Once Form 10IC Filed, s.115BAA Option Continues for Later Years; s.143(1) Addition Removed via s.154

ITAT held that once the assessee validly exercises the option under s.115BAA by filing Form 10IC in the initial assessment year, that option continues for subsequent years and need not be re-exercised annually, unless conditions in s.115BAA(2) are violated. Form 10IC filed belatedly for AY 2020-21 was held valid and applicable for AY 2021-22 and later years, as it was on record before the due date for AY 2021-22. Accordingly, denial of concessional tax rate in the s.143(1) intimation was set aside. Further, CPC's adhoc addition under s.143(1) was held without jurisdiction and directed to be deleted by rectification under s.154.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the assessee, having exercised option under section 115BAA by filing Form No. 10-IC for an earlier assessment year, is entitled to the concessional tax rate under section 115BAA for subsequent assessment years even when the form for the initial year was filed belatedly and the subsequent returns were filed as updated returns under section 139(8A).

1.2 Whether Form No. 10-IC, once validly filed in the first year of exercise of option under section 115BAA, is required to be filed again for each subsequent assessment year.

1.3 Whether the Centralised Processing Centre, while issuing intimation under section 143(1), has jurisdiction to make an ad hoc addition not falling within the permissible scope of adjustments under section 143(1), and whether such addition constitutes a mistake apparent from the record rectifiable under section 154.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2 - Entitlement to concessional tax rate under section 115BAA for AYs 2021-22 and 2022-23 and requirement of refiling Form No. 10-IC

(a) Legal framework discussed

2.1 The Court examined section 115BAA(5) of the Act, which provides that nothing contained in section 115BAA shall apply unless the option is exercised by the person in the prescribed manner on or before the due date specified under section 139(1) for furnishing the return of income for any previous year relevant to any assessment year commencing on or after 1 April 2020, and that such option, once exercised, shall apply to subsequent assessment years and cannot be withdrawn for the same or any other previous year.

2.2 The Court also considered Rule 21AE of the Income-tax Rules, 1962, which mandates that the option under section 115BAA(5) shall be exercised in Form No. 10-IC, furnished electronically, on or before the due date specified under section 139(1) for furnishing the return for the assessment year relevant to the previous year in which the option is exercised.

2.3 The Court referred to CBDT FAQs stating that once the taxpayer has opted for concessional tax rate under section 115BAA, the option applies to subsequent assessment years and cannot be withdrawn, and to CBDT instructions for filing ITR-6 clarifying that Form No. 10-IC is required to be filed only in the first year in which the assessee wishes to avail the concessional rate under section 115BAA.

(b) Interpretation and reasoning

2.4 It was undisputed that the assessee, being a domestic company, filed Form No. 10-IC for AY 2020-21 on 01.04.2021 and thereby exercised the option under section 115BAA(5), though the form was filed beyond the due date prescribed under section 139(1) for AY 2020-21. It was also undisputed that there was no allegation of violation of conditions contained in section 115BAA(2).

2.5 For AY 2021-22, the assessee opted for taxation under section 115BAA in its updated return filed under section 139(8A), and for AY 2022-23, the assessee similarly claimed the benefit of section 115BAA. The dispute centred on (i) the belated filing of Form No. 10-IC for AY 2020-21, (ii) the filing of updated returns for subsequent years, and (iii) the alleged requirement to file Form No. 10-IC separately for each assessment year.

2.6 On a conjoint reading of section 115BAA(5), Rule 21AE and Form No. 10-IC, the Court held that the law contemplates a single act of exercise of option in the prescribed form and manner, which, once exercised, automatically applies to subsequent assessment years. The statutory language that "such option once exercised shall apply to subsequent assessment years" and "once the option has been exercised for any previous year, it cannot be subsequently withdrawn for the same or any other previous year" was treated as determinative.

2.7 The Court reasoned that there is no statutory provision declaring that Form No. 10-IC, once filed belatedly for the first year, becomes invalid for subsequent assessment years. Equally, there is no requirement in the Act or Rules that a fresh Form No. 10-IC must be filed for each subsequent year. The focus of section 115BAA(5) is on the timing and manner of exercising the option for the year in which it is first exercised, not on repeated filings thereafter.

2.8 The Court also considered that the assessee's Form No. 10-IC was filed on 01.04.2021, which was prior to the due date under section 139(1) for filing the return of income for AY 2021-22, and likewise prior to the due date applicable for AY 2022-23. Therefore, even if the form was belated for AY 2020-21, it was on record before the due dates relevant to AYs 2021-22 and 2022-23, and the option had already been exercised.

2.9 Relying additionally on CBDT FAQs and the ITR-6 instructions, the Court noted that the administrative understanding of the provision aligns with the interpretation that Form No. 10-IC is required only in the first year of opting and that the option then continues, unless there is non-compliance with section 115BAA(2). This reinforced the view that there is no legal requirement to file Form No. 10-IC for each subsequent assessment year.

2.10 The Court found that there was no allegation or material suggesting any violation of the conditions in section 115BAA(2) for AYs 2021-22 or 2022-23. Accordingly, there was no basis to deny the continued applicability of the option.

(c) Conclusions

2.11 The Court held that Form No. 10-IC filed by the assessee on 01.04.2021 for AY 2020-21 is valid for AY 2021-22 as well as subsequent assessment years, including AY 2022-23, notwithstanding that it was belated for AY 2020-21.

2.12 It was concluded that once the option under section 115BAA was exercised through Form No. 10-IC, there was no requirement in law to file another Form No. 10-IC for AY 2021-22, AY 2022-23 or any subsequent year, in the absence of any violation of section 115BAA(2).

2.13 The Court held that the option under section 115BAA, as exercised by the assessee, applied perpetually to subsequent assessment years and could not be withdrawn for the same or any other previous year.

2.14 Consequently, the denial of the concessional tax rate under section 115BAA by CPC and its sustenance by the appellate authority for AYs 2021-22 and 2022-23 were held to be unsustainable, and the assessee was held entitled to the benefit of section 115BAA for both years.

Issue 3 - Validity of ad hoc addition in intimation under section 143(1) and rectification under section 154 (AY 2022-23)

(a) Interpretation and reasoning

2.15 The Court noted that, in the intimation under section 143(1) for AY 2022-23, CPC had made an ad hoc addition of Rs. 17,59,550, and that the assessee had filed an application under section 154 seeking rectification.

2.16 The Court observed that section 143(1) contemplates only specified, limited adjustments while processing a return, and that CPC is not vested with jurisdiction to make arbitrary or ad hoc additions beyond the scope of permissible adjustments under that provision.

2.17 The Court held that the ad hoc addition made by CPC in the intimation under section 143(1) did not fall within the statutory scope of such adjustments, and therefore the addition was without jurisdiction.

2.18 On that basis, the Court treated the impugned addition as a "mistake apparent from the record" within the meaning of section 154, as the lack of jurisdiction and the nature of the addition were evident from the face of the intimation itself.

(b) Conclusions

2.19 The Court held that CPC had no jurisdiction to make the impugned ad hoc addition of Rs. 17,59,550 while issuing the intimation under section 143(1), and that such addition constituted a clear mistake apparent on the face of the record.

2.20 The Assessing Officer was directed to pass an order under section 154 for AY 2022-23, as sought by the assessee, deleting the ad hoc addition of Rs. 17,59,550 made by CPC.

2.21 The appeal for AY 2021-22 was allowed in full on the issue of section 115BAA, and the appeal for AY 2022-23 was partly allowed, granting relief on both the section 115BAA issue (by applying the earlier reasoning mutatis mutandis) and the deletion of the ad hoc addition under section 143(1) via rectification under section 154.

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