Section 10AA Deduction Upheld by ITAT Hyderabad: Procedural Lapses Not Fatal — Late ITR Filing and 16-Minute Form 56F Delay Cannot Justify Denial

Case Reference

ACIT Vs MARS Telecom Systems Private Limited (ITAT Hyderabad)
Assessment Years: 2019-20 and 2021-22
Order Pronounced: 17th April, 2026

Background and Context

The Income Tax Appellate Tribunal, Hyderabad, recently delivered a significant ruling in favour of an assessee engaged in software development and IT-enabled services, holding that deduction under Section 10AA of the Income Tax Act, 1961 cannot be denied merely on account of procedural non-compliances — specifically, a delayed return of income and a marginal delay of 16 minutes in uploading Form 56F on the ITBA portal.

The Revenue filed two separate appeals against the orders of the Additional/Joint Commissioner of Income Tax (Appeals) – 1, Chandigarh, pertaining to Assessment Years 2019-20 and 2021-22. Since both appeals involved substantially identical facts and overlapping legal questions, the Tribunal consolidated them and disposed of both through a single order.

This ruling carries important implications for assessees operating Special Economic Zone (SEZ) units who claim Section 10AA deductions, as it draws a clear line between substantive eligibility conditions and procedural requirements that are directory in nature.

Facts of the Case

Assessment Year 2019-20

The assessee filed its return of income on 31.12.2019, declaring total income of Rs. 3,81,84,691/- and claiming deduction under Section 10AA of the Income Tax Act, 1961 amounting to Rs. 3,17,05,980/-. The extended due date for filing the return under Section 139(1) was 31.10.2019, meaning the return was filed approximately two months after the extended deadline.

Upon processing the return, the CPC issued an intimation under Section 143(1) on 03.06.2020, determining total income at Rs. 7,67,83,590/-. The disallowance of the Section 10AA deduction of Rs. 3,17,05,980/- was made solely on the basis that the return of income had not been filed on or before the due date prescribed under Section 139(1).

The Revenue also raised an additional ground — that the assessee had already availed the five-year deduction window under Section 10AA commencing from either A.Y. 2013-14 or A.Y. 2014-15 as mentioned in the assessee's own ITR, and therefore was not entitled to claim 100% deduction for A.Y. 2019-20.

Assessment Year 2021-22

For A.Y. 2021-22, the assessee filed its return of income on 15.03.2022, declaring total income of Rs. 8,28,16,480/- and claiming deduction under Section 10AA of Rs. 6,31,83,072/-.

The CPC processed the return and issued an intimation under Section 143(1) on 28.12.2022, determining total income at Rs. 14,59,99,550/-. The deduction was disallowed on the ground that Form 56F — the accountant's report certifying the deduction — was filed beyond the due date stipulated under Section 139(1).