Case Law Details
Alifcloud IT Consulting Pvt Ltd Vs ITO (ITAT Pune)
The Income Tax Appellate Tribunal (ITAT), Pune, allowed the appeal of the assessee and held that an eligible startup is entitled to claim deduction under Section 80-IAC of the Income Tax Act from the first assessment year in which it becomes eligible, and there is no requirement to complete three consecutive years before claiming the deduction. The assessee, a private limited company incorporated on 2 August 2020, was engaged in providing innovative IT solutions and was recognized as an eligible startup by the Department for Promotion of Industry and Internal Trade (DPIIT) on 23 October 2023. For Assessment Year 2024-25, it claimed a deduction of ₹1,50,59,484 under Section 80-IAC, which was disallowed by the Central Processing Centre (CPC) while processing the return under Section 143(1). The Additional/Joint Commissioner (Appeals) upheld the disallowance on the ground that the deduction could be claimed only after completion of three consecutive years.
The Tribunal observed that the assessee satisfied the prescribed conditions, including incorporation after 1 April 2016, filing the return and audit report within the due date, turnover below ₹100 crore, and obtaining DPIIT recognition during Financial Year 2023-24 relevant to Assessment Year 2024-25. It found that Section 80-IAC does not contain any condition requiring an eligible startup to complete three consecutive years before becoming entitled to the deduction. Holding that the appellate authority had misinterpreted the provision, the Tribunal set aside its order and directed the Assessing Officer/CPC to allow the deduction claimed under Section 80-IAC. Accordingly, the assessee’s appeal was allowed.
FULL TEXT OF THE ORDER OF ITAT PUNE
This appeal filed by the assessee is directed against the order dated 10.09.2025 of the Ld. Addl / JCIT(A)-4, Chennai relating to assessment year 202425.
2. Although a number of grounds have been raised by the assessee, however, these all relate to the order of the Ld. Addl / JCIT(A) in confirming the disallowance of deduction of Rs.1,50,59,484/- claimed u/s 80-IAC of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
3. Facts of the case, in brief, are that the assessee is a company engaged in the business of providing innovative IT solutions and services based on Microsoft Technologies. The company was incorporated on 02.08.2020 and is eligible startup as defined u/s 80-IAC of the Act. It filed its return of income u/s 139(1) of the Act on 04.11.2024 declaring total income of Rs.21,720/- after claiming deduction of Rs.1,50,59,484/- u/s 80-IAC of the Act and paid the minimum alternate tax of Rs.27,44,871/- as per the provisions of section 115JB of the Act. The CPC while processing the return u/s 143(1) of the Act on 02.06.2025 rejected the claim of deduction u/s 80-IAC of the Act amounting to Rs.1,50,59,484/- and determined the total income of the assessee at Rs.1,50,81,201/-.
4. The assessee filed an appeal before the Ld. Addl / JCIT(A) challenging the disallowance made by the CPC. However, the Ld. Addl / JCIT(A) dismissed the appeal filed by the assessee by observing as under:
“4. Decision:
Ground 1:
The assessee has claimed a deduction of Rs.1,50,81,201/- u/s 80 IAC which was disallowed by CPC. On perusal of the provisions of the eligibility to claim deduction u/s 80 IAC, it is seen that the assessee must be:
1. Startup incorporated after 01/04/2016 and must be less than 10 years old at the time of claiming deduction.
2. A Private limited company or a LLP and must have a certificate issued by DPIIT
3. The deduction is available for 100% of profits and gains from the business for any 3 consecutive years out of the first 10 years of incorporation.
4. Turnover must not exceed Rs.100 crores in any financial year for which the deduction is claimed.
It is a private limited company and has filed its ITR and Audit Report within the due dates. The turnover of the assessee as ascertained from the ITR is Rs.8,54,45,464 which is below Rs.100 crores.
But, on perusal of the documents and submissions furnished by the assessee, it is seen that the company got recognition from DPIIT only on 23/10/2023 and that for AY 2023-24, it has not claimed deduction u/s 80 IAC because it had not got the recognition certificate. Hence, this is the 1st year (AY 2024-25) of claiming of deduction u/s 80 IAC. The assessee has to complete 3 years, consecutively to fulfil the criteria laid out so that it can claim deduction u/s 80 IAC.
Hence, based on above discussions, the assessee can claim deduction u/s 80 IAC for 3 consecutive years out of the 10 years only after end of 3 years and this being, the first year of the claim of deduction, the CPC has rightfully disallowed the claim of the assessee.
5. Conclusion: In the result, the appeal is Dismissed.”
5.Aggrieved with such order of the Ld. Addl / JCIT(A) the assessee is in appeal before the Tribunal.
6. The Ld. Counsel for the assessee at the outset drew the attention of the Bench to the provisions of section 80-IAC and submitted that there is no such condition that the deduction u/s 80-IAC can be allowed only after three years. He accordingly submitted that the order of the Ld. Addl / JCIT(A) being not in accordance with law has to be set aside and the grounds raised by the assessee be allowed.
7. The Ld. DR on the other hand heavily relied on the order of the Ld. Addl / JCIT(A).
8. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and the Ld. Addl / JCIT(A) and the paper book filed on behalf of the assessee. It is an admitted fact that the assessee is a private limited company incorporated on 02.08.2020 which is after 01.04.2016 and has filed its income tax return along with the audited report within the due date. The turnover of the assessee is also less than Rs.100 crores. It is also an admitted fact that the assessee company got recognition from DPIIT on 23.10.2023 i.e. for financial year 2023-24 relevant to assessment year 2024-25. A perusal of the provisions of section 80-IAC nowhere shows that the assessee has to complete 3 years consecutively to fulfil the criteria laid out so that it can claim deduction u/s 80-IAC of the Act. We, therefore, find force in the arguments of the Ld. Counsel for the assessee that the order of the Ld. Addl / JCIT(A) rejecting the claim of deduction u/s 80-IAC holding that the assessee can claim only after the end of 3 years is not correct. We, therefore, set aside the order of the Ld. Addl / JCIT(A) and direct the Assessing Officer / CPC to allow the claim of deduction u/s 80-IAC made by the assessee. The grounds raised by the assessee are accordingly allowed.
9. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open Court on 12th June, 2026.
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