2025 (10) TMI 849 - AT - Income Tax

Revised return filed within due date electing section 115BAA valid; no MAT credit; allowed set-off of non-specified losses.

ITAT HYDERABAD upheld the CIT(A): a revised return filed within the due date electing the concessional regime under section 115BAA is valid and does not ... Concessional tax regime u/s 115BAA - AO rejected the revised claim on the ground that once the assessee filed the original return under MAT, subsequent exercise of section 115BAA option through a revised return amounts to 'withdrawal' prohibited by CBDT Circular No. 29/2019 - AO further disallowed the set-off of brought-forward business losses and capital losses holding that section 115BAA(2) read with Circular No.29/2019 bars such set-off - HELD THAT:- There is no dispute on the fact that the assessee filed a revised return within the due date, exercising the option u/s 115BAA of the Act for the first time. In our considered view, a revised return substitutes the original return and assumes the character of a return under section 139(1) We find that the Ld. CIT(A) has extracted FAQ no.3 of CBDT's own clarification at para no.6.2.5 of its order which permits exercise of the 115BAA option in a revised return. Therefore, the interpretation of the AO that such filing constitutes a withdrawal of earlier option is legally untenable. We also hold that once the concessional tax regime is allowed to the assessee for A.Y. 2021-22, the assessee would not be eligible to claim any MAT credit in the A.Y. 2021-22. Accordingly, we uphold the findings of the CIT(A) on this issue subject to verification of claim of MAT credit Accordingly, we direct the Ld. AO to verify the MAT credit, which the assessee is not eligible for A.Y. 2021-22. CIT(A) has extracted the provisions contained in section 115BAA of the Act. Further, on perusal of section 115BAA(2) of the Act, we find that section 115BAA(2) of the Act specifically prohibits set-off of losses attributable to certain deductions such as section 10AA, 32(1)(iia), 32AD, 35, 35CCC, 35CCD, and unabsorbed depreciation relatable thereto. We also find that the CIT(A) after verifying the revised return and supporting schedules has categorically given a factual finding that, the assessee's brought-forward business loss and capital loss are not of such nature, which has been prohibited u/s 115BAA(2) - Hence, we hold that the assessee is entitled to set-off of these losses. Accordingly, we uphold the findings of the Ld. CIT(A) on this issue. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether a company may validly exercise the option under section 115BAA by filing a revised return under section 139(5) within the due date where the original return, filed earlier, was computed under MAT (section 115JB)? 2. Whether the option so exercised in a revised return constitutes an impermissible 'withdrawal' of a previously exercised option where the original return reflected MAT treatment and a claim for MAT credit? 3. Whether a company that validly opts for taxation under section 115BAA in the relevant year can claim MAT credit for that year? 4. Whether brought-forward business losses and brought-forward capital losses (and unabsorbed depreciation) not attributable to the specific deductions listed in section 115BAA(2) are barred from set-off after opting for section 115BAA, having regard to section 115BAA(2) and CBDT Circular No.29/2019? 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of exercising option under section 115BAA via revised return Legal framework: Section 115BAA(1)-(3) permits a domestic company, subject to conditions in subsection (2), to elect taxation at a concessional rate; subsection (2)(e) requires exercise of the option before the due date of furnishing return; Circular No.29/2019 records that 'the option, once exercised, cannot be subsequently withdrawn'. Section 139(5) permits filing a revised return; established principle (as applied by the Tribunal) is that a return under section 139(5) substitutes the original return and is deemed to have been filed under section 139(1). Precedent treatment: The Tribunal relied on departmental FAQs uploaded on the income-tax portal (FAQ on ITR-6, Question No.3) which states that a revised return may be filed opting for the new tax regime if form 10IB/10IC/10ID is filed within the due date. No external case law was invoked in the text; the Tribunal treated statutory text, Circular No.29/2019 and departmental FAQs as determinative. Interpretation and reasoning: The Tribunal read section 139(5) as effecting substitution of the original return such that an option under section 115BAA first made in a revised return (filed within the due date and accompanied by requisite form) is a valid exercise of the option. The Tribunal construed the 'cannot be subsequently withdrawn' language of the Circular as referring to situations where an option has in fact been exercised earlier; where no prior exercise of section 115BAA occurred, there is nothing to withdraw. The departmental FAQ corroborates that a taxpayer may first exercise section 115BAA in a revised return. Ratio vs. Obiter: Ratio - a revised return filed within the due date and accompanied by the required form can validly constitute the first exercise of the option under section 115BAA; mere prior filing of an original return under MAT does not amount to an exercise of the 115BAA option that can be withdrawn. Obiter - observations on the broader interplay of Circular No.29/2019 and other administrative materials beyond the facts before the Tribunal. Conclusion: The Tribunal held that the company validly exercised the option under section 115BAA by filing a revised return within the due date and that the earlier original return under MAT does not constitute an exercisable option under 115BAA which could be 'withdrawn'. The Tribunal upheld the CIT(A)'s finding that the option was validly exercised subject to verification of claimed MAT credit. Issue 2 - Entitlement to MAT credit once section 115BAA is validly opted Legal framework: Section 115JB (MAT) and related provisions govern MAT liability and MAT credit carryforward; section 115BAA excludes applicability of section 115JB to persons who have exercised the option under section 115BAA. Circular No.29/2019 clarifies aspects of interplay between the new regime and MAT. Precedent treatment: The Tribunal followed the statutory exclusion of section 115JB upon valid exercise of section 115BAA and the reasoning of the CIT(A) that once the concessional regime applies for the year, MAT provisions do not apply to that year. Interpretation and reasoning: Because the Tribunal accepted that the option was first exercised in the revised return, section 115JB will not apply for the assessment year in question. Consequently, MAT credit claimed for that same assessment year is not available. The Tribunal directed verification of the MAT credit claim to confirm ineligibility for that year. Ratio vs. Obiter: Ratio - where a taxpayer validly opts for section 115BAA for an assessment year, MAT (section 115JB) does not apply for that year and the taxpayer cannot claim MAT credit in respect of that year. Obiter - procedural instructions concerning verification steps by the Assessing Officer. Conclusion: The Tribunal held that the assessee, having validly opted for 115BAA for the year, is not eligible to claim MAT credit for that assessment year and directed the Assessing Officer to verify the MAT credit claim accordingly. Issue 3 - Set-off of brought-forward business losses and capital losses after opting for section 115BAA Legal framework: Section 115BAA(2)(i)-(iii) prescribes that total income shall be computed without specified deductions (listed) and without set-off of losses or depreciation to the extent attributable to those deductions; clause (3) deems such losses/depreciation to have been given full effect to. Circular No.29/2019 clarifies allowability of brought-forward losses in relation to additional depreciation and MAT credit issues. Precedent treatment: The Tribunal relied on a textual reading of section 115BAA(2) and the circular, and on the factual findings of the CIT(A) regarding the nature of the brought-forward losses and the absence of claims under the listed deductions (e.g., section 32(1)(iia), 32AD, section 35 variants, and Chapter VI-A other than specified provisions). Interpretation and reasoning: The Tribunal (following CIT(A)) construed section 115BAA(2) as creating a negative list: only losses or unabsorbed depreciation attributable to the specific deductions enumerated in sub-section (2)(i) (and additional depreciation) are barred from set-off. Losses that are not attributable to those specified deductions remain available for set-off. On the facts, the brought-forward business loss and the brought-forward capital loss were regular in nature and not attributable to the non-allowable deductions; no additional depreciation or specified deductions had been claimed that would bring those losses within the prohibition. The Assessing Officer's broader application of Circular No.29/2019 to disallow ordinary brought-forward losses was held to be a misconstruction. Ratio vs. Obiter: Ratio - section 115BAA(2) disallows set-off only for losses and depreciation attributable to the specific deductions listed; ordinary brought-forward business and capital losses not attributable to those items remain eligible for set-off under the 115BAA regime. Obiter - commentary on the scope of Circular No.29/2019 beyond the facts. Conclusion: The Tribunal upheld the CIT(A)'s finding that the assessee was entitled to set-off the particular brought-forward business and capital losses because those losses were not attributable to the deductions/depreciation excluded by section 115BAA(2); the Assessing Officer's disallowance was set aside. Interrelationship and final disposition Cross-reference: The conclusions on Issues 1 and 3 are interrelated - a valid exercise of section 115BAA affects both applicability of MAT (Issue 2) and the operation of the negative list in section 115BAA(2) (Issue 3). The Tribunal found for the taxpayer on the validity of the 115BAA election (Issue 1) and on the allowability of the specific brought-forward losses (Issue 3), and held that MAT credit for the same year is not available once 115BAA is validly exercised (Issue 2). Overall conclusion: The appeal by Revenue was dismissed; the option under section 115BAA exercised in a revised return filed within the due date is valid; MAT credit is not available for the assessment year once 115BAA is validly opted; and brought-forward losses not attributable to deductions specified in section 115BAA(2) remain eligible for set-off.