The ITAT Mumbai has clarified that a procedural delay in filing Form 10-IC under Section 115BAA of the Income Tax Act does not automatically disqualify a domestic company from claiming the concessional tax rate, provided the intention to opt for the scheme is unequivocally demonstrated and all substantive conditions are fulfilled.
Background & Facts
The Dispute
The appellant, Electronfab Engineering Pvt. Ltd., is a domestic company engaged in engineering activities. It owns 11 flats and earns rental income by leasing them to Advance Power Display System Limited. For the assessment year 2024-25, the company initially filed its return of income on 15.11.2024 under Section 139(1) declaring a loss of Rs. 11,46,283 and did not claim the benefit of the concessional tax regime under Section 115BAA. Subsequently, the Centralised Processing Centre (CPC) Bengaluru issued a notice under Section 139(9) on 22.11.2024, identifying a discrepancy between the turnover declared and the amounts reflected in Form 26AS. In response, the assessee filed a rectified return under Section 139(9) on 06.12.2024. Prior to filing this rectified return, on 02.12.2024, the assessee submitted Form 10-IC under Rule 21AE of the Income Tax Rules, 1962, thereby expressing its intention to opt for the 22% tax rate under Section 115BAA. The CPC processed the return under Section 143(1) on 22.01.2025 and rejected the claim under Section 115BAA, raising a demand of Rs. 32,99,240. The assessee appealed to the Commissioner of Income Tax (Appeals), who dismissed the appeal on 30.05.2025. The assessee then filed the present appeal before the ITAT Mumbai.
Key Facts
- The assessee filed its original return on 15.11.2024 without claiming Section 115BAA benefit
- CPC issued defect notice under Section 139(9) on 22.11.2024
- Form 10-IC was filed on 02.12.2024, before the rectified return
- Rectified return under Section 139(9) was filed on 06.12.2024
- CPC issued intimation under Section 143(1) on 22.01.2025, disallowing Section 115BAA benefit
- Appeal to CIT(A) filed and dismissed on 30.05.2025
- Appeal filed before ITAT Mumbai on 13.02.2026
- Judgment pronounced on 16.03.2026
- The assessee submitted a notarized affidavit explaining the delay in filing Form 10-IC as due to an eye surgery of the accountant handling tax matters
- The Form 10-IC was available on the CPC’s record during processing of the return on 22.01.2025
- The intimation under Section 143(1) did not provide any prior notice or adjustment memo to the assessee
Procedural History
- 15.11.2024: Original return filed under Section 139(1) without claiming Section 115BAA
- 22.11.2024: Defect notice issued under Section 139(9) by CPC
- 02.12.2024: Form 10-IC filed under Rule 21AE
- 06.12.2024: Rectified return filed under Section 139(9)
- 22.01.2025: CPC issued intimation under Section 143(1), disallowing Section 115BAA benefit and raising demand of Rs. 32,99,240
- 30.05.2025: CIT(A) dismissed appeal
- 13.02.2026: Appeal filed before ITAT Mumbai
- 16.03.2026: Judgment pronounced
The Parties' Positions
The assessee contended that the filing of Form 10-IC prior to the rectified return, coupled with the absence of any deliberate refusal to opt for Section 115BAA, demonstrated clear intention to avail the benefit. It relied on judicial precedents from ITAT Hyderabad and Ahmedabad, emphasizing that procedural lapses should not override substantive rights under a beneficial provision. It further argued that the intimation under Section 143(1) was invalid for lack of prior notice.
The Revenue contended that since the option under Section 115BAA was not exercised in the original return, the benefit could not be claimed later. It relied on the Delhi High Court’s decision in Sarla Holdings Pvt. Ltd. v. PCIT, where the court held that a conscious declaration of non-opting in the return bars subsequent claims.
Relief Sought
The assessee sought: (1) setting aside of the CPC’s intimation under Section 143(1), (2) setting aside of the CIT(A)’s order, and (3) allowance of the benefit under Section 115BAA with consequential refund of tax paid.
The Legal Issue
Can a domestic company claim the benefit of the concessional tax regime under Section 115BAA by filing Form 10-IC after the original return but before the rectified return filed in response to a defect notice under Section 139(9), where the intention to opt is clear and no deliberate refusal was made?
Arguments Presented
For the Appellant
The Ld. AR argued that the filing of Form 10-IC on 02.12.2024, prior to the rectified return, fulfilled the statutory condition under Rule 21AE. The revised return under Section 139(9) was not a new return but a correction of a defect, and the law treats such returns as substitutes for the original return. The assessee relied on Lahari Holiday Homes Pvt. Ltd. and Aprameya Engineering Ltd., where ITAT benches held that procedural delays in filing Form 10-IC should not defeat substantive rights when the intent is clear. The assessee also cited CIT v. G.M. Knitting Industries, where the Supreme Court held that timing of claims is directory, not mandatory. The delay of 12 days was explained by a medical emergency, supported by affidavit, and the CPC had the Form 10-IC on record during processing.
For the Respondent
The Ld. DR contended that Section 115BAA requires the option to be exercised in the original return under Section 139(1). Relying on Sarla Holdings Pvt. Ltd. v. PCIT, the Revenue argued that a clear declaration of non-opting in the return bars subsequent claims. It emphasized that CBDT Circular No. 6/2022 only condoned delay in filing Form 10-IC if the option was already indicated in the return, which was not the case here. The Revenue maintained that the intimation under Section 143(1) was valid and that the assessee had no right to claim the benefit retroactively.
The Court's Analysis
The ITAT examined the distinction between a revised return under Section 139(5) and a rectified return under Section 139(9). It noted that while Sarla Holdings involved a conscious declaration of non-opting in the return, the present case involved no such declaration. The assessee had merely failed to check a box in the original return, and the defect notice prompted corrective action. The Court observed that the Form 10-IC was filed before the rectified return and was available to the CPC during processing, thereby satisfying the statutory condition under Rule 21AE.
"The procedural lapse in not exercising the option in the original return cannot defeat the substantive claim of the assessee when the statutory conditions have otherwise been complied with."
The Bench distinguished Sarla Holdings on three grounds: (1) the assessee in that case had affirmatively declared non-opting, while here there was no such declaration; (2) the impugned order arose from an intimation under Section 143(1), not a regular assessment under Section 143(3); and (3) the delay in filing Form 10-IC was minimal and explained by a medical emergency. The Court further noted that the CBDT Circular No. 6/2022, while not directly applicable, reflected administrative recognition that procedural lapses should not automatically negate substantive benefits. The Bench emphasized the principle of beneficial interpretation and the Supreme Court’s directive in G.M. Knitting Industries that the making of a claim is mandatory, but timing is directory. The Court held that the assessee’s conduct demonstrated clear intention to avail the benefit, and the statutory conditions were otherwise met.
The Verdict
The appeal of the assessee is allowed. The order of the CIT(A) dated 30.05.2025 is set aside. The Assessing Officer is directed to verify the filing of Form 10-IC and, if found in order, allow the assessee the benefit of the concessional tax regime under Section 115BAA of the Act for assessment year 2024-25. The tax demand of Rs. 32,99,240 raised under the intimation dated 22.01.2025 is to be adjusted accordingly. The assessee shall be entitled to refund of any excess tax paid, with interest at the rate of 6% per annum from the date of payment until the date of refund, as per Section 244A of the Act. The order is allowed for statistical purposes.
What This Means For Similar Cases
Procedural Lapses Do Not Automatically Bar Section 115BAA Benefits
- Practitioners may now argue that a delay in filing Form 10-IC, even beyond the original return deadline, is not fatal if the intent is clearly established through contemporaneous documentation
- A notarized affidavit explaining the delay due to medical or technical reasons strengthens the case for condonation
- The availability of Form 10-IC on the department’s record during processing is a critical evidentiary factor
Rectified Returns Under Section 139(9) Can Support Section 115BAA Claims
- A return filed under Section 139(9) to rectify a defect is treated as a continuation of the original return, not a new return
- The filing of Form 10-IC before the rectified return satisfies the condition under Rule 21AE, even if not done with the original return
- This creates a pathway for companies that inadvertently missed the deadline but acted promptly upon receiving a defect notice
Intimations Under Section 143(1) Are Not Suitable for Disallowing Substantive Benefits
- The ITAT reaffirmed that Section 143(1) intimations are limited to mechanical adjustments and cannot be used to deny substantive tax benefits requiring deliberation
- Practitioners should challenge disallowances of Section 115BAA claims in Section 143(1) intimations on grounds of procedural overreach
- Such issues must be adjudicated in regular assessment proceedings under Section 143(3), where the assessee has full opportunity to present evidence
