ITAT Hyderabad: Section 10AA Deduction Allowed Despite Late ITR & Minor Form 56F Delay; Procedural Lapses Not Fatal

ACIT Vs MARS Telecom Systems Private Limited (ITAT Hyderabad)

ITAT Hyderabad: Section 10AA Deduction Allowed Despite Late ITR & Minor Form 56F Delay; Procedural Lapses Not Fatal

In this case, the Revenue challenged allowance of deduction under section 10AA on two grounds—delay in filing return of income for A.Y. 2019-20 and delay of 16 minutes in filing Form 56F for A.Y. 2021-22. The AO/CPC had disallowed the deduction on these procedural grounds.

The ITAT upheld the CIT(A)’s view that for A.Y. 2019-20, filing of return within due date u/s 139(1) was not a mandatory condition for claiming deduction under section 10AA, as such requirement was introduced only prospectively by Finance Act, 2023 (from A.Y. 2024-25 onwards).

For A.Y. 2021-22, the Tribunal held that the 16-minute delay in uploading Form 56F was due to technical issues on the ITBA portal and not attributable to the assessee, and hence cannot be a ground to deny deduction.

The ITAT also rejected Revenue’s reliance on the Supreme Court ruling in Wipro Ltd., clarifying that it pertained to section 10B, which has stricter conditions not applicable to section 10AA.

Accordingly, the Tribunal upheld the CIT(A)’s order allowing deduction under section 10AA for both years and dismissed the Revenue’s appeals.

FULL TEXT OF THE ORDER OF ITAT HYDERABAD

The captioned appeals filed by the Revenue are directed against the separate, but identical orders of the learned Addl/Joint Commissioner of Income Tax (Appeals) – 1, Chandigarh (for short “Ld. CIT(A)”) pertaining to the assessment years 2019-20 and 2021-22, respectively. Since facts are identical and common issues are involved in both these appeals, the same were heard together and are being disposed of, by this single consolidated order for the sake of convenience and brevity.

2. The Revenue has, more or less, raised common grounds of appeal for both the assessment years. Therefore, for the sake of brevity, grounds of appeal filed for the A.Y. 2019-20 in ITA No.449/Hyd/22025 are re-produced as under:

“1. The Ld. CIT(A) ought to have appreciated the fact that CPC has disallowed the claim of assessee u/s 10AA as the assessee is not entitled to claim deduction 100% deduction u/s 10AA as 5 years have already passed from the first year of claim of deduction.

2. The CIT(A) ought to have appreciated that the assessee himself has made a mention in the ITR at relevant column that claim of deduction u/s 10AA was made for the first time for the AY 2013-14/2014-15.

3. The CIT(A) ought to have appreciated that the assessee is not entitled to claim 100% of deduction u/s 10AA when the first year of claim is either AY 2013-14 or 2014-15.

4. The CIT(A) ought to have appreciated that the assessee has not made any claim of deduction u/s 10AA in the ITR for the AY 2018-19 as the period of 5 years exemption was already availed by the assessee from the AY 2013-14

5. The Ld.CIT(A) ought to have appreciated that CPC has followed the procedure set out after giving intimation to the assessee of proposed adjustment on account of deduction u/s 10AA.

6. The Ld.CIT(A) ought to have taken note of the fact that the assessee has not filed the return of income u/s 139(1) as required under the statute but filed only on 31.12.2019.

7. Any other ground that may be urged at the time of hearing.”

3. The brief facts of the case are that, the assessee is engaged in the business of software development and IT-enabled services and filed its return of income for A.Y. 2019-20 on 31.12.2019 declaring the total income of Rs. 3,81,84,691/- and claimed exemption under Section 10AA of the Income Tax Act, 1961 for Rs. 3,17,05,980/-. The return of income filed by the assessee has been processed and intimation under Section 143(1) of the Income-tax Act, 1961 was issued on 03.06.2020 and determined total income at Rs. 7,67,83,590/- by making addition towards disallowance of exemption under Section 10AA of the Act for Rs. 3,17,05,980/- and further addition of Rs.68,50,950/- towards dividend income. The A.O. denied exemption under Section 10AA of the Act, on the ground that the assessee has not furnished return of income on or before extended due date for filing return of income under Section 139(1) of the Income Tax Act, 1961. Similarly, for A.Y. 2020-21, the assessee had filed return of income on 15.03.2022 and declared total income of Rs. 8,28,16,480/- and claimed exemption under Section 10AA of the Income Tax Act, 1961 for Rs. 6,31,83,072/-. The A.O./CPC processed return of income and issued intimation under Section 143(1) of the Act, on 28.12.2022 and determined the total income at Rs. 14,59,99,550/- by making addition towards disallowance of deduction under Section 10AA of the Act, for Rs. 6,31,83,072/- on the ground that the assessee has furnished report of accountant in Form 56F beyond the due date specified under Section 139(1) of the Act.

4. Aggrieved by the assessment orders passed by the A.O. for A.Y. 2019-20 and 2021-22, the assessee preferred appeals before the Ld. CIT(A). Before the Ld. CIT(A), the assessee submitted that for A.Y. 2019-20, the assessee has filed Form 56F on or before the due date. However, the assessee could not file return of income within the due date provided under Section 139(1) of the Income Tax Act. Further, filing the return of income on or before the due date provided under Section 139(1) of the Act, is not mandatory for claiming deduction under Section 10AA of the Income Tax Act, 1961. The assessee further submitted that, in respect of A.Y. 2021-22, it had filed the return of income on or before the due date and also furnished report of accountant in Form 56F on 15.02.2022 i.e., one month before the date of filing return of income, however, the form was finally uploaded in the ITBA portal on 16.02.2022 at 12:16 A.M., and the delay of 16 minutes is due to technical error in the ITBA portal and not from the assessee.

5. The Ld. CIT(A), after considering relevant submissions of the assessee, deleted the additions made by the A.O. towards disallowance of deduction under Section 10AA of the Act, for A.Y. 2019-20 on the ground that filing of return of income on or before the due date for filing return of income under Section 139(1) of the Act, is not mandatory for claiming deduction under Section 10AA of the Act, for the assessment year in question, because the said condition has been inserted by the Finance Act, 2023 w.e.f. 01.04.2024, and therefore, once the assessee has filed relevant Form 56F from the accountant certifying the amount thereon, then there is no reason for disallowance of deduction under Section 10AA of the Act. Similarly, the Ld. CIT(A) deleted the addition made by the A.O. for A.Y. 2021-22 on the ground that the delay of sixteen minutes in filing Form 56F is not due to the mistake of the assessee and it is purely due to the technical error in the ITBA portal, which is evident from the relevant screenshot submitted by the assessee, which clearly proves that the assessee has uploaded the Form 56F well within the time and it was in the queue before it was finally uploaded in the ITBA portal. Therefore, the Ld. CIT(A) directed the A.O. to delete the disallowance of deduction under Section 10AA of the Income Tax Act, 1961 for both the assessment years.

6. Aggrieved by the order of the Ld. CIT(A), the Revenue is now in appeal before the Tribunal.

7. The Ld. CIT-DR Shri P. Dhivahar and the learned Senior A.R. Dr. Sachin Kumar for the Revenue submitted that, the Ld. CIT(A) erred in deleting the additions made by the A.O. towards disallowance of deduction under Section 10AA of the Act, for A.Y. 2019-20, even though the assessee has filed return of income beyond the due date for filing the return of income under Section 139(1) of the Income Tax Act, 1961. The Ld. CIT-DR further submitted that the assessee has claimed deduction beyond five consecutive assessment years from the date of commencement of activities, which is evident from the relevant Form 56F filed by the assessee, even though the provisions of Section 10AA of the Act, allow deduction only for five consecutive assessment years under Section 10AA of the Act.

8. The Ld. CIT-DR further referring to the order of the Ld. CIT(A) for A.Y. 2021-22, submitted that, the Ld. CIT(A) deleted the addition only on the ground of technical errors in ITBA portal by observing that the delay of 16 minutes is not attributed to the assessee. However, the Ld. CIT(A) has not considered the other aspect of inconsistencies in the claim of the assessee, where the assessee initially claimed deduction of Rs. 5,13,59,827/- in Form 56F and the same has been subsequently revised to Rs.6,31,83,072/-. The Ld. CIT(A), without considering the inconsistencies, simply allowed deduction on the ground of technical errors. Therefore, they submitted that the order of the Ld. CIT(A) should be set aside and the addition made by the A.O. may be upheld. In this regard, he relied upon the decision of Principal CIT vs. Wipro Ltd. (2022) 446 ITR 1 (SC) and submitted that for claiming deduction under Section 10AA of the Act, it is mandatory on the part of the assessee to file the return of income along with report of accountant on or before the due date provided under the statute.

9. The learned counsel for the assessee, Shri A.V. Raghuram, Advocate, supporting the order of the Ld. CIT(A), submitted that for A.Y. 2019-20, the assessee has filed Form 56F on or before the due date. However, the return of income has been filed on 31.12.2019, even though the extended due date was 31.10.2019. The Ld. CIT(A), after considering relevant provisions of the Act, including the provisions of Section 10AA r.w.s. 80A(5) and Section 80AC of the Act, deleted the additions made by the A.O. on the ground that filing of return of income on or before the due date provided under Section 139(1) of the Act, is not mandatory for claiming the deduction under Section 10AA of the Act, for the year under consideration, because the amendment inserted by the Finance Act, 2023 is applicable from 01.04.2024 and from A.Y. 2024-25 onwards.

10. The learned counsel for the assessee, further referring to the order of the Ld. CIT(A) for A.Y. 2021-22 submitted that for the year under consideration, there is no delay in filing Form 56F as claimed by the A.O., because the delay of 16 minutes is not on account of late filing of the relevant form by the assessee, but due to last minute rush in the ITBA portal for filing relevant Form 56F by the assessee and the form filed by the assessee was in queue, which is evident from the relevant screenshot provided by the assessee.

11. Insofar as the argument of the learned counsel for the assessee in light of the discrepancy, the learned counsel for the assessee submitted that although there is a difference between the initial claim of deduction in Form 56F and subsequent claim and ITR filed by the assessee, but the claim made by the assessee is in accordance with the return of income filed by the assessee, and therefore, this issue is not relevant to allow deduction under Section 10AA of the Income Tax Act, 1961. Therefore, he submitted that, the order of the Ld. CIT(A) should be upheld for both the assessment years.

12. We have heard both parties, perused the material available on record, and had gone through the orders of the authorities below. The assessee is in the business of software development and IT enabled services, claimed deduction under Section 10AA for A.Y. 2019-20 and 2021-22. The A.O. had disallowed the deduction under Section 10AA of the Act, for both the assessment years on the ground that for A.Y. 2019-20, the assessee had not furnished return of income on or before the extended due date, and for A.Y. 2021-22, the assessee had filed report of accountant in Form 56F beyond the due date provided under the Act.

13. The Ld. CIT(A) deleted the additions made by the A.O. for A.Y. 2019-20 by holding that filing return of income on or before the due date provided under Section 139(1) of the Act, is not mandatory for claiming deduction under Section 10AA of the Act, for A.Y. 2019-20, because the amendment inserted to Section 10AA by the Finance Act, 2023 is applicable from A.Y. 2024-25 onwards. In our considered view, the findings of fact recorded by the Ld. CIT(A) are in accordance with law and going by the provisions of Section 10AA r.w.s. 80A(5) and Section 80AC of the Act, there is no mandatory condition for filing return of income on or before the due date provided under Section 139(1) of the Act, and the only condition for claiming deduction is that the said deduction should be claimed in the return of income filed by the assessee. Therefore, in our considered view, there is no error in the reasons given by the Ld. CIT(A) to delete the additions made by the A.O. for A.Y. 2019-20 towards deduction under Section 10AA of the Income Tax Act, 1961. Insofar as the arguments of the Ld. CIT-DR for the Revenue in light of the decision of Hon’ble Supreme Court in the case of Principal CIT vs. Wipro Ltd. (supra), we find that, the case law referred to by the Ld. CIT-DR is on the issue of deduction claimed under Section 10B of the Act, where the provision itself makes it mandatory for filing return of income on or before the due date provided under Section 139(1) of the Act, so as to claim deduction under Section 10B of the Act. However, there is no such provision in Section 10AA of the Act up to A.Y. 2024-25. Therefore, the case law relied upon by the Ld. CIT-DR is not applicable to the facts of the present case and thus, rejected.

14. Coming back to deduction claimed for A.Y. 2021-22. The facts with regard to the assessee is eligible for claiming deduction under Section 10AA of the Act, are not disputed by the A.O. The only reason for disallowance under Section 10AA of the Act, is delay in filing Form 56F for claiming the said deduction. The A.O. has disallowed the deduction on the ground that the assessee has filed Form 56F on 16.02.2022 at 12:16 hours. The assessee has clarified the above discrepancy and explained that, the due date for filing return of income for A.Y. 2021-22 has been extended up to 15.03.2022, and as per the provisions of Section 10AA of the Act, Form 56F should be filed at least one month before the due date for filing return of income under Section 139(1) of the Income Tax Act, 1961 and if we consider the above date, then the assessee should have filed Form 56F on 15.02.2022. The assessee further submitted that, the assessee has uploaded relevant Form 56F well within time. However, due to last-minute rush in the ITBA portal, the Form uploaded by the assessee was in queue and finally was uploaded in ITBA portal at 00:16 hours, which is evident from the relevant screenshot downloaded from the ITBA portal. We find that, the Ld. CIT(A) has extracted relevant screenshot downloaded from ITBA portal and as per the said evidence, the delay of 16 minutes in filing Form 56F is not due to the mistake of the assessee, but it is on account of last-minute rush in the ITBA portal. Therefore, in our considered view, once the assessee has uploaded the form i.e., Form 56F on last day of the due date for filing the said form, the delay of 16 minutes in uploading Form 56F cannot be considered as delay in filing the above form beyond the due date so as to deny the deduction under Section 10AA of the Income Tax Act, 1961. The Ld. CIT(A), after considering the relevant facts, has rightly allowed the deduction under Section 10AA of the Act.

15. Coming back to the other argument of the Ld. CIT-DR for the Revenue in light of difference in claim made by the assessee as per original Form 56F and revised Form 56F filed along with the return of income filed on 15.03.2022. No doubt, as pointed out by the Ld. CIT-DR, the assessee has claimed deduction of Rs. 5,13,59,827/- as per Form 56F filed on 16.02.2022, whereas the assessee finally made a claim of Rs. 6,31,83,072/- as per Form 56F filed along with the return of income on 15.03.2022. The assessee has explained that the deduction claimed along with return of income of Rs. 6,31,83,072/- is as per the books of accounts maintained by the assessee and certified by the accountant, and also the assessee has explained the above difference with relevant details. In our considered view, the only reason for disallowance of deduction under Section 10AA of the Act, is belated filing of Form 56F. However, the A.O./CPC had not considered the issue of discrepancy in deduction claimed by the assessee as per original Form 56F and revised Form 56F. Further, the assessee has also explained the discrepancy in original Form 56F and revised Form 56F filed along with the return of income. The Ld. CIT(A), after considering the relevant facts, has rightly allowed deduction under Section 10AA of the Act. Therefore, in our considered view, the arguments of the Ld. DR on this issue are devoid of merit and cannot be accepted.

16. In this view of the matter and considering the facts and circumstances of the case, we are of the considered view that, the assessee is entitled for claiming deduction under Section 10AA of the Act, for both the assessment years. The Ld. CIT(A), after considering relevant facts, has rightly directed the A.O. to allow deduction under Section 10AA of the Act, for A.Y. 2019-20 and 2021-22. Thus, we are inclined to uphold the findings of the Ld. CIT(A) and dismiss the appeals filed by the Revenue for both the assessment years.

17. In the result, both the appeals of Revenue are dismissed.

Order pronounced in the Open Court on 17th April, 2026.