Failure to Opt for New Tax Regime in ITR, Filing Form 10IC at Later Stage, No Cure: HC

The petitioner had filed its return of income for the AY 2020-21 on 13.02.2021, declaring the total income of Rs. 60,93,780/- after setting off an amount of Rs. 5,10,04,486/-. The petitioner also reflected its book profits as Rs. 3,14,41,630/-. The petitioner had, in its return, not opted for taxation under Section 115BAA of the Act, which was introduced by virtue of the Taxation Laws (Amendment) Act, 2019, with effect from 01.04.2020.

Facts of the case:

New Tax Regime not availed in ITR

The petitioner claims that at the material time, its chartered accountant and finance officer were affected by COVID-19. Notwithstanding the same, they had filed the petitioner’s return despite both suffering “under Corona.” The return was filed on 13.02.2021, within the extended deadline of 15.02.2021.

The petitioner contends that this was the first assessment year in which the benefit of lower taxation under Section 115BAA of the Act could be availed. There was some confusion regarding the manner to claim the same, and the petitioner failed to select the option for lower taxation under Section 115BAA of the Act.

It is stated that soon thereafter, the finance officer of the petitioner recovered from Covid-19 and verified the return. He became aware that the petitioner had not opted for the option under Section 115BAA of the Act, and, therefore, filed a revised return on 26.03.2021 in respect of the relevant assessment year and also surrendered the depreciation on the goodwill.

The petitioner had not filed the Form 10-IC, which was prescribed for availing the benefit under Section 115BAA of the Act. Several other assessees also did not file the Form 10-IC due to the prevailing conditions at the material time.

Condonation of Delay to file Form 10-IC

In view of the confusion regarding the requirement of filing Form 10- IC within the prescribed period and the mitigating circumstances arising on account of the outbreak of Covid-19, the Central Board of Direct Taxes [CBDT] issued a Circular No.6/2022 dated 17.03.2022 whereby it was directed the Assessing Officers [AO] to condone the delay in filing the Form 10-IC for AY 2020-21. The said circular notes that it was issued pursuant to the representation received by the CBDT as a large number of assessees had failed to furnish the requisite Form 10-IC within the prescribed period.

The petitioner filed the Form 10-IC on 26.04.2022 to avail the benefit of the CBDT Circular No.6/2022.

AO Disallows claim of New Tax Regime

Thereafter, the AO sent the draft assessment order determining the petitioner’s income at Rs. 3,14,41,630/- under Section 115JB of the Act.

The petitioner objected to the draft assessment order on the ground that it had availed of the option under Section 115BAA of the Act by filing its revised return, and it had also furnished the Form 10-IC within the period as extended by the CBTD’s Circular No.6/2022 dated 17.03.2022.

However, the petitioner’s objection was not accepted, and the AO passed the impugned assessment order.

The petitioner filed the revision petition before the PCIT, which was rejected by the impugned order.

Contention of Petitioner:

No Column for Availing New Tax Regime

The petitioner contended that there was no column for selecting the option to avail the benefit of Section 115BAA of the Act in the return, and therefore, the petitioner cannot be faulted for its return not reflecting this option.

Relief should be granted on account of confusion due to COVID Outbreak

Petitioner submitted that the error was occasioned due to confusion at the material time and coupled with the fact that the petitioner was facing severe difficulties in regard to the statutory compliances, on account of the disruptions caused by the outbreak of Covid-19.

Form 10-IC Filed within the extended time

Petitioner also submitted that in the aforesaid context, the CBDT had decided to extend the time period for the assessees who had not complied with the requirements of availing the benefit of Section 115BAA of the Act in the prescribed manner. Accordingly, the CBDT had issued the Circular granting the assessees time to file the same. And, the petitioner had filed the requisite form, Form 10-IC, within the extended time to avail the benefit as granted by the CBDT.

Analysis of Court:

No ambiguity in Section 115BAA

There is no ambiguity in the language of Sub-section (5) of Section 115BAA of the Act. It clearly provides that the section would not be applicable unless (a) an option is exercised by the person in the prescribed manner; and (b) before the due date specified under Section 139(1) of the Act for furnishing the return of income.

Clear Option to Choose New Tax Regime in ITR

It is clear from the extract of the ITR Form provided by the petitioner that against the entry whether the petitioner has opted for taxation under Section 115BA/115BAA/115BAB, the petitioner had responded “none of above”. The contention that there was no specific box (space) in the return to reflect the option, as contended on behalf of the petitioner, is clearly erroneous.\

CBDT extended due date for filing Form 10-IC, only in cases where delay in filing ITR was condoned:

Paragraph 2 of the CBDT Circular indicates that the same was issued pursuant to the representations received by the CBDT to the effect that the delay in filing the Form 10-IC, which was required to accompany the returns, be condoned. The CBDT had considered the hardship faced by the domestic companies and decided to condone the delay in cases where certain conditions, as specified in paragraph 3 of the circular, were satisfied.

Clause (ii) of paragraph no.3 of the Circular makes it explicitly clear that the delay in filing the Form 10-IC could be condoned only in cases where the assessee company had opted for lower taxation under Section 115BAA of the Act.

Final Order of Court:

In the present case, the petitioner does not satisfy this condition as it has not opted for availing the lower taxation under Section 115BAA of the Act in its return.