Case Law Details
Graymatter Software Services Private Limited Vs DCIT (ITAT Bangalore)
The Bangalore ITAT in the case of Graymatter Software Services Pvt. Ltd. dealt with denial of Section 10AA deduction solely on the ground that Form 56F (audit report) was not filed along with the return of income.
The Tribunal noted that although filing of Form 56F is a requirement, the assessee had filed the form subsequently during proceedings, and the claim itself was otherwise eligible. Relying on the Madras High Court ruling in Astrotech Steels Pvt. Ltd. (2025), the ITAT held that delay in filing the audit report is a procedural defect and not fatal to the substantive claim.
Importantly, the Tribunal distinguished the Supreme Court ruling in Wipro Ltd. (446 ITR 1), observing that there is no statutory bar prohibiting filing of Form 56F after the due date, and hence deduction cannot be denied merely on timing.
Accordingly, the ITAT directed the AO to allow deduction u/s 10AA, reinforcing that substantive benefits cannot be denied for curable technical lapses.
The appeal was thus allowed in favour of the assessee.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
1. ITA No. 2594/Bang/2025 is filed by M/s. Graymatter Software Services Private Limited against the Appellate Order passed by the Commissioner of Income Tax (Appeals) – 4, Mumbai (the Ld. CIT(A)) for Assessment Year 2018-19 on 24.09.2025 wherein the Appeal filed by the Assessee against the rectification order passed u/s. 154 of the Income Tax Act, 1961 (the Act) by the Central Processing Centre, Bangalore on 11.09.2020 was partly allowed.
2. The Assessee is aggrieved with the same and has raised following grounds of Appeal:-
i. The impugned order passed by the Ld. A.O. and Ld. CIT(A), to the extent prejudicial to the Appellant, is not justified in law and on the facts and circumstances of the case.
ii. The order of the learned Asst Director of Income Tax, CPC dated 11/09/2020 in so far as it is against the Appellant is opposed to law, weight of evidence, natural justice, probabilities, facts and circumstances of the Appellant’s case and without jurisdiction.
iii. The Ld. A.O. erred in law and on facts in disallowing the deduction u/S. 10AA on the ground that Form 56F was not filed along with the return of income u/S. 139(1).
iv. The authorities failed to appreciate that filing of Form 56F is only a procedural requirement and not a mandatory condition for claiming the deduction.
v. The authorities below failed to appreciate that the Appellant had filed the audit report in Form 56F during assessment proceedings/before processing of return and hence the disallowance of the deduction u/S. 10AA was unjustified and contrary to settled judicial precedents.
vi. The authorities below failed to appreciate that the non-filing of Form 56F along with the return of income is a curable technical lapse and cannot be a ground for denial of deduction u/S. 10AA, in view of the judicial precedents.
vii. The Ld. CIT(A) erred in not appreciating that the deduction u/S. 10AA is a substantive right granted under the Act and cannot be denied on mere technical or procedural grounds.
viii. The Ld. CIT(A) failed to consider the principles of purposive interpretation and legitimate expectation while deciding the issue, thereby rendering the order unjust and unsustainable in law.
ix. The Id. A.O. further erred in charging interest u/S. 234B and 234C mechanically and without assigning proper reasons or granting due credit to the Appellant.
(Tax effect Ra. Rs. 29,05,809/-)
On the basis of the above grounds and other grounds which may be urged at the time of hearing with the consent of the Honorable Tribunal, it is prayed that the order passed under section 143(3) of the Act, as upheld by the Commissioner of Income Tax (Appeals), be quashed and relief sought be granted
3. The only grievance of the Assessee is that deduction u/s. 10AA of the Act has been disallowed by the Assessee for not filing form no. 56F along with the return of income u/s. 139(1) of the Act and therefore the Ld. CPC did not grant the benefit of the above deduction.
4. Briefly stated the facts of the case shows that Assessee is a private limited company who filed its return of income on 30.11.2018 at a total income of Rs. 1,54,45,870/- and claimed deduction u/s. 10AA of the Act of Rs. 1,06,67,165/-.
5. The Assessee is a registered Software Export Zone (SEZ) unit which has commenced its commercial operation in July, 2012 and therefore was eligible to claim deduction u/s. 10AA of the Act subject to verification of the certain conditions. One of the conditions for obtaining deduction u/s. 10AA of the Act is virtue of sub section 8.3 is also required to comply with sub section 5 and sub section 6 of section 10A. According to sub section 5 of section 10A, the deduction shall not be admissible unless the Assessee furnishes in form no. 56, the report of the accountant (Audit Report) before the specified date referred to in section 44AB of the Act certifying that deduction is correctly claimed. Thus, to claim the deduction u/s. 10AA, the Assessee was required to get this certificate certifying the correctness of the claim. It is the claim of the Assessee that the above certificate in form no. 56F was inadvertently omitted to be filed along with the return of income but later on, on 30.11.2019, same was filed.
6. The case of the Assessee was selected for scrutiny u/s. 143(2) of the Act. Further, the Assessee received communication on 13.03.2020 u/s. 143(1)(a) for a proposal to make disallowance by Rs. 1,06,67,165/- for the reason of non-filing of form no. 56 along with the return of income filed. Subsequently u/s. 143(1) on 11.06.2020, the deduction was denied. The Assessee filed an application u/s. 154 of the Act on 26.06.202 which was rejected. Thus, the disallowance of deduction u/s. 10AA was confirmed.
7. The Assessee preferred an Appeal before the Ld. CIT(A) who passed an order dismissing the Appeal of the Assessee. It was held by him as per the Income Tax Act, if a thing is said to be done in a particular manner it shall be done in that manner and therefore the addition was confirmed. Now, the Assessee is aggrieved and is in Appeal before us.
8. The Ld. Authorized Representative Shri Siddesh N Gaddi, CA submitted a paper book along with several judicial precedents submitting mainly that filing of form no. 56 is mandatory,but the date and time limit is directory in nature. He relied upon the decision of the Hon’ble Karnataka High Court in case of CIT v/s. Americana Data Solutions India (P.) Ltd. [2014] 45 com379 (Karnataka), coordinate bench decision in case of Arvind Kumar Agarwal v. ITO [2023] 149 taxmann.com 472 (Delhi – Trib.), the decision of the coordinate bench in ITA No. 1840/AHD/2018 dated 31.03.2023 in case of ACIT v/s. M/s. Vishnu Export and the decision of the Hon’ble Madras High Court in case of PCIT v/s. M/s. Astrotech Steels Private Limited in TCA No. 87/2025 dated 03.06.2025. He referred to this decision of the Hon’ble Madras High Court and stated that the two substantial question of law involved in the Appeal are squarely covered in favor of the Assessee by the decision of the Hon’ble High Court and therefore nothing else is required to be stated by him.
9. The Ld. Departmental Representative Shri Balusamy N, JCIT vehemently submitted that the filing of form no. 56 and the timing for filing of form no. 56 are stated to be in the same section. Therefore, how the part of the section would be said to be mandatory, and part of the section could be said to be directory in nature. He submitted that Hon’ble Supreme Court in case of PCIT v. Wipro Ltd. [2022] 446 ITR 1 (SC) has categorically dealt with this issue. Reading the Supreme Court decision in a manner by diluting its own verdict is not acceptable. He further submitted that the decision of the Hon’ble Supreme Court is the law of the land and cannot be distinguished at the drop of the hat.
10. We have carefully considered the rival contentions and perused the orders of the Ld. Lower Authorities. We have carefully perused the decision of the Hon’ble Madras High Court rendered by the Hon’ble Chief Justice on 03.06.2025 in TCA No. 87/2025 in case of M/s. Astrotech Steels Private Limited is dealt with the two questions of law. The first question referred before the Hon’ble High Court was whether the Tribunal was justified in allowing the Assessee’s claim of deduction u/s. 10AA of the Act when Assessee has failed to file a statutory from 56F within the time limit prescribed by the statute. The second question of law was whether the filing of form no. 56F was directory in nature which is contrary to the decision of the Hon’ble Supreme Court in case of PCIT v. Wipro Ltd. [2022] 446 ITR 1 (SC) and also the review petition filed has categorically held that the twin conditions of furnishing the declaration to the Assessing Officer and the time limit is also mandatory. The Hon’ble Madras High Court has held that revenue has failed to show any provision that after the due date the Assessee is barred from filing 56F. It was not denied that form no. 56F was filed, but not in time. In paragraph no. 6, the Hon’ble High Court has distinguished the decision of the Hon’ble Supreme Court in case of PCIT v. Wipro Ltd. Ultimately, it answered both the questions in favor of the Assessee and upheld the order of the ITAT that delay in filing form no. 56F would not be fatal to the substitutive claim of the Assessee. Thus, the identical issue is decided by the Hon’ble High Court considering the decision of the Hon’ble Supreme Court.
11. Thus, respectfully following the decision of the Hon’ble Madras High Court, we also held that form no. 56F filed by the Assessee but not in time could not have jeopardized the substantial claim of the Assessee for deduction u/s. 10AA of the Act. Therefore, we direct the Ld. Assessing Officer to grant the deduction u/s. 10AA of the Act to the Assessee of Rs. 1,06,61,665/-.
12. Accordingly, Appeal of the Assessee is allowed.
Order pronounced in the open court on 27thApril, 2026.
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