Kumar Medicare Pvt. Ltd. Vs CIT/NFAC Delhi (ITAT Mumbai)
Summary: ITAT Mumbai partly allowed Kumar Medicare Pvt. Ltd.’s appeal for statistical purposes concerning denial of the concessional 22% tax rate under Section 115BAA for AY 2020-21 due to non-filing of Form 10-IC. The assessee had filed its return within the time prescribed under Section 139(1) and had opted for the concessional rate in its ITR-6, but Form 10-IC had not been filed. The Tribunal noted that this was the first year of operation of Section 115BAA and was also during the COVID period. After considering Section 115BAA and Rule 21AE, it held that procedural requirements should not override substantive benefits and observed that courts have taken a lenient approach to procedural lapses where substantive benefits are involved. The Tribunal further found that CPC, Bengaluru had not provided the assessee a reasonable opportunity before making the adjustment under Section 143(1). It therefore directed the jurisdictional AO to provide a fresh opportunity, ignoring the CPC adjustment, and directed the assessee to file Form 10-IC electronically/before the jurisdictional AO. Upon filing the form, the AO was directed to revise the tax computation in accordance with Section 115BAA. Grounds 1 and 2 were allowed for statistical purposes. The MAT-related ground concerning Section 115JB became infructuous and was dismissed without findings on merits.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
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:-
1. 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.
2. 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.
3. 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.
2. 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%.
3. 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.
4. 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) | wit hout 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 deprec iation 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. |
| (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. |
(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—
5. 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.
6. 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.
7. 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.
8. 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.
9. 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.
