Section 115BAB was introduced on the Statute on September 20, 2019 with the aim and objective of providing for a concessional tax rate of 15% (plus applicable surcharge and cess) for a manufacturing company, so as to promote and push the narrative of ‘MAKE IN INDIA’ and give the laggard manufacturing industry a much needed boost to grow Indian economy.
To opt for this concessional tax rate of 15% u/s 115BAB, the assesse has to file a one-time form, Form 10-ID before filing the ITR for the relevant Assessment Year.
However, the demand order is being issued by the CPC u/s 143(1) denying the Assessee the concessional tax rate is proving to be a menace in fulfilling the intention of the revenue towards the manufacturing sector.
Background of the Issue:
Many Assessees who have opted for concessional rate of tax u/s 115BAB of the Income tax Act, 1961 while filing their return for the Assessment year 24-25, are being issued demand order u/s 143(1) by the CPC, denying them the legible claim of the concessional tax rate and processing their ITR while applying normal rate of taxation for companies i.e 25% (plus surcharge and cess), thus issuing a demand for the difference.
The denial of concessional tax rate by the CPC is bad in law and is posing to be a big hurdle for the Assessees.
Intimation order issued is bad in law:
The reasons for the demand intimation order issued u/s 143(1) to be bad in law are as follows:
1. It has been observed that the above concessional rate is being denied despite the fact that the Assessees has been granted the relief in earlier Assessment years i.e 2020-21, 2021-22 and 2022-23. Thus, the CPC has without any reasonable cause, vehemently denied the concessional tax rate, which was being allowed to him for the previous Assessment Years, for the A.Y. 23-24. It becomes a direct violation of ‘Principle of Consistency’ which states that if “facts and circumstances continue to remain the same, then there should not be any variation in the treatment from earlier year. Denial of taxation u/s 115BAB despite the facts remaining the same is a direct violation of the ‘Principle of Consistency’.
2. It also important to mention that most of the Assessees have not changed their core business model of being a manufacturing company which is important as per the provisions of the Section 115BAB of the Income Tax Act, 1961 and in spite of that the CPC has denied the assessee the concessional rate of tax in its intimation order.
3. Against the above backdrop it becomes imperative to reproduce some important provisions of section 115BAB such as:
a. Once the concessional tax rate u/s 115BAB has been opted for by any Assessee, he cannot suo moto withdraw from taxation under this Section, meaning thereby until and unless an Assessee becomes otherwise ineligible for section 115BAB, he cannot opt out of taxation u/s 115BAB. Relevant text to proviso to section 115BAB is reproduced herewith:
Tax on income of new manufacturing domestic companies.
115BAB:
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.
b. Also, an Assessee is only required to submit the Form 10-ID once to become eligible to opt for section 115BAB and not on a yearly basis.
Power and Authorities bestowed upon CPC through Section 143:
As per the provisions of Section 143 of the Income Tax Act, 1961, CPC only has the powers to recompute the Total income of the Assessee as per the clause (a) of section 143(1), the CPC does not have the powers to compute tax liability by deviating from the tax rate opted for by the Assessee. The relevant text of the Section 143(1) is reproduced herewith:
Assessment.
143. (1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return shall be processed in the following manner, namely:—
(a) the total income or loss shall be computed after making the following adjustments, namely:—
(i) any arithmetical error in the return;
(ii) an incorrect claim, if such incorrect claim is apparent from any information in the return;
(iii) disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was furnished beyond the due date specified under sub-section (1) of section 139;
(iv) disallowance of expenditure or increase in income indicated in the audit report but not taken into account in computing the total income in the return;
(v) disallowance of deduction claimed under section 10AA or under any of the provisions of Chapter VI-A under the heading “C.—Deductions in respect of certain incomes”, if the return is furnished beyond the due date specified under sub-section (1) of section 139; or
(vi) addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return:
Provided that no such adjustments shall be made unless an intimation is given to the assessee of such adjustments either in writing or in electronic mode:
Provided further that the response received from the assessee, if any, shall be considered before making any adjustment, and in a case where no response is received within thirty days of the issue of such intimation, such adjustments shall be made:
Provided also that no adjustment shall be made under sub-clause (vi) in relation to a return furnished for the assessment year commencing on or after the 1st day of April, 2018;
(b) the tax, interest and fee, if any, shall be computed on the basis of the total income computed under clause (a);
As per the above it is has become clear that CPC does not have the necessary power bestowed to it by the statute to suo moto deny concessional tax rate as claimed by the assesse.
In many cases even after revising or rectifying the return for the A.Y. 23-24, the mistake which is apparent from the record is still not corrected and revised order issued by CPC still denies the Assessee the concessional tax rate.
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Author: CA Pardeep Tayal | +91 98960 92408 – Pranav Bansal | +91 98175 56716
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