Exemption under section 10B-Availability-Return not filed by due date-Proviso to section 10B(1) which provides that no exemption under section 10B shall be allowed if return is not furnished by due date prescribed under section 139(1) is directory and not mandatory in nature. Therefore, in genuine cases exemption under section 10B may be allowed even if the return is not filed by the due date mentioned in section 139(1)
Asst. CIT Vs. Dhir Global Industries (P.) Ltd.
Bangalore bench of the Income-tax Appellate Tribunal
Counsel: R.S. Singhvi, for the Respondent q Stephen George, for the Appellant
This appeal by the revenue is directed against the order of the Ld. Commissioner (Appeals) dated 3-3-2010 pertaining to assessment year 2006-07.
2. The issue raised reads as under:- “On the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) has erred by directing assessing officer to allow the statutory deduction u/s 10B in spite of the fact that Income Tax Act, 1961 clearly speaks that no such deduction shall be allowed to an assessee who does not furnish a return on or before the due date as specified under sub-section (1) of section 139.”
3. The assessing officer in this case observed that during the year consideration, the assessee has claimed exemption u/s 10B of the Income Tax Act of Rs. 2,06,36,797. He found that as per the proviso to section 10B(1), which has been inserted by the Finance Act, 2006, with effect from A.Y. 2006-07, no deduction under the provisions of section 10B shall be allowed to an assessee if the return of income is not furnished on or before the due date specified under sub-section (1) of section 139 of the Income Tax Act, i.e., 30-11-2007 in the case of the assessee.
3.1 Assessing officer referred to the relevant clause of section 10B as applicable for assessment year 2006-07 as under:-
“Special provisions in respect of newly established hundred per cent export, oriented undertakings.
10B(1). Subject to the provisions of this section, a deduction of such profits and gains as are derived by a hundred per cent export- oriented undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee:
Provided that where in computing the total income of the undertaking for any assessment year, its profits and gains had not been included by application of the provisions of this section as it stood immediately before its substitution by the Finance Act, 2000, the undertaking shall be entitled to the deduction referred to in this sub-section only for the unexpired period of aforesaid ten consecutive assessment years :
Provided further that for the assessment year beginning on the 1st day of April, 2003, the deduction under this sub-section shall be ninety per cent of the profits and gains derived by an undertaking from the export of such articles or things or computer software.
Provided also that no deduction under this section shall be allowed to any undertaking for the assessment year beginning on the 1st day of April, 2012 and subsequent years.
Provided also that no deduction under this section shall be allowed to an assessee who does not furnish a return of his income on or before the due date specified under sub-section (1) of section 139.”
3.2 Considering the above assessing officer observed that due date of filing the return of income in this case u/s 139(1) was 30-11-2006, however, the return of income was filed on 18-1-2007. He opined that in view of the statutory provisions of section 10B of the Income Tax Act, no deduction u/s 10B is allowable to the assessee. Hence he disallowed the claim of deduction u/s 10B.
4. Before the Ld. Commissioner (Appeals) it was submitted that the appellant is engaged in the business of export of garments. There is no dispute that company is eligible for benefit u/s 10B and same benefit has been considered and allowed in the preceding years and even in subsequent years also. However, in the year under reference, the assessing officer has disallowed the statutory claim on the ground that requisite conditions were not satisfied and reference was made to the proviso to section 10B which was introduced with effect from 1-4-2006. It was further submitted that validity of return filed is also not in dispute as the assessment has been completed on the basis of same return. It was further claimed that section 10B has been introduced to promote export and consequently benefit is required to allow, as per the scheme of the Act. It was argued that the word `shall’ has not been correctly interpreted by the assessing officer and the same has been applied in the mechanical manner. It was further argued that the word `shall’ has not been used in absolute terms as in appropriate cases, where there is genuine reasons, the delay has to be taken into consideration. It was claimed that in the year under consideration, the date for filing the return as per section 139(1) is 31-10-2006, but on the basis of extension allowed from time to time, the due date was extended to 30-11-2006. It was further claimed that the year under consideration new provision regarding E filing of return was introduced and there were problems in software and for other various technical reasons, the time was extended from time to time by the CBDT. It was further submitted that all the audit report including the tax audit report were prepared well in time and the delay in filing the return was on account of the circumstances beyond the control of the assessee. It was further submitted that under the scheme of the Act, an assessee is entitled to the legal and statutory claim at any stage of the proceedings and this principle is well supported in the case of Continental Construction (P.) Ltd. v. Union of India (1990) 185 ITR 230. Here the Hon’ble Delhi High Court for the first time recognized the claim of the appellant u/s 80HHB and matter was restored to assessing officer to consider the statutory claim after allowing the necessary opportunity to comply with the requisite conditions for such claim.
4.1 Reliance was further submitted to the following case laws:-
– Continental Construction (P.) Ltd. (supra)
– ITO v. VXL India Ltd. (2009) 312 ITR 187 (Guj) : (2010) 122 ITD 376 (Guj)
– Bajaj Tempo Ltd. v. CIT (1992) 196 ITR 1882 (SC)
– CIT v. Nu-Cork Products (P.) Ltd. (2007) 294 ITR 229 (Del) : (2007) 160 Taxman 220 (Del)
4.2 assessee further referred to the Circular No. 14 dated 11-4-1955 for the proposition that the assessing officer cannot take advantage of assessee’s ignorance or bona fide mistake and to collect the higher rate tax than whatever is due under the law. It was further pointed out that because of the financial problems the assessee was not in a position to pay the self assessment taxes before the due date of filing of return and in the absence of the same the return was not accepted, as per the stipulated software programme. It was submitted that immediately after payment of tax, the E filing was filed.
4.3 Considering the above, Ld. Commissioner of Income Tax (Appeals) accepted the assessee’s submissions. He found that the whole case of the assessing officer was based on technicality as there is no other ground for disputing the claim of the statutory benefit. He observed that it is not the case of invalid return and assessment has been completed as per the provision of the Act. He opined that the assessing officer is under obligation to allow statutory benefit as available. He further observed that in the identical circumstances and in the context of provisions of section 10(5), wherein also similar condition of filing of prescribed form was laid down, the Hon’ble Delhi High Court has concluded that these conditions are directory and not mandatory. In this regard, Ld. Commissioner (Appeals) referred the case laws of CIT v. Integrated Database India Ltd. (2009) 178 Taxman 432 (Delhi) and CIT v. Web Commerce (India) (P.) Ltd. (2009) 27 (I) ITCL 308 (Del-HC) : (2009) 318 ITR 135 (Del) : (2009) 178 Taxman 310 (Del).
4.4 Considering the above Ld. Commissioner of Income Tax (Appeals) held the assessing officer was directed to allow the statutory benefit u/s 10B.
5. Against this order the revenue is in appeal before us.
6. Ld. departmental Representative pointed out that in section 10(b)(i) by Finance Act, 2006 a proviso has been inserted from 1-4-2006 which specifically provides that no deduction under this section shall be allowed to assessee who has not furnished any return of income on or before the due date specified under sub-section (1) of section 139. He claimed that the said proviso was very much applicable in the year under consideration. He argued that the language of the Act was very clear and since the assessee has not furnished the return on or before the due date, the assessee was not entitled to deduction u/s 10B(i). He argued that howsoever genuine, the assessee’s hardship may be under such situation, the remedy lies under the provision 119(2)(b) which provides that “the Board may, if it considers it desirable or expedient so to do for avoiding genuine hardship in any case or class of cases, by general or special order, authorise any income tax authority, not being a Commissioner (Appeals) to admit an application or claim for any exemption, deduction, refund or any other relief under this Act after the expiry of the period specified by or under this Act for making such application or claim and deal with the same on merits in accordance with law”. Hence he argued that assessee should seek redressal of its grievance by making application before the CBDT and no relief can be granted against the specific provision of the Act by the Tribunal in this regard.
6.1 Ld. Counsel of the assessee on the other hand reiterated the submissions made before the Ld. Commissioner (Appeals). He pleaded that the assessee has been allowed the relief in preceding year as well as in the subsequent year. In the present year, for the first time filing of E return was introduced and there was some problem in the software of the same and CBDT has itself increased the date of filing of return from 30-10-06 to 30-11-06. He further claimed that under the existing software, the return could not have been accepted without payment of self-assessment tax and the assessee due to certain financial problems was not in a position to pay the taxes due. Only when the taxes were paid, after the marginal delay of 1 ½ month, the return was duly filed. He argued that subsequently this lacuna in the said E return software has been removed by the CBDT. He also claimed that in all other aspects of the claim viz., finalization of the accounts and obtaining audit report, there was no delay.
6.2 We have heard both the counsels and perused the records. We find that it is undisputed that a provision has been inserted during the current year in section 10(B)(1) which provides that no deduction under this section shall be allowed to an assessee if the return of income is not furnished on or before the due date specified under section (1) of section 139. Now this section was introduced with effect from 1-4-2006 by Finance Act, 2006. This is the first assessment year from which the said proviso has been introduced. Now section 139(1) provides as under:-
“139(1). Every person –
(a) being a company (or a firm) or
(b) being a person other than a company (for a firm), if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax, shall on or before the due date, furnish a return of his income or the income of such other person during the previous year, in the prescribed year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed.”
6.3 We further that another proviso has been inserted in section 139(1) with effect from 1-4-2006 by Finance Act, 2005 which reads as under:-
“Provided also that every person, being an individual or a Hindu undivided family or an associated or an association of persons or a body of individuals, whether incorporated or not, or an artificial juridical person, if his total income or the total income of previous year, without giving effect to the provisions of section 10A or section 10B or section 10BA or Chapter VI-A exceeded the maximum amount which is not chargeable to income–tax, shall, on or before the due date, furnish a return of his income or the income of such person during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed.”
6.4 A reading of the above makes it clear that section 139(1) mandated an assessee to file a return in his total income assessable under the Act in the previous year exceeded the maximum amount which is not chargeable to tax. Admittedly, when exemption is being granted u/s 10, the income would not form part of the total income and thus the total income would not exceed the maximum amount which is not chargeable to income tax. To take care of this situation the proviso mentioned above mandates that if the total income of a person, without giving effect to the provisions of section 10A or section 10B or section 10BA exceeded the maximum amount which is not chargeable to income-tax, to furnish a return of income.
6.5 Now corresponding provision is there in section 10B(1) which provides that no deduction shall be allowed to an assessee under this section unless return is furnished, on or before the due date specified under sub-section (1) of section 139.
6.6 In the background of the aforesaid scheme of Act and the discussion, we find that this proviso in 10(B)(1) is directory and not mandatory. Further when we consider the provision of section 10(5) which reads as under:-
“The deduction under sub-section(1) shall not be admissible for any assessment year beginning on or after the 1-4-2001, unless the assessee furnishes in the prescribed form, alongwith the return of income, the report of an accountant, as defined in the Explanation below sub-section (2) of section 288, certifying that the deduction has been correctly claimed in accordance with the provisions of this section.”
6.7 Hon’ble Jurisdictional High Court had an occasion to consider this provision of section 10(5) in the case of CIT v. Integrated Database India Ltd. (supra) and Web Commerce (India) (P.) Ltd. (supra). The Hon’ble court in the case of Web Commerce (India) (P.) (Supra) has held as under:-
“This court has already interpreted the latter provisions and has held the same to be directory and not mandatory. The contention of the revenue was that unless and until the audit report is filed along with the return, the benefit of section 10A cannot b available to the assessee. Recently, we have considered the identical provisions of section 80-IA(7) in the case of CIT v. Contimeters Electricals (P.) Ltd. I.T.A. 1366/2008 decided on 2-12-2008 [reported in (2009) 27 (I) ITCL 456 (Del-HC)], and held that as long as the audit report is filed before the framing of the assessment, the provisions of section 80-IA(7) would be complied with inasmuch as the same are directory and not mandatory. A similar view would have to be taken in the present case also inasmuch as the provisions are the same. Consequently, we do not find any fault with the conclusions arrived at by the Tribunal. No substantial question of law arises for our consideration.
The appeal is dismissed.”
6.8 We find that the proviso in section 10(b)(1) which has been inserted regarding filing of return which we are considering now is akin to the provision of section 10(5) considered by the Hon’ble High Court as above. Hon’ble High Court had clearly held that such provision is directory and not mandatory.
6.9 Now in the present case, we find that there was only a marginal delay of 1 ½ month in filing the return of income. The return filed was valid one. The same has also been accepted as a valid return by the assessing officer. The reasonable cause attributed by the assessee for the delay is that new provision of E-filing the return was introduced from the current assessment year. There was some problem under the new provisions due to which the date of filing the return had extended by the CBDT from time to time and from 31-10-2006, the same was extended to 30-11-2006. The new provision regarding E-filing of return was introduced & in this first year the software did not accept the return, if self- assessment tax was not paid. Assessee’s case is that due to some financial problems it could not pay the self-assessment tax on time, as a result of which there was a delay in the payment of tax and consequent filing of return by about 1&½ month. It was further claimed that subsequently the software has been modified and now returns are being accepted, even when self assessment tax is not paid. These factual aspects have not been disputed by the revenue. In these circumstances, in our considered opinion, there was genuine and valid reason for the delay in filing of return and moreover as we have already found above these provisions are directory and not mandatory. Once the validity of the return has not been questioned by the revenue, in our considered opinion, the rejection of the asseessee’s claim u/s 10(B(1) at the threshold by the assessing officer was not justified. In this regard, the case laws relied by the assessee at germane. In this connection, we refer to the following case laws:-
– “Continental Construction (P.) Ltd. v. UOI (1990) 185 ITR 230 (Del.)
(ii) That, however, in view of the bona fide belief entertained by the petitioner, the department ought not to stand on mere technicalities but ought to give the petitioner an opportunity to fulfill the requirements of section 80HHB(3) and, on such compliance within a reasonable time, ought to grant the benefit of that section to the petitioner.”
– Bajaj Tempo Ltd. (supra)
“A provision in a taxing statute granting incentives for promoting growth and development should be construed liberally; and since a provision for promoting economic growth has to be interpreted liberally, the restriction on it too has to be construed so as to advance the objective of the provision and not to frustrate.”
6.10 Now we deal with the Ld. departmental Representative’s submission that assessee’s remedy lied in applying to the CBDT under section 119(2)(b). The said section reads under:-
“The Board may, if it considers it desirable or expedient so to do for avoiding hardship in any case or class or cases, by general or special order, authorize (any income tax authority, not being a Commissioner (Appeals)) to admit an application or claim for any exemption, deduction, refund or any other relief under this Act after the expiry of the period specified by or under this Act for making such application or claim and deal with the same on merits in accordance with law.”
6.11 The said provision makes it clear that the Board cannot give direction to appellate authorities. Further the Act does not prohibit that, relief in this regard when genuine hardship is faced, cannot be granted by Appellate Authority. We have already given a finding in preceding paragraph that there was genuine hardship on the part of the assessee, under which circumstances the return was filed after a marginal delay.
6.12 Further the very fact that the Act envisages that relief regarding exemption should be considered and granted when application is made after the specified period in cases of genuine hardship clearly indicates that provision in this regard is directory and not mandatory. Hence in case of genuine hardship the relief can be granted by the appellate authority.
6.13 However, we find that Ld. Commissioner (Appeals) has accepted the assessee’s submission, that the delay in filing of return should not be a reason to deny the assessee’s claim of exemption u/s 10B(1). However, the Ld. Commissioner (Appeals) has not considered the factual aspects of the merits of the case. Assessing Officer also disallowed the assessee’s claim by stating that the return was filed on time. He also had not gone into the other aspects of the merits of the case. In this regard, we refer the decision of the Hon’ble Apex court decision in the case of Kapurchand Shrimal v. CIT, (1981) 131 ITR 451 wherein it was held that the appellate authority has jurisdiction as well as the duty to correct the errors in the proceedings under appeal and to issue of necessary, appropriate directions to the authority against whose decision appeal is preferred to dispose of the whole or any part of the matter afresh, unless forbidden from doing so by statute.
6.14 In the background of the aforesaid discussion and precedent, we remit this issue to the files of the assessing officer. He shall examine the merits of the assesseee’s claim of exemption u/s 10B. We make it clear that we have already adjudicated the issue regarding delay in filing of return of income in assessee’s favour in the forgoing paragraphs, the same shall not again form part of adjudication by the assessing officer. Needless to add that the assessee should be given adequate opportunity of being heard.
7. In the result, the appeal filed by the revenue is allowed for statistical purposes