Late filing of Form 10-IE under section 115BAC doesn't invalidate tax regime option exercise

ITAT Ahmedabad ruled in favor of the assessee regarding denial of tax option under section 115BAC. The assessee had opted for the new tax regime and filed Form 10-IE in the preceding year, though belatedly. The court held that late filing of Form 10-IE does not invalidate the option exercise, as the mandate is directory, not mandatory. Since the assessee validly exercised the option previously, no fresh Form 10-IE was required for subsequent years. The tribunal also condoned a 71-day delay in appeal filing due to counsel's preoccupation.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal were:

(a) Whether the appeals filed by the assessees were maintainable despite alleged defects of short payment of filing fees and delay in filing beyond the prescribed limitation period;

(b) Whether the assessees were entitled to opt for the new tax regime under section 115BAC of the Income Tax Act, 1961 ("the Act") for the Assessment Year 2023-24, despite the Assessing Officer and CPC denying such option and computing tax liability under the old regime;

(c) Whether the failure to file Form No. 10-IE in the impugned year disentitled the assessees from claiming the benefit of the new tax regime under section 115BAC;

(d) The interpretation and application of the provisions of section 115BAC, particularly sub-sections (2) and (5), in relation to exercise and validity of the option to pay tax under the new regime.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Maintainability of Appeals Despite Alleged Defects

Legal Framework and Precedents: Section 253(6) of the Income Tax Act prescribes the fee payable on filing appeals to the Appellate Tribunal, with different slabs based on the quantum of income assessed or the subject matter of appeal. Additionally, the limitation period for filing appeals is governed by the relevant procedural provisions.

Court's Interpretation and Reasoning: The Registry had noted two defects: short payment of filing fees by Rs. 9,500/- and delay of 71 days in filing the appeals. The assessees contended that the appeals fell under clause (d) of section 253(6), requiring a fee of Rs. 500, which was duly paid. The short payment allegation arose from the AO computing tax under the old regime (higher tax), whereas the assessees had opted for the new regime with lower tax liability. The Tribunal accepted the assessees' argument that the fee should be based on the income assessed as per the new regime option, thus treating the short payment defect as no defect.

Regarding delay, the assessees filed an application for condonation of delay, supported by an affidavit explaining that the delay was due to counsel's preoccupation with other professional matters. The Tribunal found this to be a sufficient cause and condoned the delay of 71 days.

Application of Law to Facts: The Tribunal applied the literal provisions of section 253(6) and procedural fairness principles in condoning delay, recognizing the short payment issue as non-substantive.

Conclusion: The appeals were held maintainable, and defects were waived.

Issue (b) and (c): Entitlement to Opt for New Tax Regime under Section 115BAC Despite Non-Filing of Form No. 10-IE in Impugned Year

Legal Framework and Relevant Provisions: Section 115BAC provides an option for individuals and Hindu Undivided Families (HUFs) to pay income tax at concessional rates without claiming specified exemptions or deductions. Sub-section (1) prescribes the tax rates; sub-section (2) mandates computation of income without certain exemptions, deductions, losses, or depreciation; sub-section (5) requires the option to be exercised in the prescribed manner, which includes filing Form No. 10-IE by the due date for furnishing the return of income.

Court's Interpretation and Reasoning: The Assessing Officer and Commissioner of Income Tax (Appeals) rejected the assessees' claim to pay tax under the new regime on the grounds that in the preceding year, though Form No. 10-IE was filed, it was not accepted due to late filing, and in the impugned year, no Form No. 10-IE was filed at all. The Revenue contended that since the option was not validly exercised in the preceding year, the assessees were required to file Form No. 10-IE afresh in the impugned year to claim the benefit.

The Tribunal analyzed the statutory language and noted that the first proviso to section 115BAC(1) clearly states that the option shall be invalid only if the conditions in sub-section (2) are not satisfied - that is, if the income is not computed without claiming specified exemptions, deductions, losses, or depreciation. The requirement to file Form No. 10-IE as per sub-section (5) is procedural and directory, not a condition that invalidates the option if not complied with.

The Tribunal emphasized that the assessees had filed Form No. 10-IE in the preceding year when they first exercised the option. Although the form was not accepted due to late filing, the option itself was not invalidated under sub-section (2). Therefore, the assessees were not required to file Form No. 10-IE again in the impugned year. The denial of the option on the ground of non-filing of Form No. 10-IE in the impugned year was held to be contrary to the law.

Key Evidence and Findings: The record showed that Form No. 10-IE was filed in the preceding year but not accepted due to delay; no Form No. 10-IE was filed in the impugned year. The assessees had income from business or profession, making sub-section (5)(i) applicable.

Application of Law to Facts: The Tribunal applied a purposive and literal interpretation of section 115BAC, distinguishing between substantive conditions that invalidate the option (sub-section (2)) and procedural requirements (sub-section (5)). The failure to file Form No. 10-IE timely in the preceding year did not invalidate the option under sub-section (2), and thus no fresh filing was necessary in the impugned year.

Treatment of Competing Arguments: The Revenue's argument that non-filing of Form No. 10-IE in the impugned year disentitles the assessee was rejected as the statutory provision does not treat such failure as invalidating the option. The Tribunal held that the procedural lapse cannot override the substantive right to opt for the new regime if conditions under sub-section (2) are met.

Conclusion: The assessees' option to pay tax under the new regime for the impugned year was valid and ought to be allowed.

3. SIGNIFICANT HOLDINGS

The Tribunal succinctly articulated the principle governing the validity of the option under section 115BAC:

"As is evident from the literal reading of the section itself, the assessee's option is treated as invalid only if it does not fulfil the conditions prescribed under sub-section (2) of section 115BAC of the Act, which is of computing its income without claiming any exemption, deduction, loss or depreciation specified in sub-section (2). The failure to file Form No.10-IE within the prescribed due date as per sub-section (5) does not invalidate the assessee's claim of the option. The mandate of filing the Form No. 10-IE is only directory. What invalidates the exercise of option has been clearly mentioned in the first proviso to section 115BAC of the Act."

Further, the Tribunal held:

"In the light of the same, and in view of the fact that the assessee had filed Form No. 10-IE in the preceding year, when it exercised its option of paying taxes under the new regime for the first time, the denial of exercise of this option in the impugned year for failure to file Form No. 10-IE, we hold, is not accordance with law."

Core principles established include:

• The substantive conditions under sub-section (2) of section 115BAC govern the validity of the option, not the procedural filing of Form No. 10-IE.
• The requirement to file Form No. 10-IE is directory and does not invalidate an option if not complied with timely.
• An option once validly exercised in a preceding year continues to be valid for subsequent years unless invalidated under sub-section (2).
• Procedural lapses by counsel or late filing do not automatically disentitle the assessee from claiming the benefit of the new tax regime.

Final determinations on each issue were:

(a) The appeals were maintainable; defects of short payment of fees and delay were waived/condoned;

(b) The assessees were entitled to pay tax under the new regime for the impugned year despite non-filing of Form No. 10-IE in that year, as the option was validly exercised earlier and not invalidated under sub-section (2);

(c) The Assessing Officer and CIT(A) orders denying the option were set aside, and the matter remanded with direction to allow the assessees to pay tax under section 115BAC.

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