The Courts in the past have had numerous occasions to deal with the issue of whether the filing of statutory forms within the due date prescribed under the Income Tax Act, 1961 (‘IT Act’), is a mandatory or directory requirement, to claim deductions/exemptions that are available to Taxpayers under the IT Act.

In AKS Alloys (P.) Ltd.[1], the Taxpayer’s claim for deduction under Section 80IB of the IT Act was denied by the Tax Authorities, on the grounds that the Assessee did not file audit report in Form 10CCB along with the return of income (‘RoI’) as required under Section 80IB(13) read with Section 80IA(7) of the IT Act. In a challenge to the High Court, relying on catena of judgments[2], the High Court held that the requirement to file the audit report within the specified time was directory and not mandatory in nature and thus, upheld the eligibility for deduction under Section 80IB. The said decision of the High Court was also subsequently affirmed by the Apex Court in G.M. Knitting Industries Pvt. Ltd.[3].

Courts consistently held that the substantive rights of the Taxpayer in enjoying deduction/exemptions should not be denied on the grounds that there was procedural delay in filing statutory forms, more particularly when the delay did not result in any undue dis-advantage to the Revenue.

Change in the tide

Despite a plethora of judgments in favor of Taxpayers, the Revenue Authorities repeatedly disputed claim for tax deduction/ exemptions, whenever there was a delay in complying with procedural requirements by the Taxpayer. Recently, however, the Apex Court judgment in Wipro Limited[4] changed the course of the river.

In Wipro Limited, the Taxpayer claimed exemption under Section 10B of the IT Act on the income earned by its units in Special Economic Zone. In terms of Section 10B(6)(ii), if the benefit of exemption is claimed, then the Taxpayer will not be permitted to carry forward the losses of the unit. The Taxpayer can choose not to claim the exemption and carry forward the losses. If the Taxpayer intends to carry forward the losses and not claim the exemption, then a specific declaration to the Revenue Authorities has to be filed under Section 10B(8) of the IT Act, on or before the due date prescribed under Section 139(1) of the IT Act. In the said case, the Taxpayer filed its tax return for Assessment Year 2001-02, claiming exemption under Section 10B, but after a year, filed a declaration under Section 10B(8) of the Act, withdrawing its claim for exemption, and seeking to carry forward the losses. The Apex Court held that in terms of Section 10B(8), furnishing of declaration to the Revenue Authorities for withdrawal of exemption within the time limit under Section 139(1) is a mandatory condition under the IT Act. Further, the decision of G.M. Knitting was distinguished on the grounds that the principles laid down in G.M. Knitting will not apply to cases of exemption under the IT Act but would be restricted to deductions available under the IT Act alone. Accordingly, the Supreme Court refused the benefit of carry forward of losses to the Taxpayer.

Aftermath of Wipro

In Gujarat Energy Development Agency[5], the Taxpayer was a public charitable trust, claiming exemption under Section 11 of the IT Act, the exemption was denied on the ground that the Taxpayer failed to file the statutory audit report along with the RoI. The Hon’ble High Court distinguished the case of Wipro Limited, by observing that the Section 10B(8) of the IT Act considered by the Supreme Court was not pari materia with Section 11 of the IT Act. The Court opined, by relying on earlier decisions in Social Security Scheme of GICEA[6] and Sarvodaya Charitable Trust[7], that the requirement under Section 11 of the IT Act for furnishing of audit report along with the RoI was only a directory condition. Further, it was observed that the approach in these types of cases should be equitable, balanced, and judicious.

In the more recent ruling, the Income-tax Tribunal in Aprameya Engineering Ltd.[8], where the Taxpayer was denied the benefit of reduced rate of tax under Section 115BAA on the ground that the statutory form required to be filed to claim the benefit was not filed with the prescribed time. The Hon’ble Tribunal distinguished the decision of the Supreme Court in Wipro Limited by observing that the taxpayer in the said case, as an afterthought, opted for the benefit u/s. 10B(8); whereas in the matter before the Tribunal, the intention of the Taxpayer to opt for the beneficial rate of tax under Section 115BAA was clearly communicated in the RoI, as well as the tax audit report which were filed before the due date prescribed. Further, the Tribunal held that the substantive right of the Taxpayer cannot be denied merely due to the delay in filing certain Forms, being a procedural lapse.

Conclusion

With the recent Legislative trend of delegating enormous powers to the Executive and the quest to collect elaborate information and certifications, the Income Tax regulations are swamped with hundreds of Forms and declarations. Many a times, even regular tax practitioners and revenue authorities as well find it difficult to track the procedural requirements. This leads to Taxpayers making certain claims in the returns, without filing the required Forms or declarations. The law laid down by the Supreme Court in Wipro Limited will have widespread ramifications insofar as denying the benefit of exemptions/deductions claimed by the Taxpayers, merely on the ground that the audit report/statutory form is not filed within the prescribed due date.

Such a drastic consequence does not seem, from a reading of the subsequent judgments, to be the intention of the Supreme Court. As long as (i) claim for deduction/exemption is reflected in the RoI, (ii) statutory form is filed before the completion of assessment and (iii) procedural delay in filing the statutory form is due to sufficient and good cause, the Taxpayers would not be remedy less. That said, it is always advisable for Taxpayers to keep a track of and file the audit report/statutory forms within the prescribed time limit, and if any delay is suo moto identified, apply to the Board for condonation of the delay.

[The author is an Associate in Direct Tax Team at Lakshmikumaran and Sridharan Attorneys, Chennai]

1. [1] Tax Case Appeal No.495 of 2011 (Madras)
2. [2] CIT v. Shivanand Electronics [1994] 209 ITR 63, Zenith Processing Mills v. CIT [1996] 219 ITR 721 (Guj.), CIT v. A.N. Arunachalam [1994] 208 ITR 481 and CIT v. Mahalaxmi Rice Factory [2007] 294 ITR 631
3. [3] [2015] 376 ITR 456
4. [4] (2022) 446 ITR 1 (SC)
5. [5] ITA No. 35 of 2024 (Gujarat)
6. [6] Civil Application No. 17612 of 2022 (Gujarat)
7. [7] Special Civil Application No. 6097 of 2020 (Gujarat)
8. [8] ITA No. 456/Ahd/2024