Super Antico Solutions Private Limited Vs ITO (ITAT Ahmedabad)
Section 115BAB Option Does Not Lapse Because First-Year Tax Is Nil: Eligibility Still Requires Verification
Facts of the case
The assessee company challenged the denial of the concessional tax regime under section 115BAB, despite having exercised the prescribed option in an earlier assessment year.
For AY 2023-24, it filed its return on 25 October 2023, declaring total income of ₹1,36,86,620. The tax computation in the return adopted the special rate mechanism under section 115BAB.
However, while processing the return under section 143(1), the CPC did not recognise that option and computed tax at the normal rate of 30%, resulting in a demand.
The company sought rectification under section 154. The CPC disposed of the application on 7 January 2025, but did not grant the benefit of section 115BAB. The first appellate authority also dismissed the company’s appeal, leading to the proceedings before the Tribunal.
Assessee’s contention: The earlier option continued
The assessee explained that it had first opted for taxation under section 115BAB for AY 2020-21, by furnishing Form 10-ID.
Its central argument was that the statutory option, once exercised, applied to subsequent assessment years and could not be withdrawn. Accordingly, the CPC could not disregard the earlier election when computing tax for AY 2023-24.
The grounds also challenged the appellate authority’s understanding of the treatment in AY 2022-23 and alleged that the relevant computations and reconciliation had not been properly considered. The Tribunal’s decision, however, principally addressed the continuation of the original option and the need to verify substantive eligibility.
Revenue’s objection: No tax was computed in the first year
The Revenue acknowledged that the assessee had opted for section 115BAB in AY 2020-21, but pointed out that no income had been disclosed in that year’s return. Consequently, no tax calculation under section 115BAB appeared in the section 143(1) intimation for that year.
According to the Department, the assessee had not exercised the option for the first time in a year in which tax was actually payable. It relied upon the denial of the benefit in subsequent processing and supported the lower authorities’ orders.
The dispute thus involved whether an election made in a year without taxable income remained effective in later years.
Tribunal’s reasoning on continuation of the option
The Tribunal examined section 115BAB(7), which requires the option to be exercised in the prescribed manner within the stipulated time. The provision further states that an option once exercised applies to subsequent assessment years, and its proviso prevents subsequent withdrawal.
The Bench held that the absence of income in the first year, or the absence of a tax computation under section 115BAB in that year’s intimation, did not by itself constitute withdrawal or cancellation of an otherwise validly exercised option.
The statute did not make the option effective only when tax was actually payable under the concessional regime in the first year.
Accordingly, the Tribunal rejected the basis on which the CPC had disregarded the option. Nil first-year tax did not extinguish the election or require it to be treated as ineffective in later years.
A continuing option is not automatic entitlement
The Tribunal nevertheless drew an important distinction between exercising the option and qualifying for the concessional rate.
It held that furnishing Form 10-ID did not automatically establish compliance with all the conditions prescribed under section 115BAB(2).
The material before the Bench did not demonstrate that the Assessing Officer had examined those conditions for the year under appeal. Consequently, although the earlier option could not be disregarded for the stated reason, the company’s actual eligibility required further examination.
Decision and directions
The Tribunal restored the issue to the jurisdictional Assessing Officer for fresh examination.
The Assessing Officer was directed to verify compliance with section 115BAB(2) and determine the company’s tax liability in accordance with law. If the conditions were satisfied, the concessional rate under section 115BAB(1) was to be allowed, subject to the other statutory requirements.
The assessee was to receive an adequate opportunity of hearing and furnish the necessary records.
The ground was allowed for statistical purposes. The Tribunal therefore removed the objection concerning nil first-year tax, but did not finally direct unconditional application of the concessional rate.
Author’s comments
The decision separates two questions that processing can sometimes merge: whether a statutory election continues and whether the taxpayer satisfies the regime’s conditions. A year without taxable income does not, under the reasoning adopted here, erase an otherwise valid election.
For practical purposes, the company should preserve the original Form 10-ID acknowledgement alongside evidence supporting substantive eligibility. The form establishes the election; the remaining records establish entitlement.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal has been filed by the Assessee against the order of Addl/JCIT (Appeal)-2, Hyderabad [hereinafter referred to as “Addl. CIT(A)”] dated 03.02.2026 for the Assessment Year (A.Y.) 2023-24 in the proceeding u/s 154 of the Income Tax Act [hereinafter referred as “the Act”].
2. The brief facts of the case are that the assessee had filed its return of income for A.Y. 2023-24 on 25.10.2023 declaring total income of Rs.1,36,86,620/-. In the ITR, the assessee had calculated tax by adopting special tax rate mechanism as per section 115BAB of the Act. The return of the assessee was processed by the CPC u/s 143(1) of the Act, wherein the tax option made by the assessee u/s. 115BAB of the Act, was not considered and the tax was calculated at normal rate of tax (30% of the total income). Accordingly, a demand was raised in the intimation u/s 143(1) of the Act. Thereafter, the assessee had filed a rectification application u/s. 154 of the Act with the CPC, which was decided vide order dated 07.01.2025 but the benefit of tax rate u/s. 115BAB of the Act was not allowed in the rectification order as well.
3. Aggrieved with the rectification order passed by the CPC, the assessee had filed an appeal before the first appellate authority which was decided by the Ld. Addl. CIT(A) vide the impugned order and the appeal of the assessee was dismissed.
4. Now, the assessee is in second appeal before us. The following grounds have been taken in this appeal:
1. The order of the Learned CIT(A) is contrary to facts on records and hence bad in law and liable to be quashed.
2. The Learned CIT(A) erred in confirming denial of concessional tax rate under Section 115BAB despite the Appellant having duly exercised the option in the return of income for the AY 2023-2024
The Learned CIT(A) failed to appreciate that for A.Y. 2023-24, the intimation U/s. 154 acknowledges exercise of option under Section 115BAB, yet tax has been computed under normal provisions, indicating a processing error.
3. The Learned CIT(A) erred in relying on incorrect facts for A.Y. 2022-23 by holding that the option under Section 115BAB was not exercised, without appreciating that:
the option was exercised in the return of income
the intimation u/s 143(1) contained an apparent error; and
tax was in fact computed by CPC under Section 115BAB.
The Learned CIT(A) failed to consider the detailed tax computations and reconciliation submitted by the Appellant, thereby passing a non-speaking order.
4. The Learned CIT(A) erred in denying the claim based on treatment in earlier assessment years without appreciating that each assessment year is independent and eligibility under Section 115BAB is to be examined based on compliance of conditions for the relevant year.
5. The Appellant craves for leave to add, amend, alter, or delete any of the grounds of appeal on or before the date of hearing.
5. Shri Tej Shah, the Ld. AR of the assessee explained that the assessee had opted for the benefit of tax u/s. 115BAB of the Act, for the first time, in the A.Y. 2020-21. He explained that the Form No. 10-ID opting for provision of section 115BAB of the Act was filed by the assessee on 15.02.2021. He submitted that having already filed Form No. 10-ID in the A.Y. 2020-21, the option was applicable for all the subsequent years and the assessee was not entitled to subsequently withdraw that option. Under the circumstances, the CPC was not correct in denying the benefit of provision of section 115BAB of the Act, to the assessee.
6. Per contra, Shri Arvind Kumar Namdeo, the Ld. Sr. DR, submitted that though the assessee had opted for taxation u/s. 115BAB of the Act in the A.Y. 2020-21, there was no income disclosed in the ITR. Therefore, no tax calculation was made under that section in the intimation u/s. 143(1) of the Act dated 21.06.2021 for that year. For the subsequent years, the CPC had denied the benefit of section 115BAB of the Act to the assessee. The Ld. SR-DR submitted that no option u/s. 115BAB of the Act was made by the assessee for the first time in the year in which any tax was payable by the assessee. He, therefore, supported the order of the lower authorities.
7. We have considered the rival submissions. It is not in dispute that the assessee had exercised the option for taxation under section 115BAB of the Act by furnishing Form No. 10-ID on 15.10.2021. The relevant provision governing the exercise and continuation of such option is contained in section 115BAB(7) of the Act, which reads as under:
(7) 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 first of the returns of income for any previous year relevant to the assessment year commencing on or after 1st day of April, 2020 and such option once exercised shall apply to subsequent assessment years:
Provided that once the option has been exercised for any previous year, it cannot be subsequently withdrawn for the same or any other previous year.
The statutory scheme, thus, contemplates exercise of the option in the prescribed manner within the stipulated time for the first eligible assessment year and further provides that, once exercised, such option shall apply to subsequent assessment years. The proviso further makes it clear that an option once exercised cannot subsequently be withdrawn for the same or any other previous year.
8. In the present case, the assessee had exercised the option u/s 115BAB by furnishing Form No. 10-ID for A.Y. 2020-21. The Revenue has not disputed the fact of filing of the prescribed form. The mere fact that no income was disclosed in the return for A.Y. 2020-21 or that no tax was ultimately computed u/s 115BAB in the intimation issued u/s 143(1) would not, by itself, amount to withdrawal or cancellation of an option which had otherwise been exercised in the prescribed manner. The provision does not stipulate that the option would become effective only if tax was actually payable u/s 115BAB in the first year in which the option was exercised. Once the option is validly exercised in accordance with section 115BAB(7), the statute expressly provides that it shall apply to subsequent assessment years and that it cannot subsequently be withdrawn. Accordingly, we find merit in the contention of the assessee that the CPC was not justified in denying the benefit of section 115BAB in the year under consideration merely on the ground that no tax had been computed under the said provision in A.Y. 2020-21.
9. At the same time, the exercise of the option u/s 115BAB(7) by itself does not result in an automatic entitlement to the concessional rate of tax prescribed u/s 115BAB(1). The benefit of the said provision is subject to fulfilment of the conditions prescribed u/s 115BAB(2) of the Act. From the material placed before us, it is not evident that the Assessing Officer has examined the fulfilment of all the conditions prescribed u/s 115BAB(2) for the year under consideration. Therefore, while the option exercised by the assessee cannot be disregarded merely because no tax was computed under section 115BAB in the first year, the assessee’s actual eligibility for the concessional rate is required to be examined with reference to the statutory conditions applicable to the year under consideration.
10. In the above circumstances, in the interest of justice, we deem it appropriate to restore the issue to the file of the jurisdictional Assessing Officer for fresh examination. The AO shall verify whether the assessee fulfils all the conditions prescribed u/s 115BAB(2) of the Act for the year under consideration and shall thereafter determine the assessee’s liability in accordance with law. If, upon such examination, the AO finds that the assessee satisfies the conditions prescribed u/s 115BAB(2), the benefit of the concessional rate of tax prescribed u/s 115BAB(1) shall be allowed to the assessee, subject to the other statutory requirements. Needless to state, the assessee shall be afforded adequate opportunity of being heard and shall furnish such details and documentary evidence as may be called for by the Assessing Officer.
11. In the result, the ground raised by the assessee is allowed for statistical purposes in the terms indicated above.
Order pronounced in the Court on 07/10/2026 at Ahmedabad.
