Case Law Details
Nachiket Dipak Shah Vs ITO (ITAT Ahmedabad)
Income Tax Appellate Tribunal (ITAT) Ahmedabad has ruled in favor of the assessee, Nachiket Dipak Shah, allowing a deduction under Section 10AA of the Income Tax Act, 1961, despite a delay in filing Form 56F. The case pertained to the Assessment Year (AY) 2017-18, where the Centralized Processing Center (CPC), Bengaluru, had disallowed the claim citing non-submission of the mandatory audit report along with the income tax return. Subsequent rectification petitions were also rejected, leading to a demand of Rs. 5,32,110/-. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the disallowance, stating that timely submission of Form 56F was a mandatory requirement for claiming the deduction.
During the appeal proceedings before ITAT Ahmedabad, the assessee argued that the filing of Form 56F was a procedural requirement and should not override substantive compliance. The form was submitted on 22.11.2017, before the issuance of the order under Section 143(1) on 24.09.2018. The assessee relied on multiple judicial precedents, including CIT vs. Gujarat Oil and Allied Industries (201 ITR 325) (Guj), Vishnu Exports vs. ACIT (ITA No. 1840/Ahd/2018), and Arvind Kumar Agarwal vs. ITO (ITA No. 917/Del/2022), which emphasized that procedural lapses should not negate valid deductions if compliance is achieved before assessment completion.
The department contended that Section 10A(5), read with Section 10AA(8), made it mandatory for Form 56F to be filed with the return of income, failing which the deduction could not be granted. The department also argued that the assessee had sufficient time to comply with the requirement and sought remand for further verification. However, the tribunal noted that the deduction was allowed in the previous year (AY 2016-17), and procedural delays should not defeat the legislative intent of promoting exports and SEZs.
Considering the judicial precedents and the fact that Form 56F was submitted before the completion of assessment, ITAT Ahmedabad ruled that the delay was a procedural lapse that did not affect the legitimacy of the claim. It concluded that the disallowance was unjustified and restored the deduction without requiring remand. The appeal was allowed in favor of the assessee.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal has been filed by the assessee against the order dated 21.06.2024 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “CIT(A)”], upholding the disallowance of the deduction of Rs.26,81,185/- claimed under Section 10AA of the Income Tax Act, 1961 [hereinafter referred to as “the Act”] for the Assessment Year (AY) 2017-18.
Facts of the Case:
2. The assessee is an individual and filed his return of income for the AY 2017-18 on 07.11.2017 declaring total income of Rs.16,30,680/- after claiming a deduction of Rs.26,81,185/- under Section 10AA of the Act. The assessee is engaged in IT-enabled services under the name “Brain Teclabs” and operates within an IT/ITES Special Economic Zone (SEZ) approved by the Kandla SEZ authority. The Centralized Processing Center (CPC), Bengaluru, disallowed the claim under Section 143(1) of the Act, citing the assessee’s failure to file the mandatory audit report in Form 56F along with the return of income as required under Section 10AA(8), read with Section 10A(5) of the Act. Subsequent rectification petitions filed by the assessee under Section 154 of the Act, were also dismissed on similar grounds, leading to a demand of Rs.5,32,110/-.
3. Aggrieved by the rectification order passed u/s.154 of the Act, the assessee approached the CIT(A), who upheld the disallowance, holding that the filing of Form 56F along with the return of income is a mandatory condition for claiming the deduction under Section 10AA of the Act.
4. Aggrieved by the order of the CIT(A), the assessee is in appeal before us with following grounds of appeal:
“1. Ld. CIT(A) erred in law as well as on fact in upholding disallowance of exemption of Rs.26,81,185 claimed u/s. 10AA solely because form no. 56F was filed on 22.11.2017 not along with return of income filed u/s. 139(1) on 07.11.2017 as denied by CPC, Bengaluru in order u/s 143(1) and subsequent rectification application u/s154.”
4.1. During the course of hearing before us, the Authorized Representative (AR) of the assessee contended that the filing of Form 56F is procedural and directory in nature. The AR further highlighted that Form 56F was filed on 22.11.2017, well before the issuance of the order under Section 143(1) of the Act on 24.09.2018. The AR also contended that as the form satisfies the statutory requirements, the procedural delay in its filing should not override substantive compliance. The AR placed reliance on following judicial precedents:
1. CIT vs. Gujarat Oil and Allied Industries – [1993] 201 ITR 325) (GUJ).
2. M/s. Vishnu Exports vs. ACIT – (ITA No. 1840/Ahd/2018).
3. Aprameya Engineering Limited vs. ITO, Ward-1(1)(1) Ahmedabad – (ITA No. 456/Ahd/2024).
4. Arvind Kumar Agarwal vs. ITO – (ITA No. 917/Del/2022).
5. The Departmental Representative (DR) argued that compliance with Section 10A(5) of the Act, made applicable to Section 10AA of the Act through Section 10AA(8) of the Act, mandates filing the audit report in Form 56F along with the return of income. Failure to comply with this condition renders the claim inadmissible. The DR also stated that the date of filing return of income was extended till 07-11-2017 and the assessee was having sufficient time to comply with the requirements. The DR also contended that the form submitted by the assessee need to be verified by the AO and, therefore, the matter be restored back to AO.
6. We have carefully considered the submissions and judicial precedents cited. It is undisputed that the deduction under Section 10AA of the Act was allowed in the initial year, i.e., assessment year 2016-17. The Hon’ble Gujarat High Court in the case of CIT v. Gujarat Oil and Allied Industries (supra) held that procedural non-compliance should not override substantive compliance if the required documents are submitted before the completion of assessment. The Co-ordinate Benches in the case of M/s. Vishnu Exports (supra) and Arvind Kumar Agarwal (supra) also emphasized that the provisions of Section 10AA of the Act should be construed liberally to advance the legislative intent of promoting SEZs.
6.1. Form 56F, filed on 22.11.2017, serves as a crucial certification by an independent Chartered Accountant, attesting to the correctness of the claim made under Section 10AA of the Act. The form was submitted well before the issuance of the intimation under Section 143(1) of the Act on 24.09.2018. This establishes that the necessary certification was available on record at the time of processing. In light of this, the DR’s contention for remand lacks merit as no further verification is required.
6.2. The legislative intent behind Section 10AA of the Act is to promote exports and economic activity in SEZs, and procedural delays should not defeat substantive claims, particularly when the required documentation is on record before the completion of assessment.
6.3. In view of the above, we hold that the disallowance of the deduction under Section 10AA of the Act is not justified, as the delay in filing Form 56F is a procedural lapse that does not go to the root of the claim. The deduction is restored without any necessity for remand. Accordingly, the ground of appeal of the assessee is allowed.
7. In the result, the appeal of the assessee is allowed.
Order pronounced in the Open Court on 13th December, 2024 at Ahmedabad.
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