2024 (5) TMI 23 - AT - Income Tax

Late Form 10-IE filing disqualifies assessee from new tax regime benefits under Section 115BAC

Jagdish Soni, Proprietor of Dhruv Jewels Versus ITO, Jaipur

The ITAT Jaipur held that an assessee who failed to file Form 10-IE within the stipulated time and filed the return after the due date cannot avail ... New scheme for Tax on income of individuals and Hindu undivided family u/s 115BAC - Assessee had not filed Form 10-IE for opting the new tax regime within the stipulated time - denial of benefit of new scheme as assessee has not filed the return of income within the time period allowed for filling the return of income - whether the other deduction as per the old scheme is allowable to the assessee or not? - standard deduction not allowed which is available under the old tax regime. HELD THAT:- As per provision of section 115BAC so as to understand the allowability of deduction on the return of income filed after the due date prescribed, in this case since, the assessee has not filed the return of income as per the due date prescribed, then as per the proviso given in the above section the assessee is not eligible to get the benefit of the new scheme. Thus, as per the proviso of the aforesaid section the option the option shall become invalid in respect of the assessment year relevant to that previous year under consideration and other provisions of this Act shall apply, as if the option had not been exercised for the assessment year relevant to that previous year. Since the assessee in this case though filed the return after the due date which was not processed under the new tax regime but the said return is required to be proceeds as per the old provision of the Act and after considering the provision of section 80AC - Since, the standard deduction, deduction u/s 80C and 80TTA is required to be tested as per the evidence that the assessee is supposed to produced. Since the assessee was not provided an opportunity of being heard before processing the return of income, we feel it in the interest of the natural justice that the assessee shall provide the details connected to the claim before the ld. AO on merits a fresh in the interest of equity and natural justice. Thus we hold to remand the matter back the matter to the file of the AO who will decide the issue based on evidence and submission of the assessee. Appeal filed by the assessee is allowed for statistical purposes. ISSUES PRESENTED AND CONSIDERED 1. Whether an assessee who files a return after the due date and fails to file Form 10-IE on or before the due date is entitled to the option under section 115BAC for the relevant assessment year. 2. Whether deductions available under the old tax regime (standard deduction, deduction under section 80C and deduction under section 80TTA) must be allowed in assessment proceedings where (a) the return was processed under old regime because the option under section 115BAC was treated as invalid, and (b) the assessee did not originally claim those deductions in the return and/or did not file a revised return. 3. Whether the Assessing Officer was required to afford the assessee an opportunity of being heard and to consider evidence in support of deductions under the old regime before finalizing intimation under section 143(1), and the appropriate remedy if such opportunity/evidence was not considered. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of option under section 115BAC where return and Form 10-IE are filed after the due date Legal framework: Section 115BAC provides that taxation of an individual/HUF at the new regime rates is 'at the option of such person' subject to conditions in subsection (2). The proviso states that if the person fails to satisfy conditions in subsection (2) in any previous year, 'the option shall become invalid in respect of the assessment year relevant to that previous year and other provisions of this Act shall apply, as if the option had not been exercised for the assessment year relevant to that previous year.' For assessees having business/profession income, Form 10-IE must be filed on or before the due date of filing the return to exercise the option. Precedent treatment: The appellate authority relied on established interpretation that the option under section 115BAC is subject to statutory conditions and procedural compliance, including timely filing of Form 10-IE; failure disentitles the assessee to the new regime. The decision below applied the statutory proviso literally. Interpretation and reasoning: The Tribunal restated the statutory scheme and the proviso. It held that where Form 10-IE and/or return are not filed on or before the prescribed due date, the proviso to section 115BAC operates to render the option invalid for that assessment year. The Tribunal accepted the conclusion that non-compliance with the time requirement meant the new regime could not be applied and the return must be processed under the old provisions. Ratio vs. Obiter: Ratio. The holding that timely filing of Form 10-IE/return is a precondition for exercising the option under section 115BAC, and that failure renders the option invalid under the statutory proviso, is essential to the decision. Conclusions: The option under section 115BAC was correctly treated as invalid because Form 10-IE and the return were not filed on or before the due date; therefore assessment must proceed under the normal provisions of the Act for that assessment year. Issue 2: Allowability of standard deduction, section 80C and section 80TTA deductions where such deductions were not claimed in the original return and the return was processed under the old regime Legal framework: Under normal provisions, specified deductions (standard deduction from salary, chapter VI-A including section 80C, and section 80TTA) are allowable subject to the claimant establishing entitlement in the return or by appropriate amendment/revision and producing evidentiary support. The law requires that a deduction claimed in assessment be supported by claim in return or in a revised return, subject to limitations on amendment/revision and relevant judicial precedents on scope of claims after intimation. Precedent treatment: The Commissioner (CIT(A)) relied on the Supreme Court authority that an assessee cannot claim deductions not claimed in the original return except by filing a revised return (Goetz (India) Ltd. principle as applied). That precedent was invoked to support dismissal of the claim where no revised return was filed. Interpretation and reasoning: The Tribunal acknowledged the CIT(A)'s reliance on precedent but observed that once the new-regime option was rejected and the return had to be processed under the old regime, the question of entitlement to deductions under the old regime required adjudication on merits supported by evidence. The Tribunal emphasized that the Assessing Officer had not afforded the assessee an opportunity to produce evidence before processing the return under section 143(1), and therefore the AO must examine the contention on merits after affording hearing. The Tribunal did not finally decide entitlement to the specific deductions; rather it directed rehearing and fresh consideration by the AO with opportunity to lead evidence and make submissions regarding standard deduction, 80C investments, and 80TTA deduction. Ratio vs. Obiter: Mixed. The statement that deductions must be tested on evidence and that an assessee who did not claim deductions in the return may need to file a revised return is in line with precedent (ratio at the CIT(A) level). However, the Tribunal's direction to remit for fresh adjudication to allow evidence and hearing constitutes the operative remedial direction (ratio of the Tribunal's disposition). Observations that the AO should examine evidence and not construe the rejection as reflecting on merits are procedural directions (ratio for remedy), not substantive findings on entitlement. Conclusions: The CIT(A)'s rejection of the deduction claims on the ground that they were not claimed in the return and that no revised return was filed was not accepted as final by the Tribunal. Instead, the Tribunal remanded the matter to the AO to decide the allowance or disallowance of standard deduction, section 80C and section 80TTA items on merits after giving the assessee a proper opportunity to produce evidence and be heard. The Tribunal did not prejudge entitlement. Issue 3: Duty to afford opportunity and appropriate remedy where intimation under section 143(1) was issued without considering claims/evidence Legal framework: Principles of natural justice and statutory adjudicatory process require that where facts/materials are contestable, an assessee be afforded an opportunity of hearing and to place on record evidence supporting claims before finalizing assessment/intimation. Section 143(1) intimations are based on processing of the return, but where processing results in rejection of an option or denial of deductions, procedural fairness requires opportunity to furnish supporting documentation if not previously considered. Precedent treatment: Lower authority had treated non-claim in return and lack of revised return as fatal; the Tribunal relied on procedural fairness and its power to remit for fresh consideration instead of affirming dismissal without hearing. Interpretation and reasoning: The Tribunal found that the AO had processed the return under the old regime and omitted to give the assessee an opportunity to substantiate deductions. Exercising principles of natural justice and in interest of equity, the Tribunal directed remand to the AO to re-examine the deduction claims on merits after affording adequate opportunity to the assessee to produce evidence. The Tribunal also cautioned against frivolous adjournments by the assessee. Ratio vs. Obiter: Ratio. The remedial direction to remit for fresh adjudication and to afford opportunity to produce evidence is a binding outcome of the Tribunal's decision in this appeal. Observations that the remand does not reflect on the merits are procedural clarifications (obiter as to merits), but the remand itself is dispositive. Conclusions: The appropriate remedy for the procedural deficiency was remand to the Assessing Officer to decide the deduction claims afresh after giving the assessee sufficient opportunity to present evidence and submissions. The Tribunal allowed the appeal for statistical purposes and directed reconsideration without expressing any view on the substantive merits. Cross-references and Interaction of Issues The invalidation of the option under section 115BAC (Issue 1) is causally linked to Issues 2 and 3: because the return had to be processed under the old regime, entitlement to standard deduction and chapter VI-A deductions became material and required adjudication. Rather than endorse the lower authority's dismissal solely on the ground that deductions were not claimed, the Tribunal prioritized procedural fairness (Issue 3) and remitted the matter for evidentiary consideration (Issue 2). The Tribunal thus treated the question of entitlement to deductions as a merits issue to be decided by the AO after affording hearing, while affirming that the statutory condition for 115BAC was not met.