Direct Tax Alert: Taxpayer should approve Form 10CCB before the due date to be entitled for deduction under section 80-IB of the IT Act

Background:

Section 80-IB of the Income-tax Act, 1961 (IT Act) provides for the deduction in respect of profit and gains from certain industrial undertaking other than infrastructure development undertaking. In order to claim deduction under this section, one of the requirements is that the accounts for the relevant year has been audited by the accountant and the taxpayer furnishes such an audit report in Form 10CCB. If the Form 10CCB is not filed before the due date, the deduction under section 80-IB of the IT Act can be denied. Under the e-filing environment, filing of Form 10CCB is a two-step process – the accountant uploads the Form and then the taxpayer has to approve the Form. Generally, a question arises as to whether the uploading by the accountant can be considered as the date of filing the Form or the date when the taxpayer accords his approval should be considered as date of filing.

Recently, the Delhi Tax Tribunal¹ had an occasion to examine this issue. We, at BDO in India, have summarised the ruling of Delhi Tax Tribunal and provided our comments on the impact of this decision hereunder:

Facts of the case:

The Taxpayer, an individual, filed his tax return on 6 November 2017 (due date being 7 November 2017). In the tax return, he claimed deduction under section 80-IB of the IT Act. While the Chartered Accountant uploaded Form 10CCB on 6 November 2017, it was approved by the taxpayer on 12 December 2017 (i.e. after the due date of filing the tax return). The Centralized Processing Centre, Bangalore (CPC, Bangalore) passed an intimation on 10 January 2019 wherein it disallowed taxpayer’s claim under section 80-IB of the IT Act on the ground that Form 10CCB was not filed before the due date of filing tax return. Aggrieved by this, the taxpayer filed an appeal before the First Appellate Authority which upheld the action of CPC, Bangalore. Hence, the taxpayer filed an appeal before the Delhi Tax Tribunal.

Tribunal ruling

After hearing the contentions of the taxpayer and the tax officer, the Delhi Tax Tribunal upheld the adjustment made by CPC, Bangalore and observed that:

• The facts clearly show that the due date of filing of the return of income was 7 November 2017 whereas the taxpayer filed his return of income on 6 November 2017. However, Form 10CCB was accepted by the taxpayer only on 12 December 2017 which is much beyond the due date of the filing of the return of income i.e. 7 November 2017. Therefore, it is apparent that as on the due date of filing of the return the taxpayer did not file the audit report in Form 10CCB for claiming deduction under section 80-IB(11B) of the IT Act.
• The provisions of Rule 12(2) of the Income-tax Rules, 1962 (IT Rules) are also very clear in this regard. The taxpayer is also aware about the same because it filed the audit report on 6 November 2017 but did not care to accept the same till 12 December 2017. Therefore, even without any intimation the taxpayer approved the Form 10CCB uploaded by the accountant on 6 November 2017 on 12 December 2017.
• After the introduction of the electronic filing of the return of income as well as all other documents, there is no debate available that even if the audit report is filed before the assessment is made, the same is acceptable and the deduction cannot be denied to the taxpayer.
• Selecting the cases for further scrutiny, processing of the return of income, claim of the refunds of the taxpayer are all determined based on the return filed by the taxpayer and when the provisions of the law and the relevant rules strictly provide that all necessary documents must be filed and approved along with the return of income or prior to that, subsequent filing of any document cannot be considered for processing of the return and intimation under section 143(1A) of the IT Act.
• Several judgements relied upon by the taxpayer do not pertain to the era of the electronic filing of the return / documents and therefore do not apply to the facts of the present case.
• There is no issue either in the procedure or in the passing of the intimation under section 143(1A) of the IT Act as well as in denying deduction under section 80-IB of the IT Act to the taxpayer for non-filing of the audit report in electronic manner in time (on or before the due date of filing of the return of income) as prescribed under the IT Rules and having the mandate of the provisions of section 80-IB(11B)(iv) of the IT Act.

BDO comments:

While this Ruling covers the cases where deduction under section 80-IB of the IT Act is claimed, it could be relevant even for other sections (i.e. section 10A or section 10AA or section 44AB etc) where filing of the audit report before due date is mandatory. The Delhi Tribunal makes it clear that the date on which the taxpayer approves the Form should be considered as the date of filing and hence, the taxpayer should ensure that the necessary Forms are approved in the income-tax portal on or before the due date of filing tax return. The judicial precedents allowing the claim in the absence of audit report were rejected by the Delhi Tribunal stating that they do not pertain to the electronic filing era. In the instant case, while the taxpayer had raised an objection against the power of CPC Bangalore to deny the claim of deduction under section 80-IB of the IT Act through intimation under section 143(1) of the IT Act, the Delhi Tribunal is silent on this objection. Furthermore, the taxpayer had also raised an objection that the intimation of adjustment was sent to the wrong email id. While the Delhi Tax Tribunal has not categorically observed/ ruled on this part, the First Appellate Authority have observed that the intimation letter is based on the data provided by the taxpayer as it picks up the email address therefrom and hence there is no scope for using any imaginary address. With the faceless assessment and faceless appeal now a reality, this observation gains significant importance as the First Appellate Authority has categorically disregarded the taxpayer’s contention that the intimation was not sent on the correct email address.