2025 (5) TMI 1494 - AT - Income Tax

Start-up loses section 80IAC deduction for failing to file mandatory Form 10CCB within prescribed time

The ITAT Delhi upheld CIT(A)'s decision denying deduction under section 80IAC for failure to file Form 10CCB within the prescribed time. The tribunal held ... Denial of deduction u/s. 80IAC - Form 10CCB is not filed or not filed within the due date - HELD THAT:- It is incorrect to say that the Form No. 10CCB does not require to furnish as per section 80IAC as prescribed under Rule 18BBB of the Income Tax Rules, 1962. Ld. CIT(A) is correct in holding that from the above provisions, it is seen by virtue of provision of sub-section (4) of Section 80IAC, the provisions of sub-section (7) of section 80IA have been made applicable to the start-ups for claiming deduction under section 80IAC of the Act although the word start-ups has not been used in said sub-section. Rule 18BBB of the Rules prescribing the Form 10CCB has also become applicable to the start-ups and then for a claim u/s. 80IAC it is essential report in Form 10CCB is duly furnished. CIT(A) has passed a reasonable order - ground raised by the assessee stands rejected. The core legal questions considered in this judgment revolve around the eligibility and procedural compliance for claiming deduction under section 80IAC of the Income-tax Act, specifically:Whether the assessee is required to furnish an audit report in Form No. 10CCB to claim deduction under section 80IAC of the Act;The applicability of the provisions of section 80IA, particularly sub-section (7), to start-ups claiming deduction under section 80IAC;The legal validity of disallowing the deduction claimed under section 80IAC on the ground of non-filing or late filing of Form 10CCB;The interpretation of the statutory provisions and rules governing the audit report requirement and its procedural timeline;The relevance and applicability of precedents cited by the assessee regarding the timing and necessity of filing Form 10CCB.Issue-wise Detailed Analysis1. Requirement of Filing Form No. 10CCB for Claiming Deduction under Section 80IACThe legal framework central to this issue is section 80IAC of the Income-tax Act, which provides deduction for profits and gains derived from eligible start-ups. Sub-section (4) of section 80IAC explicitly incorporates the provisions of sub-section (5) and sub-sections (7) to (11) of section 80IA to start-ups for the purpose of claiming deductions under sub-section (1) of section 80IAC. Section 80IA(7) mandates that the deduction is admissible only if the accounts of the undertaking have been audited by an accountant within the prescribed time and the audit report is furnished in the prescribed form.The prescribed form under Rule 18BBB of the Income-tax Rules, 1962, is Form No. 10CCB. The Court emphasized that although section 80IAC does not explicitly mention the requirement of filing Form 10CCB, the cross-reference to section 80IA(7) imports this requirement to start-ups claiming deduction under section 80IAC. Therefore, the furnishing of Form 10CCB is mandatory.The Court rejected the assessee's contention that Form 10CCB is not mandated under section 80IAC and that the form itself does not mention section 80IAC. It held that the statutory provisions must be read conjunctively, and the absence of explicit mention in the form does not exempt the assessee from compliance.2. Validity of Disallowance of Deduction on Ground of Non-filing of Form 10CCBThe CPC, Bangalore, disallowed the deduction claimed under section 80IAC by making adjustments under section 143(1)(a)(ii) of the Act on the ground that Form 10CCB was not filed or not filed within the due date. The CIT(A) upheld this disallowance, reasoning that the audit report is crucial for verifying the fulfillment of the conditions prescribed under section 80IA, which are applicable to section 80IAC claims.The Court noted that the processing of returns under section 143(1) is a technology-driven, automated process that relies on the entries and documents furnished by the assessee. The absence of Form 10CCB prevents the system from ascertaining compliance with necessary conditions, justifying the adjustment.It was further observed that the assessee did not produce any evidence to demonstrate that the online facility prevented filing of Form 10CCB or that the form was furnished subsequently before assessment completion. The Court distinguished precedents relied upon by the assessee where Form 10CCB was filed belatedly but before assessment completion, which is not the case here.3. Interpretation of Procedural Timelines and Conditions under Sections 80IAC and 80IASection 80IA(7) requires the audit to be completed and the report furnished before the specified date referred to in section 44AB, which is one month prior to the due date for filing the return under section 139(1). The Court reiterated that this timeline is mandatory and non-compliance results in forfeiture of deduction entitlement.The Court dismissed the argument that the absence of a dedicated column in Form 10CCB for section 80IAC deduction exempts the assessee from filing the form. It emphasized that the form must be filled to the extent applicable and submitted online as per statutory mandate.4. Treatment of Competing Arguments and PrecedentsThe assessee argued that section 80IAC does not explicitly require filing Form 10CCB and relied on precedents where delayed filing of the form was accepted. The Court rejected these arguments, holding that the provisions of section 80IAC must be read with section 80IA, which explicitly mandates the audit report. The precedents were distinguished on facts, as in those cases Form 10CCB was eventually filed before assessment, unlike in the present matter.5. Application of Law to Facts and Final ConclusionsGiven the undisputed fact that Form 10CCB was not filed at all by the assessee, the Court found the disallowance of the deduction under section 80IAC to be legally sound and procedurally justified. The failure to furnish the audit report within the prescribed timeline disentitles the assessee from claiming the deduction.Significant Holdings'The provisions of sub-section (4) of section 80IAC provide that the provisions of sub-section (5) and sub-sections (7) to (11) of section 80IA shall apply to the start-ups for the purpose of allowing deductions under sub-section (1).''The deduction under sub-section (1) from profits and gains derived from an undertaking shall not be admissible unless the accounts of the undertaking for the previous year relevant to the assessment for which the deduction is claimed have been audited by an accountant... and the assessee furnishes by that date the report of such audit in the prescribed form duly signed and verified by such accountant.''The form for the audit report required to be furnished as per section 80IA(7) has been prescribed under Rule 18BBB of the Rules which is Form No. 10CCB.''It is incorrect to say that the furnishing of Form 10CCB has not been prescribed under section 80IAC read with section 80IA of the Act and Rule 18BBB of the Rules.''The adjustments made at the time of processing of return are prima-facie adjustments required to be made on the face of the return... the filing of audit report within specified time frame is mandatory to avoid any such adjustment.''The case laws relied upon by the appellant are distinguishable as the facts of those cases are different from the facts of the present case.''In view of the discussion above, the disallowance of deduction of Rs. 20,27,56,020/- claimed under section 80IAC for the failure of the appellant to furnish the Form No. 10CCB is hereby confirmed.'The Court affirmed the order of the CIT(A) and dismissed the appeal, confirming that the failure to furnish the audit report in Form 10CCB within the prescribed time frame disentitles the assessee from claiming deduction under section 80IAC. The ruling establishes that the procedural compliance under section 80IA(7) and Rule 18BBB is mandatory for start-ups claiming deduction under section 80IAC, and non-compliance results in automatic disallowance at the return processing stage.