf of the revenue that the requisite declaration as required under Sec.10B(8) was filed beyond the due date of filing of return income and therefore, the assessee was not entitled to claim carry forward of losses u/s 72. The Tribunal wrongly noted that such declaration was filed before the due date. It was also contended that Hon’ble High Court erred in observing that the requirement of Sec.10B (8) was a procedural requirement. Further, Hon’ble High Court did not properly appreciated the consequences of not filing the declaration within the time as required under Sec. 10B(5) and non-compliance of sections 10B(5) and 10B(8) of the Act. If the view taken by High Court is accepted, then it shall nullify the provisions of Sec. 10B(5) and 10B(8) of the Act. A plea was also raised by the revenue that High Court erred in observing that the requirement of submission of declaration u/s 10B(8) was mandatory in nature but the time limit within which the declaration could be filed was directory in nature since the provision does not provide for any adverse consequence for not filing of the declaration by the time limit. It was further submitted that the High Court did not properly appreciate and/or considered the fact that non-filing of declaration before the due date, i.e., filing of the return of income would result in denial of the benefit u/s 10B(8) of the Act. Therefore, it could not be said that there was no consequence of not filing the declaration before the due date of return of income. It was further submitted that a taxing statute was to be strictly construed and that the machinery provisions must be so construed to effectuate the object and purpose of statute and that the exemption provisions must be construed strictly and by a strict interpretation. Per contra, on behalf of the assessee, it was contended that on a true interpretation of Sec.10B (5) and 10B(8) of the Act, the High Court has rightly observed and held that the requirement of filing the declaration was mandatory in nature, while the time limit for filing the declaration was directory in nature. It was submitted that the High Court had rightly held the requirement of filing the declaration by the time limit was directory as non-filing of the declaration within the time limit would not envisage any consequence. Another submission was that the accountant's certificate u/s 10B(5) would be required only if the assessee claims the deduction u/s 10B. This certificate only certifies the profit / loss of Section 10B unit and the amount of deduction u/s 10B(1), if any. The certificate, if already submitted, becomes irrelevant if the claim is withdrawn u/s 10B. In any event, the contents of this certificate regarding profit / loss are not in any way affected by the withdrawal of the Sec.10B claim. It was submitted that in the present case, the loss set out in Sec.10B certificate remained exactly the same after withdrawal of the claim made u/s 10B and the respondent making the claim for carry forward of loss. It was also submitted that there was no claim for any deduction u/s 10B(1) at any time. The assessee also referred to various case laws including the decision of Hon’ble Supreme Court in the case of CIT v. G.M. Knitting Industries (P.) Ltd. (376 ITR 456) and submitted that the principle laid down therein would apply to the interpretation of Sec.10B(8) also. The provisions of Sec.10B(8) enables an assessee to exclude the applicability of the deduction u/s 10B by filing a declaration to that effect before the last date in which the return of income is required to be filed. It was further submitted that as held in G.M. Knitting Industries (P.) Ltd. (supra), the requirement that the Form should be submitted by a certain deadline is directory, though the submission of the Form itself may be regarded as mandatory. Further, the basic premise is that a substantive claim, which the assessee considers to be more beneficial, must be allowed to be made until the conclusion of assessment and the time within which any form which enables the claim should be filed, is only directory. The assessee also relied on various other similar case laws. Another argument was that Sec.10B was a deduction provision and not an exemption provision as held by Hon’ble Supreme Court in the case of CIT v. Yokogawa India Ltd. (77 Taxmann.com 241).

After considering rival submissions, Hon’ble Court concurred with the submissions of the revenue and finally distinguishing the case laws as relied upon by the assessee held as under: - 5. We have heard Shri Balbir Singh, learned ASG appearing on behalf of the Revenue and Shri S. Ganesh, learned Senior Advocate appearing on behalf of the assessee at length and perused the material on record. The short question which is posed for consideration of this Court is, whether, for claiming exemption under section 10B (8) of the IT Act, the assessee is required to fulfil the twin conditions, namely, (i) furnishing a declaration to the assessing officer in writing that the provisions of section 10B(8) may not be made applicable to him; and (ii) the said declaration to be furnished before the due date of filing the return of income under sub- section (1) of section 139 of the IT Act.

12. Even the submission on behalf of the assessee that the assessee had a substantive statutory right under section 10B(8) to opt out of section 10B which cannot be nullified by construing the purely procedural time requirement regarding the filing of the declaration under section 10B(8) as being mandatory also has no substance. As observed hereinabove, the exemption provisions are to be strictly and literally complied with and the same cannot be construed as procedural requirement. 13. So far as the submission on behalf of the assessee that against the decision of the Delhi High Court in the case of Moser Baer India Ltd. (supra), a special leave petition has been dismissed as withdrawn and the revenue cannot be permitted to take a contrary view is concerned, it is to be noted that the special leave petition against the decision of the Delhi High Court in the case of Moser Baer India Ltd. (supra) has been dismissed as withdrawn due to there being low tax effect and the question of law has specifically been kept open. Therefore, withdrawal of the special leave petition against the decision of the Delhi High Court in the case of Moser Baer (supra) cannot be held against the revenue. 14. In view of the above discussion and for the reasons stated above, we are of the opinion that the High Court has committed a grave error in observing and holding that the requirement of furnishing a declaration under section 10B(8) of the IT Act is mandatory, but the time limit within which the declaration is to be filed is not mandatory but is directory. The same is erroneous and contrary to the unambiguous language contained in section 10B(8) of the IT Act. We hold that for claiming the benefit under section 10B(8) of the IT Act, the twin conditions of furnishing a declaration before the assessing officer and that too before the due date of filing the original return of income under section 139(1) are to be satisfied and both are mandatorily to be complied with. Accordingly, the question of law is answered in favour of the Revenue and against the assessee. The orders passed by the High Court as well as ITAT taking a contrary view are hereby set aside and it is held that the assessee shall not be entitled to the benefit under section 10B(8) of the IT Act on non- compliance of the twin conditions as provided under section 10B(8) of the IT Act, as observed hereinabove. The present Appeal is accordingly Allowed. However, in the facts and circumstances of the case, there shall be no order as to costs The Hon’ble Court thus held that the wording of the Sec.10B(8) was very clear and unambiguous. For claiming the benefit u/s 10B(8), the twin conditions of furnishing the declaration to the assessing officer in writing and that the same must be furnished before the due date of filing the return of income under sub-section (1) of section 139 of the Act were required to be fulfilled and/or satisfied. Both the conditions to be satisfied were mandatory in nature. It could not be said that one of the conditions would be mandatory whereas the other would be directory, where the words used for furnishing the declaration to the assessing officer and to be furnished before the due date of filing the original return of income under sub-section (1) of section 139 are same/similar. It could not be disputed that in a taxing statute, the provisions are to be read as they are and they are to be literally construed, more particularly in a case of exemption sought by an assessee. In such a situation, filing a revised return u/s 139(5) claiming carrying forward of losses subsequently would not help the assessee. For claiming the benefit u/s 10B (8), both the conditions of furnishing the declaration and to file the same before the due date of filing the original return of income were mandatory in nature. The Hon’ble Court distinguished the case law of G.M. Knitting Industries (P.) Ltd. (supra) and held that Sec.10B (8) is an exemption provision which could not be compared with claiming an additional depreciation u/s 32(1)(iia) of the Act. As per the settled position of law, an assessee claiming exemption has to strictly and literally comply with the exemption provisions. The provisions of Chapter III and Chapter VIA of the Act operate in different realms and principles of Chapter III, which deals with "incomes which do not form a part of total income", could not be equated with mechanism provided for deductions in Chapter VIA, which deals with "deductions to be made in computing total income". Finally, it was held that Hon’ble High Court erred in observing that the requirement of furnishing a declaration u/s 10B(8) was mandatory but the time limit within which the declaration was to be filed was not mandatory but mere directory. The same was erroneous and contrary to the unambiguous language contained in Sec.10B(8) of the Act. It was finally held that to claim the benefit u/s 10B(8) of the IT Act, the twin conditions of furnishing a declaration before the assessing officer and that too before the due date of filing the original return of income u/s 139(1) were to be satisfied and both were mandatorily to be complied with. Accordingly, the question of law was answered in favour of the Revenue and against the assessee.