Case Law Details
Granules CZRO Private Limited Vs ITO (ITAT Hyderabad)
ITAT Hyderabad held that benefit of section 115BAB of the Income Tax Act granted even if Form 10ID filed prior to commencement of manufacturing activity, if assessee proves the commencement of manufacturing for the subsequent assessment year.
Facts- The assessee company was set up on 16/01/2023 and after setting up on 16/01/2023, the assessee has filed its return of income for the year ending upto 31/03/2023 in accordance with law and along with the return of income, the assessee had filed Form 10ID on 21/10/2023. CPC had processed the return filed by the assessee and had denied the claim of the assessee u/s 115BAB of the Income tax Act, 1961 for the reason that the assessee had not commenced its production.
The assessee filed rectification application before the CPC, however, the same was rejected. CIT(A) also dismissed the appeal. Being aggrieved, the present appeal is filed.
Conclusion- Held that the assessee has failed to fulfil the condition as laid down u/s 115BAB of the Act for the present assessment year, therefore, assessee’s appeal is required to be dismissed, however the fact remains that the Revenue is under obligation to take into account the commencement of the manufacturing activity for the subsequent assessment year and should not act upon the earlier Form 10ID. In view of the above, we deem it appropriate to consider the commencement of the manufacturing activities for the subsequent year and grant relief as the assessee may be entitled to. We are conscious of the fact that the issue before us is for the assessment year 2023-24, however, the said observations of ours are essential as the assessment is a continuous process and the denial of the benefit in the present year will definitely effect the subsequent year as no fresh Form 10ID can be filed by the assessee. In view of the above, we are of the opinion that if the assessee is able to prove the commencement of manufacturing for the subsequent assessment year, the insistence of the fulfilment solely on the basis of the Form filed for the present assessment year should not be insisted upon and in a holistic and pragmatic view, the Assessing Officer to consider and grant the applicability of lower tax regime for the assessee for the subsequent assessment years.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
This appeal is filed by the assessee, feeling aggrieved by the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi on 27.05.2024 for the AY 2023-24 on the following grounds :
On the facts and circumstances of the case and in law, the Deputy Director of Income Tax, Centralized Processing Centre, Bangalore [“Ld.AO”] and Ld.CIT(A) as has
Validity of the Intimation
1. Erred in holding that the Intimation issued by the Ld.AO u/s 143(1) of the Act as valid without issuing show cause notice u/s 143(1)(a) of the Act;
2. Erred in upholding the action of Ld.AO u/s 143(1) of the Act, denying the claim of u/s 115BAB of the Act, which is a debatable issue, without providing any justification which is beyond the jurisdiction u/s 143(1) of the Act;
Non granting of sufficient opportunity of being heard:
3. Erred in not considering the adjournment application filed by the Appellant on 20/05/2024 and in passing the order without according sufficient opportunity of being heard to the Appellant and thereby violates the principles of natural justice;
Absence of ‘Reasoned Decision’ mandatory facet of ‘Audi Alteram Partem’
4. Erred in upholding the order of Ld.AO(CPC) passing the intimation under section 143(1) of the Act without assigning any reason or passing a speaking order, thus the action of Ld.CIT(A) is without application of mind and hence, the order of the Ld.CIT(A) is bad in law and ought to be quashed.
Claim u/s 115BAB of the Act
5. Erred in holding that the Appellant was not entitled to avail benefits of section 115BAB of the Act without appreciating the facts that the Appellant made a substantive claim for benefit in accordance with Section 115BAB(7) of the Act and filed Form 10-ID before filing its first return of income.
6. Erred in holding that the Appellant has not began manufacturing activities though the time for the same is till 31/03/2024, whereas the period relevant to the AY has ended on 31/03/2023 only.
7. Erred in holding that the conditions of section 115BAB are not complied with.
The above grounds of appeal are mutually exclusive and without prejudice to each other. The Appellant craves leave to add or substitute, withdraw any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal.
2. At the outset, the learned Ld.AR submitted that assessee company was set up on 16/01/2023 and after setting up on 16/01/2023, the assessee has filed its return of income for the year ending upto 31/03/2023 in accordance with law and along with the return of income, the assessee had filed Form 10ID on 21/10/2023. CPC had processed the return filed by the assessee and had denied the claim of the assessee u/s 115BAB of the Income tax Act, 1961 (“the Act”) for the reason that the assessee had not commenced its Ld.AR has drawn our attention to page No.53 of the appeal memo, wherein, intimation u/s 143(1) of the Act was issued to the assessee, which is to the following effect:
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3. Feeling aggrieved by the denial of the lower tax regime u/s 115BAB of the Act, the assessee filed rectification application before the CPC, however, this was also rejected by the CPC. Now, feeling aggrieved by the order passed by the CPC, assessee filed appeal before the Ld.CIT(A) and the Ld.CIT(A) also dismissed the appeal of the assessee by giving the following reasons :
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4. Feeling aggrieved with the order of CIT(A), now the assessee is in appeal before us. The contention of the assessee is that as per the provision of section 115BAB of the Act, Ld.CIT(A)/ Assessing Officer was required to satisfy that the assessee company has been set up on or after 01/10/2019 and has commenced the manufacturing or production of article /thing on or before 31/03/2024.
5. It is the contention of the assessee before us that the CPC had passed intimation on 26/11/2023 and also the CIT(A) had also passed order on 27/05/2024. It was submitted that both the authorities i.e. CPC and the Ld.CIT(A) were not having the benefit of examining the fact whether the assessee had commenced its manufacturing activities prior to 31/03/2024 or not. It was submitted by the Ld.AR that as per the record filed before us, the assessee had commenced its manufacturing activity before 31/03/2024 and for that purpose, he had drawn our attention to page No.28 to 54 of the paper book which consist of all the documents showing the consent letter from the Pollution Control Board as well as invoices for sale of goods along with supporting documents. It is the case of the Ld.AR that the above said document clearly shows that the manufacturing of the articles has started prior to 31/03/2024 and therefore, the assessee was entitled to benefit of lower tax regime u/s 115BAB of the Act. It was also the contention of the Ld.AR that the assessee is put to a precarious and catch-22 situation, where by virtue of Income tax Act, 1961, the assessee was required to file the return of income for previous year, despite the fact that the assessee company started on 16/01/2023 and was required to file the return of income for the period 16/01/2023 to 31/03/2023 in accordance with law. However, requirement of claiming advantage u/s 115BAB is that the assessee should have set up and started manufacturing before 31/03/2024. It was the contention of the learned Ld.AR that it is impossible to carry out the manufacturing activity immediately after setting up of the plant as setting up of plant and manufacture of goods / articles need breathing / set up time which is not possible prior to filing the return of income for the assessment year 2023-24.
6. In any case, the assessee has started carrying out of the manufacturing activity prior to the date 31/03/2024 and therefore, the assessee is entitled to advantage of provision of section 115BAB of the Act.
7. Per contra, DR submitted that the order passed by the Ld.CIT(A) is speaking order and the Ld.CIT(A) has given strict interpretation to the language of the statute i.e. section 115BAB is clear and unambiguous, as the assessee failed to fulfil the requisite condition as contemplated u/s 115BAB (2) of the Act, therefore, the Ld.CIT(A) has rightly denied the benefit of lower tax regime specified u/s 115BAB of the Act. Ld.DR relied on the order passed by the Ld.CIT(A).
8. In rebuttal, Ld.AR has submitted that it is correct that the manufacturing activities were not commenced by the assessee prior to 31/03/2023 and it has only started prior to 31/03/2024, however, the fact remained that as per the mandatory requirements of law, the assessee was required to file the return of income in accordance with law and along with the return of income, the assessee was also required to file Form 10ID. In the return of income, the assessee has rightly mentioned that no manufacturing activity has been started which has been captured by the CIT(A), however, that cannot be a ground to deny the benefit of the provision of law, as the assessee has commenced the manufacturing activities prior to 31/03/2024 and it was submitted that the issue has cascading effect for subsequent assessment years and for that purpose he has drawn our attention to the application filed by the assessee for the assessment year 2024-25 for exercising option under section 115BAB(7) of the Act.
9. We have heard the rival contentions of the parties and perused the material available on Section 115BAB reproduced by the Ld.CIT(A) in paragraph 6.1 (supra) of his order clearly postulates for fulfilment of the conditions mentioned therein namely, that the company must have been set up on or after 01/10/2019 and the said company has commenced manufacturing or production of article or thing on or before 31/03/2024.
10. Form 10ID of the Act provides that any new manufacturing domestic company can opt to pay tax at a concessional tax rate of 15% u/s 115BAB of the Act subject to certain conditions. To fulfil the conditions, it is essential to file Form 10ID on or before the due date specified under sub-section (1) of section 139 for furnishing the return of income for the first assessment year commencing on or after first day of April 2020 to avail the benefit. Admittedly FAQs on Form 10ID is reproduced hereunder for the sake of clarity.
1. What is Form 10-ID?
New Manufacturing Domestic Companies can opt to pay tax at a concessional tax rate of 15% (plus applicable surcharge and cess) under Section 115BAB of the Income Tax Act, 1961 subject to certain conditions. In order to do so, it is essential to file Form 10-ID on or before the due date specified under sub- section (1) of Section 139 for furnishing the returns of income for the first assessment year commencing on or after 1st day of April, 2020 to avail the benefit.
2. Who is required to file Form 10-ID?
A New Manufacturing Domestic Company incorporated on or after the 1st day of October, 2019 which has commenced manufacturing or production of an article or a thing on or before the 31st day of March, 2023, and opts to be taxed at concessional rate, is required to file Form 10-ID.
3. Is it mandatory for all applicable taxpayers (domestic companies) to file Form 10-ID?
No. This is optional. Form 10-ID is required to filed only if a domestic company chooses to opt for concessional tax rate of 15% (plus applicable surcharge and cess) under Section 115BAB of the Income Tax Act, 1961.
4. How can I file and submit Form 10-ID?
You can file form 10-ID through the online mode only (through the e-Filing portal).
5. What is the timeline for filing this form?
You will be required to file Form 10-ID before due date for filing of ITR.
6. Do I need to file the form again for the next assessment year?
No. If you have opted for concessional tax rates once, it shall apply to subsequent assessment years and cannot be withdrawn.
7. How do I know that the form has been submitted successfully?
You will receive a confirmation on your email ID and mobile number registered with the e-Filing portal. Additionally, you can also view the status in your Worklist under For your Actions tab.
8. Is e-Verification necessary for submitting Form 10-ID? if yes, how can I e-Verify the Form 10-ID?
Yes, it is necessary to e-Verify Form 10-ID. You can e-Verify using Digital Signature Certificate.
From the perusal of Form 10ID, it is essential that the said Form 10ID is required to be filed along with the return of income for the first assessment year. In the present case, first assessment year is 2023-24, however, there will not be any fulfilment of the condition of Form 10ID as it is filed prior to commencement of the manufacturing activities and the assessee cannot be expected to file Form 10ID, showing the commencement or manufacturing activity when the date of commencement of manufacturing activity was upto 31/03/2024. It is highly improbable for an assessee to file Form 10ID after setting up of the manufacturing unit immediately before the commencement of production for the first assessment year. If we ask the assessee to file Form 10ID for certifying that the manufacturing activity has commenced, before its actual commencement, in our view that would amount to asking the assessee to do the impossible. Hence, in our view, if the assessee is able to prove that the assessee has commenced activities before 31/03/2024, that would be sufficient compliance of the Act and a subsequent commencement of activity after filing the return of income and Form 10ID should factor in and take into account the subsequent commencement of the manufacturing activity albeit prior to 31/03/2024. Further FAQs on Form 10ID, which are available in the website of the Income Tax authority clearly provide that the assessee is not required to file fresh Form 10ID after filing it along with the first return of income for the first assessment year. The contradiction is clear that even if the assessee has not commenced its activities, the assessee was required to file the certificate showing the commencement of business activities and manufacturing activities, however, the assessee is prohibited to file the Form 10ID in the subsequent year, when it has actually started manufacturing its article or thing. In view of the above harmonious interpretation, reconciliation is required and in our view, though the manufacturing activity has not been commenced for the assessment year in question, however as and when the assessee started its manufacturing activity, this should be factored in and taken into account by the Revenue for the purpose of giving benefit of section 115BAB of the Act. In view of the above, though, we are of the opinion that the assessee has failed to fulfil the condition as laid down u/s 115BAB of the Act for the present assessment year, therefore, assessee’s appeal is required to be dismissed, however the fact remains that the Revenue is under obligation to take into account the commencement of the manufacturing activity for the subsequent assessment year and should not act upon the earlier Form 10ID. In view of the above, we deem it appropriate to consider the commencement of the manufacturing activities for the subsequent year and grant relief as the assessee may be entitled to. We are conscious of the fact that the issue before us is for the assessment year 2023-24, however, the said observations of ours are essential as the assessment is a continuous process and the denial of the benefit in the present year will definitely effect the subsequent year as no fresh Form 10ID can be filed by the assessee. In view of the above, we are of the opinion that if the assessee is able to prove the commencement of manufacturing for the subsequent assessment year, the insistence of the fulfilment solely on the basis of the Form filed for the present assessment year should not be insisted upon and in a holistic and pragmatic view, the Assessing Officer to consider and grant the applicability of lower tax regime for the assessee for the subsequent assessment years.
11. In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on 15th October, 2024.
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