2010 (7) TMI 619 - AT - Income Tax

Deduction u/s 10B allowed; one-month delayed return treated valid despite first-year e-filing and payment difficulties

ITAT held that the one-month delay in filing the return did not bar deduction u/s 10B, treating the filing deadline as directory rather than mandatory in ... Deduction u/s 10B - due date for filing returns - Commissioner (Appeals), directed Assessing Officer to allow the statutory deduction u/s 10B in spite of the fact that Income-tax Act, 1961 clearly speaks that no such deduction shall be allowed to an assessee who does not furnish a return on or before the due date as specified under sub-section (1) of section 139 - HELD THAT:- We find that there was only a marginal delay of 1 ½ month in filing the return of income. The return filed was valid one. The same has also been accepted as a valid return by the Assessing Officer. The reasonable cause attributed by the assessee for the delay is that new provision of E-filing the return was introduced from the current assessment year. There was some problem under the new provisions due to which the date of filing the return had extended by the CBDT from time to time and from 31-10-2006, the same was extended to 30-11-2006. The new provision regarding E-filing of return was introduced & in this first year the software did not accept the return, if self- assessment tax was not paid. Assessee’s case is that due to some financial problems it could not pay the self-assessment tax on time, as a result of which there was a delay in the payment of tax and consequent filing of return by about 1&½ month. There was genuine and valid reason for the delay in filing of return and moreover as we have already found above these provisions are directory and not mandatory. Once the validity of the return has not been questioned by the revenue, in our considered opinion, the rejection of the asseessee’s claim u/s 10(B(1) at the threshold by the Assessing Officer was not justified. However, the Ld. Commissioner of Income-tax (Appeals) has not considered the factual aspects of the merits of the case. Assessing Officer also disallowed the assessee’s claim by stating that the return was filed on time. He also had not gone into the other aspects of the merits of the case. We remit this issue to the files of the Assessing Officer. He shall examine the merits of the assesseee’s claim of exemption u/s 10B. We make it clear that we have already adjudicated the issue regarding delay in filing of return of income in assessee’s favour in the forgoing paragraphs, the same shall not again form part of adjudication by the Assessing Officer. Issues Involved:1. Eligibility for statutory deduction under Section 10B of the Income Tax Act.2. Interpretation of the proviso to Section 10B(1) regarding the due date for filing returns.3. Validity of the return filed after the due date.4. Genuine hardship and the role of Section 119(2)(b).Issue-wise Detailed Analysis:1. Eligibility for Statutory Deduction under Section 10B:The primary issue was whether the assessee was eligible for a deduction under Section 10B despite filing the return after the due date specified under Section 139(1). The Assessing Officer (AO) disallowed the deduction of Rs. 2,06,36,797 on the grounds that the return was filed late, as per the proviso to Section 10B(1) inserted by the Finance Act, 2006, effective from AY 2006-07.2. Interpretation of the Proviso to Section 10B(1):The AO referred to the proviso, which states that no deduction under Section 10B shall be allowed if the return is not furnished on or before the due date specified under Section 139(1). The due date in this case was 30-11-2006, but the return was filed on 18-1-2007. The AO thus concluded that the deduction was not allowable.3. Validity of the Return Filed After the Due Date:Before the Commissioner of Income-tax (Appeals), the assessee argued that the return was valid and the assessment was completed based on it. They contended that the word 'shall' in the proviso was not absolute and that genuine reasons for delay should be considered. The Commissioner of Income-tax (Appeals) accepted this argument, noting that the delay was due to technical issues with the new E-filing system and financial problems that delayed tax payment. The Commissioner held that the conditions were directory, not mandatory, and directed the AO to allow the deduction.4. Genuine Hardship and the Role of Section 119(2)(b):The Departmental Representative argued that the remedy for the assessee lay in applying to the CBDT under Section 119(2)(b) for relief due to genuine hardship. However, the Tribunal found that the provision in Section 10B(1) was directory and not mandatory, citing precedents where similar provisions were interpreted as directory. The Tribunal noted that the delay was marginal (1.5 months) and due to genuine reasons, and the return was ultimately accepted as valid.Conclusion and Remand:The Tribunal concluded that the rejection of the assessee's claim under Section 10B(1) was not justified due to the genuine hardship faced and the directory nature of the proviso. However, since the merits of the case were not fully examined by the AO or the Commissioner of Income-tax (Appeals), the Tribunal remitted the issue back to the AO to examine the merits of the claim for exemption under Section 10B, ensuring the delay in filing the return would not be reconsidered. The appeal by the revenue was allowed for statistical purposes.