Denial of Section 115BAA Benefit on Technical Grounds: High Court Allows Relief for Delayed Form 10-IC Filing

Overview of the Dispute

In a significant ruling concerning the applicability of concessional corporate taxation, the Gujarat High Court addressed a matter involving Surat Smart City Development Limited Vs PCIT. The case centered around the rejection of a request made under Section 119(2)(b) of the Income Tax Act, 1961, wherein the Principal Commissioner of Income Tax denied condonation for the belated filing of Form 10-IC required under the provisions of Section 115BAA.

The company had approached the judicial forum to contest an order issued on 6 October 2023, which dismissed their application seeking to regularize a procedural oversight in availing the reduced corporate tax rate under the newly introduced Section 115BAA regime.

Factual Matrix of the Case

Filing of Return and Exercise of Option

The assessee company, operating as a public limited entity, submitted its income tax return for Assessment Year 2020-21 on 31 December 2020. The declared income stood at ₹11.38 crore. During the electronic filing process using ITR-6, the company explicitly selected the option to be taxed under the beneficial provisions of Section 115BAA, thereby opting for a reduced tax rate of 22% (exclusive of surcharge and education cess).

The tax computation statement submitted along with the return clearly reflected the application of the concessional rate, and the return was initially processed accordingly under Section 143(1), resulting in a refund of ₹8.43 lakh, which included interest under Section 244A.

Technical Difficulties and Subsequent Complications

A critical issue arose when Form 10-IC, mandated under Rule 21AE of the Income Tax Rules, 1962, could not be uploaded on the income tax portal due to technical glitches. This form constitutes the prescribed manner for formally exercising the option under Section 115BAA(5).

Subsequently, the Central Processing Centre invoked Section 154 and passed a rectification order, denying the concessional tax treatment solely on the ground that Form 10-IC had not been filed. This rectification led to a tax demand exceeding ₹1.21 crore.

Attempts at Grievance Redressal

The assessee lodged multiple grievances on the official portal on 8 November 2021 and again on 30 November 2021. However, both grievances were closed by the e-filing department without providing any substantive resolution or guidance.

Amid this confusion, and acting on mistaken professional advice, the company filed Form 10-IC along with the return for Assessment Year 2021-22 in February 2022. However, under the statutory framework of Section 115BAA(5), the option must be exercised only once—for the first relevant assessment year—and then automatically applies to subsequent years.

CBDT Circular and Subsequent Developments

Recognizing the widespread confusion during the inaugural year of Section 115BAA implementation, the Central Board of Direct Taxes issued Circular No. 6 of 2022 dated 17 March 2022. This circular, exercised under powers conferred by Section 119(2)(b), provided for condonation of delay in filing Form 10-IC for Assessment Year 2020-21, subject to fulfillment of certain conditions:

  • The return of income for AY 2020-21 must have been filed on or before the due date specified under Section 139(1)
  • The company must have opted for taxation under Section 115BAA in the appropriate field of ITR-6
  • Form 10-IC must be filed electronically by 30 May 2022 or within three months from the circular's issuance

The assessee satisfied the first two conditions but could not meet the third, having already submitted Form 10-IC for the subsequent year under mistaken belief.

Application for Relief and its Rejection

On 14 March 2023, the company submitted an application under Section 119(2)(b) before the Principal Commissioner, requesting that the Form 10-IC filed for Assessment Year 2021-22 be treated as if filed for Assessment Year 2020-21.

The authority rejected this application vide order dated 6 October 2023, holding that:

  • Form 10-IC had never been filed in the prescribed manner as required under Section 115BAA(5)
  • No genuine hardship warranting relief had been established

Arguments Advanced Before the High Court

Contentions on Behalf of the Assessee

Counsel representing the petitioner company submitted that the revenue authority had adopted an excessively technical and rigid approach. The following points were emphasized:

  • The assessee had unequivocally exercised the option for the concessional regime in the original return filed within the statutory deadline
  • Tax was computed at the reduced rate, and this computation was initially accepted by the Central Processing Centre
  • The failure to file Form 10-IC resulted from technical issues with the income tax portal during the provision's first year of implementation
  • The subsequent filing of Form 10-IC for the wrong assessment year arose from genuine confusion exacerbated by lack of clarity
  • The power under Section 119(2)(b) should be interpreted liberally to address genuine hardship

Reliance was placed on the Gujarat High Court's judgment in V. M. Procorn Private Limited Versus Assistant Director of Income Tax and Another in Special Civil Application No.9707 of 2024 dated 23 August 2024, where similar circumstances led to relief being granted.