In a significant ruling, the Mumbai Bench of the Income Tax Appellate Tribunal has held that a domestic company cannot be denied the concessional 22 percent tax rate under Section 115BAA merely because its return of income was filed belatedly under Section 139(4), provided the option was exercised correctly and within the prescribed time.
The decision provides clarity on a recurring controversy where the tax department denies Section 115BAA benefits on procedural grounds, despite substantive compliance by the assessee.
Facts of the Case
The assessee, Vashishtha Luxury Fashion Limited, is a domestic company engaged in designing and manufacturing a distinctive collection of hand embroidered apparel. For Assessment Year 2023-24, the company opted for the concessional corporate tax regime under Section 115BAA.
Although the return of income was filed on 2 November 2023 under Section 139(4), the assessee had filed Form 10IC on 31 October 2023, which was within the due date prescribed under Section 139(1). The tax audit report was also filed within the statutory timeline.
While processing the return under Section 143(1), the Centralized Processing Centre ignored the option exercised under Section 115BAA and computed tax under the normal provisions, applying a higher tax and surcharge rate. This resulted in an additional demand.
The Commissioner of Income Tax (Appeals) upheld the CPC action, holding that since the return was belated, the assessee was not eligible for the concessional regime. The appellate authority relied on a CBDT circular dated 18 November 2024 dealing with condonation of delay in filing Form 10IC.
The assessee challenged this finding before the ITAT Mumbai.
Core Issue Before the Tribunal
The principal issue was whether the benefit of Section 115BAA can be denied solely because the return of income was filed under Section 139(4), even when Form 10IC was filed within the prescribed due date and all statutory conditions were otherwise satisfied.
Tribunal’s Analysis of Section 115BAA
The Tribunal examined the structure of Section 115BAA in detail. It noted that the provision grants an option to domestic companies to be taxed at 22 percent, subject to compliance with the conditions laid down in sub section (2). These conditions primarily relate to non-claiming of specified deductions, depreciation, and loss set offs.
Sub section (5) requires that the option be exercised in the prescribed manner on or before the due date specified under Section 139(1). The Tribunal emphasized that the Act clearly specifies the circumstances in which the option becomes invalid, namely violations of conditions relating to deductions and losses mentioned in sub section (2).
Importantly, the Tribunal found that there is no express provision in Section 115BAA stating that filing a belated return under Section 139(4) invalidates an otherwise validly exercised option.
CBDT Circular Held Inapplicable
The ITAT rejected the reliance placed on the CBDT circular dated 18 November 2024. It observed that the circular deals only with condonation of delay in filing Form 10IC or Form 10ID. In the present case, Form 10IC was filed within the due date. Therefore, the circular had no application.
The Tribunal clarified that the circular cannot be used to impose an additional condition that is not found in the statute itself.
Intention and Substantive Compliance Prevail
The Tribunal took note of the fact that the assessee had filed Form 10IC and the tax audit report within the prescribed time. These facts clearly demonstrated the assessee’s intention to opt for the concessional tax regime.
Relying on the decision of the coordinate bench in Aprameya Engineering Ltd., the Tribunal reiterated that procedural lapses should not defeat substantive statutory rights, especially when the law does not expressly prohibit such claims.
The Tribunal also distinguished the Supreme Court ruling in Wipro Ltd., noting that it was rendered in a different statutory context and could not be mechanically applied to Section 115BAA cases.
Final Ruling
The ITAT Mumbai held that the assessee was entitled to the concessional tax rate under Section 115BAA, even though the return was filed belatedly under Section 139(4). The denial of the benefit by the CPC and the Commissioner (Appeals) was therefore set aside, and the appeal was allowed.
Practical Implications
This ruling reinforces the principle that Section 115BAA grants a substantive tax benefit, not a discretionary concession. When the option is exercised in the prescribed manner and within the statutory time limit, a belated return by itself cannot be a ground for denial.
For domestic companies, the decision provides strong support in disputes involving technical objections raised by the tax authorities, particularly where compliance and intent are clearly established.
Conclusion
While the ITAT Mumbai decision is equitable and taxpayer friendly, it rests on a liberal and purposive interpretation of Section 115BAA that may invite further scrutiny. The statutory language in sub section (5) links the exercise of option to the due date for furnishing the return under Section 139(1), and the Tribunal’s view that timely filing of Form 10IC alone is sufficient arguably stretches this linkage. By prioritizing the assessee’s intention and substantive compliance over procedural timelines, the ruling risks diluting statutory discipline and introduces subjectivity into what is otherwise a compliance driven provision. Additionally, the dismissal of the CBDT circular as inapplicable, though logical on facts, may be contested as overlooking the administrative understanding of timely return filing as foundational to the concessional regime. Until clarified by a High Court, the ruling, though persuasive, may not fully settle the controversy and could lead to divergent interpretations in future cases.
ITAT Mumbai Order dated 12/01/2026: Vashishtha Luxury Fashion Limited Vs Deputy Director of Income Tax/ITO (AY 2023-24)