CPC Cannot Deny Concessional Tax Rate u/s 115BAB for Want of Annual Form 10-ID Filing

ORDER

Siddhartha Nautiyal, Judicial Member. – This appeal by the Assessee is directed against the order dated 09/08/2024 passed by the Office of the Commissioner of Income Tax, Appeal Addl/JCIT(A)-8 Mumbai [hereinafter referred to as “CIT(A)”], u/s.250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), for the Assessment Year (AY) 2023-24.

2. The assessee has raised the following grounds of appeal:

“Based on the facts and circumstances of the case and in law, GFCL EV PRODUCTS LIMITED (‘GFCL EV’ or ‘Appellant’) respectfully craves leave to prefer an appeal against the order passed by the Commissioner of Income Tax (Appeals) dated 09.08.2024, under section 250 of the Income Tax Act, 1961 (‘Act’).

1) Ground 1-Ground pertaining to the denial of the eligibility under section 115BAB of the Act

I. In the facts and circumstances of the case and in law, the learned CIT(A) erred in not appreciating that the main condition stipulated in section 115BAB is required to be complied is that the Company should have commenced manufacturing or production of an article or thing on or before the 31 day of March. 2024 viz. in the subsequent year.

II. In the facts and circumstances of the case and in law, the learned CIT(A) erred in observing and concluding that the appellant has not fulfilled the condition stipulated in section 115BAB that it should have commenced manufacturing or production of an article or thing on or before the 31 day of March, 2024, when, in fact, the appellant had started production before 31 March.2024.

The Appellant prays that the Id. AO be directed to hold that the appellant is eligible under section 115BAB of the act.

2) Ground 2-Ground of appeal pertaining to the denial of tax rate under section 115BAB of the Act.

In the facts and circumstances of the case and in law, the learned CIT(A) erred denying the beneficial tax rates under section 115BAB of the Act on income offered to tax under the head “income from other source by holding that since no manufacturing or production activities took place during the relevant assessment year, the main condition u/s 115BAB is not satisfied and the Appellant is not entitled to the beneficial tax rates prescribed under this section.

The Appellant prays that the id, AO be directed to apply the tax rates specified under section 115BAB to the Appellant.

3) Ground 3-Ground of Appeal pertaining to prior intimation to the appellant before the adjustment under section 143(1).

In the facts and circumstances of the case and in law, the learned CIT(A) erred in stating that since there was no adjustment to the total income of the appellant there was no necessity to give prior adjustment notice to the appellant as the conditions stipulated in proviso to section 143(1)(8) are not applicable to section 143(1)(b) of the Act.

The CIT (A) as well as the Deputy Director of Income Tax, CPC has treated the issue of tax rate determination as an adjustment, whereas the determination of the appropriate tax rate is a matter requiring detailed examination and cannot be adjusted summarily under the said section.

The Appellant prays that the Id. AD be directed to quash the intimation issued under section 143(1) of the Act and grant tax rates specified under section 115BAB to the Appellant.

4) Ground 4-General ground

I. Each of the above Ground of Appeal is independent and without prejudice to the other Grounds of Appeal preferred by the Appellant.

II. The Appellant craves leave to add, alter, vary, omit, substitute or amend one or more of the above Grounds of Appeal at any time before or at the time of proceedings so as to enable the Honorable Panel to decide these Appeal according to law.”

3. The brief facts of the case are that the assessee filed its return of income for the Assessment Year 2023-24 on 30.10.2023 declaring a total income of Rs. 4,44,816/-. The return was processed under section 143(1) of the Incometax Act, 1961 (Act) by the Centralized Processing Centre (CPC), Bengaluru, vide intimation dated 26.04.2024, accepting the returned income. However, while computing the tax liability, the CPC calculated the tax at the rate of 30% under normal provisions instead of the concessional rate of 22% as per section 115BAB of the Act, on the ground that the assessee had not exercised the option under that section. Aggrieved by the said intimation, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals) [CIT(A)] and contended that the CPC had erred in ignoring the option already exercised under section 115BAB for the preceding assessment year and in not granting the benefit of lower tax rate as applicable to new manufacturing companies.

4. In the appellate proceedings before CIT(Appeals), the assessee submitted that it had been incorporated on 08.12.2021 and had duly exercised the option under section 115BAB for A.Y. 2022-23 by filing Form No. 10ID on 31.10.2022, i.e., within the due date prescribed under section 139(1) of the Act. The assessee contended that, once exercised, the option under section 115BAB of the Act continues for subsequent assessment years and that there is no requirement for filing Form No. 10ID again. The assessee further submitted that in the return of income filed for A.Y. 2023-24, the option for taxation under section 115BAB was clearly indicated in Part-A, General Information of ITR-6, and therefore, CPC’s observation that the assessee had not exercised such option was factually incorrect. The assessee also contended that no prior intimation was given before making variations as required under the first proviso to clause (a) of section 143(1), and that CPC’s adjustment of tax computation without such intimation was invalid and beyond the permissible scope of section 143(1). It was, therefore, arugued that the intimation under section 143(1) may be treated as void ab initio and that the Assessing Officer be directed to recompute tax applying the provisions of section 115BAB of the Act at the rate of 22%. The CIT(A) examined the submissions of the assessee, the provisions of section 115BAB of the Act, and the details available in the return of income. The CIT(Appeals) noted that, as per section 115BAB(2)(a), one of the primary conditions for availing the benefit of the concessional rate is that the company should have commenced manufacturing or production of an article or thing on or before 31st March 2024. On perusal of the return and the manufacturing account of the assessee, the CIT(A) observed that the assessee had not undertaken any manufacturing activity during the financial year 2022-23 relevant to A.Y. 2023-24. Accordingly, the CIT(A) held that the essential condition of commencement of manufacturing activity was not satisfied, rendering the assessee ineligible to claim the benefit of section 115BAB. As regards the assessee’s contention that no opportunity of being heard was given prior to processing under section 143(1) of the Act, the CIT(A) observed that the returned income was accepted as filed and that no adjustment to total income was made under section 143(1)(a); only the tax rate was applied differently under section 143(1)(b). Therefore, the requirement of prior intimation under the proviso to section 143(1)(a) was held to be inapplicable. The CIT(A) also rejected the assessee’s contention that the adjustment was beyond the scope of section 143(1)(a), and held that since the assessee had not fulfilled the mandatory condition of section 115BAB of the Act, CPC was justified in computing tax at the normal rate under section 143(1)(b). In light of the above findings, the CIT(A) held that the assessee was not eligible for the concessional tax rate under section 115BAB and upheld the CPC’s computation of tax at 30%. Consequently, the appeal filed by the assessee was dismissed.

5. The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee.

6. Before us, the learned counsel for the assessee submitted that the CIT(A) had erred both in law and on facts in denying the benefit of concessional tax rate under section 115BAB of the Act and in upholding the action of the CPC in computing tax at 30% under section 143(1). The ld. counsel for the assessee contended that the assessee company had duly exercised the option under section 115BAB for and from Assessment Year 2022-23 by filing Form No. 10ID electronically on 31.10.2022, which was well within the prescribed time under section 139(1). Once such an option is exercised, it continues for all subsequent assessment years and there is no statutory requirement to file Form No. 10ID afresh every year. Accordingly, for A.Y. 2023-24, the assessee continued to be governed by the new tax regime under section 115BAB of the Act, and the same was clearly reflected in the return of income filed in Form ITR-6, Part A – General, clause (e), wherein the assessee had specifically indicated that it had opted for taxation under section 115BAB of the Act. The ld. counsel for the assessee further submitted that the return for A.Y. 2023-24 was filed on 30.10.2023 declaring a total income of Rs. 4,44,816/ -, which comprised only “income from other sources”, and that, as per the proviso to sub-section (1) of section 115BAB of the Act, the applicable tax rate for such income is 22%. However, while processing the return under section 143(1) of the Act, the CPC completely ignored the option exercised under section 115BAB and erroneously computed tax at the normal rate of 30%, which resulted in excess tax liability and reduction of refund. The counsel submitted that the CPC’s observation that the assessee had not exercised the option under section 115BAB was factually incorrect, as the said option had already been validly exercised in the preceding year and duly continued in the current year. It was further submitted that no prior intimation of the proposed variation was given to the assessee before processing the return, which is mandatory under the first proviso to clause (a) of section 143(1). Since the CPC had made an adverse variation relating to the tax rate, the failure to issue prior intimation rendered the entire intimation void ab initio. The learned counsel argued that the CIT(A) was not justified in holding that the proviso to section 143(1)(a) of the Act was inapplicable merely because there was no change in the returned income. Determination of the correct tax rate under section 115BAB involves a substantive question of eligibility and interpretation, which cannot be adjusted mechanically under section 143(1) of the Act. On merits, the learned counsel submitted that the CIT(A) was also factually incorrect in observing that the assessee had not commenced manufacturing activity before 31st March 2024. He pointed out that the condition in section 115BAB(2)(a) only requires commencement of manufacturing on or before 31.03.2024, and not necessarily within the year under consideration. The assessee had, in fact, commenced production activity before the said date and, therefore, fully satisfied the eligibility condition for availing the benefit of section 115BAB of the Act. The CIT(A)’s reasoning that the assessee was ineligible merely because manufacturing had not started during the relevant previous year was misconceived and contrary to the legislative intent, which allows the benefit until 31.03.2024. The learned counsel also brought to the notice of the Bench that for A.Y. 2022-23, the CPC itself had accepted the assessee’s option under section 115BAB while processing the return under section 143(1) of the Act, as is evident from the intimation for that year.

7. In response, Ld. DR placed reliance on the observations made by CIT(Appeals) in the appellate order.

8. We have carefully considered the rival contentions and perused the material available on record. It is an admitted position that the assessee had duly exercised the option under section 115BAB of the Act for the immediately preceding assessment year 2022-23 by filing Form No. 10ID within the prescribed time. Once the option under section 115BAB is exercised, it continues to apply for all subsequent assessment years, and there is no requirement under the Act or the Rules to file Form No. 10ID again for each year. Therefore, for the year under consideration, being the second year of claim, the assessee was eligible to continue under the concessional tax regime prescribed under section 115BAB of the Act. We further note that the issue as to whether the assessee had actually commenced manufacturing or production activity within the meaning of section 115BAB(2)(a) is a matter requiring factual verification. Such an issue is inherently debatable and does not constitute a mistake apparent from the record which can be adjusted while processing a return under section 143(1) of the Act. The scope of prima facie adjustments under section 143(1) is limited only to apparent arithmetical or factual errors discernible from the return and accompanying documents. The eligibility of the assessee for the concessional rate under section 115BAB, depending upon the date and nature of commencement of manufacturing activity, cannot be decided without affording an opportunity of hearing to the assessee and not through a mechanical adjustment under section 143(1) of the Act. We are of the considered view that the action of CPC in applying a higher tax rate of 30% without prior intimation or opportunity of being heard is in violation of the principles of natural justice. When an assessee is being subjected to a higher or additional tax liability, it is only fair, reasonable and in the interests of justice that the assessee is afforded an opportunity to explain its position before any such adjustment is made. In the present case, admittedly, no such opportunity was given to the assessee before substituting the concessional rate of 22% with the normal rate of 30%. The impugned action of CPC therefore cannot be sustained either in law or on facts. We also note that in the immediately preceding year, the same claim under section 115BAB had been accepted by the Department while processing the return under section 143(1). In such circumstances, it was incumbent upon the CPC to maintain consistency and not to deviate from the accepted position without granting an opportunity of hearing. The suo motu denial of benefit in the second year, without any change in the factual matrix or legal position, is unjustified and contrary to settled principles of natural justice and fair play. In view of the foregoing discussion, we are of the considered opinion that the issue relating to the applicability of concessional tax rate under section 115BAB of the Act could not have been the subject matter of adjustment under section 143(1) of the Act without giving any opportunity of hearing and the action of the CPC as well as the order of the CIT(A) upholding such action are unsustainable.

9. In the result, the appeal of the assessee is allowed.