Non filing of return of income under section 139(1) & validity of refusal of deduction under section 80-IC

Short Overview  As per section 80AC, which is very much clear and unambiguous in its expression, for claiming deduction under section 80-IB(10), it is a mandatory requirement that assessee must file its return of income within the due date prescribed under section 139(1). Therefore, provision contained under section 80AC has to be construed strictly. Otherwise, the very purpose of enacting the provision would be defeated and the provision would be rendered otiose. In the instant case, assessee had not followed the mandate laid down under section 80-IA, therefore, assessee was not entitled to claim deduction under section 80-IC.

Assessee claimed deduction under section 80-IC. AO denied assessee’s claim on the ground that assessee had not filed return of income under section 139(1). 

It is held that As per section 80AC which is very much clear and unambiguous in its expression, for claiming deduction under section 80-IB(10), it is a mandatory requirement that assessee must file its return of income within the due date prescribed under section 139(1), notwithstanding the fact whether or not the assessee had actually claimed deduction in the said return of income. Once return of income is filed within due date prescribed under section 139(1), even without claiming deduction under specified provisions, the assessee can claim it subsequently either in a revised return filed under section 139(5) or by filing a revised computation during the assessment proceeding. In that situation, the condition of section 80AC would stand complied with. The words used in section 80AC being plain and simple, leave no room for a different interpretation. Therefore, provision contained under section 80AC has to be construed strictly. Otherwise, the very purpose of enacting the provision would be defeated and the provision would be rendered otiose. In the instant case, assessee had not followed the mandate laid down under section 80-IA, therefore, assessee was not entitled to claim deduction under section 80-IC.

Followed: Uma Developers v. ITO [ITA No. 2164/Mum/2016 vide Order, dated 11-10-2019] : 2019 TaxPub(DT) 7045 (Mum-Trib) and Commr. of Cus. (Imports) v. Dilip Kumar and Company & Ors. (in Civil Appeal No. 3327 of 2007 vide Order, dated 30-7-2018) : 2018 TaxPub(EX) 737 (SC).

Decision: Against the assessee

 

IN THE ITAT, MUMBAI BENCH

SHAMIM YAHYA, A.M. & PAVAN KUMAR GADALE, J.M.

Right Tight Fastners (P) Ltd. v. ACIT

ITA No. 3101/Mum/2018

11 January, 2021

Appellant by: Devendra Jain

Respondent by: Sunil Deshpande

ORDER

Shamim Yahya, A.M.

This appeal by the assessee is directed against the order of the learned Commissioner (Appeals)-18, Mumbai (‘ld. CIT(A)’ for short) dated 28-2-2018 and pertains to the assessment year (A.Y.) 2012-13.

2. The grounds of appeal read as under :–

1. In the facts & circumstances of the case & in law, the learned Commissioner (Appeals), erred in ignoring the pending petition filed for condonation of delay with CBDT for not filing the return of income within the time prescribed under section 139(1) of the Act.

2. In the facts and circumstances of the case and in law the learned Commissioner (Appeals) has erred in confirming the disallowance made by the learned assessing officer in respect of deduction claimed by the appellant under section 80-IC of the Income Tax Act, 1961. The said disallowance being patently illegal, bad in law and devoid of merits the same may please be deleted and the claim made by the appellant may please be accepted.

3. It may please be held that since the appellant was prevented by reasonable cause from filing the return of income for the assessment year 2012-13 within the statutory time limit prescribed under section 139(1) of the Income Tax Act, 1961, the claim of deduction under section 80-IC as made by the appellant deserves to be accepted. Consequently the deduction under section 80-IC as claimed by the appellant in his return of income be allowed.

4. That the conclusion of the learned Commissioner (Appeals) that provisions of section 80AC are mandatory and not directory is erroneous and against judicial pronouncements of various benches of the tribunal, courts including the apex court.

5. In the facts and circumstances of the case and in law the learned Commissioner (Appeals) has erred in not construed the reasonable cause & genuine hardship in section 119(2)(b) of the Act liberally by not granting substantial justice because of a non deliberate delay.

3. Brief facts of the case are that the assessee company is engaged in the business of manufacturing and exporting all types of precision nuts, bolts, washers, hinges and industrial/domestic fasteners. The assessee company filed its return of income for assessment year 2012-13 on 8-1-2013 declaring total income of Rs. 8,97,84,238 under normal provisions. The assessment proceedings under section 143(3) of the Act were completed vide Order, dated 27-3-2015 were completed by making disallowance of Rs. 3,86,53,415 under section 80-IC of the Act and assessing income at Rs. 12,84,37,654.

4. In making the aforesaid disallowance, the assessing officer noted that the assessee has failed to furnish return of income as per the mandate of Act in section 30AC before the due date prescribed in section 139(1) of the Act. He referred to CBDT Circular also in this regard. His observations are as under :–

“Disallowance of deduction claimed under section 80-IC/IE of Rs. 3,86,53,415. In the computation of income, the assessee has claimed deduction under section 80-IC/IE of Rs. 3,86,53,415. Also, it was observed that the assessee has not filed its return of income before that due duty prescribed under section 139(1) of the Act. As per the provisions of section 80AC of the Act, the deductions under section 80-IB/80-IB/80-IAB/80-IC etc. cannot be allowed unless the assessee furnishes a return of his income on/or before filing of return under section 139(1). In this regard, the assessee was, during the course of the assessment proceedings, required to substantiate its claim of deduction, in view of the fact that, the return for the said assessment year was not filed before the due date as per section 139(1) of the Act. In response to the same, the assessee has, vide Letter, dated 17-3-2015 informed that a petition has been filed with The Member of Income Tax Central Board of Direct Tax, New Delhi vide Letter, dated 17-3-2015 for condonation of the delay. The assessee has failed to explain any factual causes that prevented the assessee to file return within the due date as per section 139(1) of the Income Tax Act, 1961.

The provisions of section 80AC of the Act are reproduced below :–

“80AC. Where in computing the total income of an assessee of the previous year relevant to the assessment year commencing on the 1-4-2006 or any relevant subsequent assessment year, any deduction is admissible under section 80-IA or section 80-IAB or section 80-IB or section 80-IC [or section 80-ID or section 80-IE], no such deduction shall be allowed to him unless he furnishes a return of his income for such assessment year on or before the due date specified under sub-section (1) of section 139.]”

The explanatory notes to the Circular No. 14/2006, dated 28-12-2006 expresses the intention of the section 80AC —

“Circular No. 14/2006, dated 28-12-2006.

Benefits of certain deductions not to be allowed in cases where return is not filed within the specified time limit.

Section 139(1) casts an obligation on every assesses to furnish the return of income by the due date. With a view to enforce the compliance this regard by the assessees who are entitled for deduction under section 10B from their income, a proviso (fourth proviso) to sub-section (1) of section 10B has been inserted so as to provide that no deduction under section 10B shall be allowed to an assessee who does not furnish a return of his income on or before the due date specified in sub-section (1) of section 139. Similarly. with a view to enforce the compliance for furnishing Deduction in respect of Profits and gains from Chapter-14 certain Industrial Undertakings — Sections 80-IB/80-IB 307 the return of income by the due date by the assessees who are entitled for deductions under section 80-IA or section 80-IAB or section 80- IB or section 80- IC from their income, a new section 80AC has been inserted so ax to provide that no deduction under section 80-IA or section 80-IAB or section 80-IB or section 80-IC shall be allowed to an assessee who does not furnish a return of his income on or before the due date specified in sub-section (1) of section 139.

This amendment takes effect retrospectively from 1-4-2006 and applies in relation to the assessment year 2006-07 and subsequent years.”

From above provisions and explanation explaining the provisions of Act, it is clear that there is no provision in the Income Tax Act to waive the condition imposed under section 80-IC. The legislative intention is clear and unambiguous. This provision was introduced with overriding provisions mentioned in all other sections. Being a specific provision relating to the filing of the return in specified cases, it will prevail over the general provisions. The above interpretation has been supported by the views of Judiciaries in following various cases.”

5. Thereafter, the assessing officer placed reliance upon several case laws including ITAT Special Bench decision in the case of M/s. Saffire Garments v. ITO (2013) 140 ITD 6 (Rkt-Trib) : 2013 TaxPub(DT) 0290 (Rkt-Trib).

6. Against the above order, the assessee appealed before the learned Commissioner (Appeals).

7. The learned Commissioner (Appeals) noted that the assessee has submitted a petition to the Central Board of Direct Taxes (CBDT), New Delhi requesting for condonation of delay in filing of the return for assessment year 2012-13. The petition has sought to mention the reasons for the delay and the hardship faced by the assessee and has requested the CBDT to favorably consider the case of the assessee. The assessing officer has not taken cognizance of the said petition.

8. Thereafter, considering in detail the provision of law and relying upon catena of case laws, he confirmed the assessing officer’s action. He concluded as under :–

5.17 In the light of the foregoing discussion, it is held that the appellant is not entitled for benefit of section 80-IC of the Income Tax Act, 1961 as it has not filed the return of income on or before the due date prescribed under section 139(1).

5.18 Without prejudice to the above, I have examined whether there is reasonable and sufficient cause for filing the return of income late. The reasons advanced for filing the return of income belatedly are that the assessee company has changed its software from ‘Datavision’ to ‘Infor’ and though data was fed reports were not getting generated; that Directors could not concentrate due to severe illness of the Director who happens to be mother of all other three Directors.

5.19 From the details furnished by the appellant it is seen that ‘Infor’ software was purchased on 24-2-2011. As per law, books of account are to be maintained on a day to day basis. If the Books of account arc ready by 31-3-2012, there should not be any difficulty for auditors to audit the books of account. After the end of financial year, assessee is given five months time to file the return of income. That is sufficient to audit the books and filing the return of income.

Further, new software was introduced in 2011 and appellant had sufficient time to check whether the new software is acceptable or not. Importantly, appellant is aware that return of income has to be filed by 30-9-2012. Not being able to fix an issue for more than an year cannot be said to be problem beyond the control of the appellant company. The appellant should have planned his business belter. Without prejudice to the above, it is observed that the last mail received from ‘Infor’ was dated 20-9-2012 wherein it was stated that Bank Book, Cash Book and Sales report issues have been resolved. Therefore, introduction of new software cannot be said to be reasonable cause for filing the return of income late. As regards, ill health of mother, it is seen that the Directors arc able to run business effectively despite the said ill health.

Filing of return of income is a small part of overall business. Moreover, Directors arc supported by accounts team and Chartered Accountants. Therefore, even this reason cannot be said to be reasonable cause for filing the return of income beyond the time prescribed

5.20 To sum:

(i) As/per section 80AC, benefit under section 80-IC is available only if the return of income is filed on or before the due date prescribed under section 139(1).

(ii) Assessee company has filed its return of income beyond the time prescribed under section 139(1).

(iii) Therefore, it is not entitled for benefit under section 80-IC.

(iv) This view is supported by CBDT Circular and catena of decisions discussed above.

(v) Without prejudice to the aforesaid view, it is observed that there was no reasonable cause for filing return of income beyond the time prescribed under section 139(1).

(vi) The arguments put forth by the appellant were found to be devoid of any merit.

5.21 In view of the reasons discussed above, disallowance of Rs. 3,86,53,415 is sustained.

9. Against the above order, the assessee is in appeal before us.

10. We have heard both the parties and perused the records. Learned counsel of the assessee placed reliance upon several case laws. He submitted that subsequent to the decision of ITAT in the case of Sapphire Garments (supra), the Hon’ble Andhra Pradesh High Court in the case of CIT v. S. Venkataiah (in ITA No. 114 of 2013 vide Order, dated 26-6-2013) has upheld the order of the tribunal that when assessee was held to be legally entitled to deduction under section 80-IC and his claim could not be disallowed merely because return was filed belatedly. Learned counsel of the assessee further submitted that following the above decision of Hon’ble Andhra Pradesh High Court and other several benches of the ITAT have decided this issue in favour of the assessee. Learned counsel of the assessee admitted that the decision of Hon’ble Calcutta High Court in the case of CIT v. Shelcon Properties (2015) 370 ITR 305 (Cal) : 2014 TaxPub(DT) 2204 (Cal-HC) and Hon’ble High Court of Uttarakhand in the case of Umesh Chandra Dalkoti v. ACIT (in ITA No. 07/2012) has denied the benefit of deduction where the return of income was filed belatedly. However, he referred to the Hon’ble Supreme Court decision in the case of Vegetable Products (1973) 88 ITR 192 (SC) : 1973 TaxPub(DT) 0421 (SC), the proposition that when two views are possible, the view favourable to the assessee should be adopted. He submitted that several benches of ITAT have followed this proposition stop. He further referred to case laws for the proposition that furnishing of return of income as per section 139(1) subject to the extended period provided under section 139(4).

11. Per contra, the learned departmental representative relied upon the orders of the authorities below. He submitted that as per the clear provisions of the act, as contained in section 80AC, the assessee cannot claim the deduction unless return is filed within the time of specified for filing the return under section 139(1). Hence, the learned departmental representative submitted that there is no ambiguity in this regard. He submitted that when the provisions of the Act are clear, there is no scope of any other interpretation. He submitted that assessee himself aware of this and hence, the assessee has filed application before the CBDT for condonation in this regard. There is no information that the CBDT has condoned the delay in filing the appeal.

12. We have carefully considered the submission and perused the records. In this case, we note that assessee is claiming exemption under section 80-IC for an amount of Rs. 3,86,53,415. The assessee has not filed return of income under section 139(1). As per the provisions of section 80AC it is mandatory for the assessee to file return of income under section 139(1) to be eligible to claim deduction under section 80-IA or 80-IB, or 80-IAB or 80-IC or 80-ID or 81-E. It is undisputed that assessee has not filed return of income under section 139 (1). Hence, as per the provisions of the act, the assessee is not entitled to claim the deduction. The assessee is also aware of this provision. Hence, the assessee has filed condonation application before the CBDT. There is no information about the CBDT condoning the same.

13. The learned counsel of the assessee has placed reliance upon the decision of Hon’ble Andhra Pradesh High Court in the case of S. Venkataiah (supra) for the proposition that though this issue has been decided against the assessee by the ITAT special bench in the case of Sapphire Garments (supra), on the basis of this Hon’ble High Court decision, the assessee deserves to succeed. Though as admitted by the learned counsel of the assessee, the Hon’ble High Court of Uttrakhand and Hon’ble High Court of Calcutta are against the assessee on the same subject.

14. In this regard, we note that the above decision of Hon’ble Andhra Pradesh High Court was much prior to the decision of constitutional bench of the Hon’ble Supreme Court in the case of Commissioner of Customs (Import) v. Dilip Kumar and Company & Ors. (in Civil Appeal No. 3327 of 2007 vide Order, dated 30-7-2018) : 2018 TaxPub(EX) 737 (SC).

15. In the said decision, the Hon’ble Supreme Court has expounded that in case of exemption provisions, the same should be construed in favour of revenue in case there is any ambiguity.

16. Now in the present case, though the provisions of the Act are clear, the iota of ambiguity resulting from the decision of Hon’ble Andhra Pradesh High Court no more survives in view of the clear exposition from the Hon’ble constitutional bench decision of the Hon’ble Supreme Court. Similar view was expressed by the ITAT in the case of Uma Developers v. ITO (in ITA No. 2164/Mum/2016 vide Order, dated 11-10-2019) : 2019 TaxPub(DT) 7045 (Mum-Trib). The ITAT has duly taken note of this decision and following the same has distinguished the various decision which claimed to be in favour of the assessee. We may refer to the decision of ITAT as under :–

8. We have considered rival submissions and perused material on record. We have also examined in detail the relevant case laws cited before us. The issue in dispute lies in a very narrow compass. To be precise, the issue for consideration is, whether the condition imposed under section 80AC of the Act is mandatory and if so, whether for non-fulfillment of condition of section 80AC of the Act the assessee would be ineligible to claim deduction under section 80-IB(10) of the Act. Before, we proceed to deal with the issue at hand, it is necessary to have a look at the provision contained under section 80AC of the Act (applicable to assessment year 2012-13), which reads as under :–

“80AC. Deduction not to be allowed unless return furnished.–Where in computing the total income of an assessee of the previous year relevant to the assessment year commencing on the 1-4-2006, or any subsequent assessment year, any deduction is admissible under section 80-IA or section 80-IAB or section 80-IB or section 80-IC or section 80-ID or section 80-IE, no such deduction shall be allowed to him unless he furnishes a return of his income for such assessment year on or before the due date specified under sub-section (1) of section 139.”

9. As per the aforesaid provision, no deduction under certain provisions, including section 80-IB of the Act, would be allowable to the assessee for any assessment year commencing on/or after first day of April 2006, unless, he furnishes return of income for such assessment Uma Developers year on/or before the due date specified under sub-section (1) of section 139 of the Act. Admittedly, in the facts of the present case, the assessee has not furnished its return of income for the impugned assessment year within the due date prescribed under section 139(1) of the Act. While the Departmental Authorities have rejected assessee’s claim of deduction under section 80-IB(10) of the Act due to non-fulfillment of the condition of section 80-IC of the Act, it is the claim of the assessee that the condition imposed under section 80AC of the Act is directory and not mandatory. Therefore, if the assessee files the return of income within the time permitted under sub-section (4) and (5) of section 139 of the Act, it will be eligible for deduction under section 80-IB(10) of the Act.

10. On a reading of section 80AC of the Act, the impression one gets is, the language used in the provision is plain and simple and leaves no room for any doubt or ambiguity. Therefore, in our view, the aforesaid provision has to be interpreted in the touchstone of the ratio laid down in the Constitution Bench decision of the Hon’ble Supreme Court in case of Dilip Kumar & Co. & Ors. (supra). The Hon’ble Supreme Court, after taking judicial note of a catena of decisions of the Hon’ble Supreme Court as well as different High Courts on the issue of interpretation of taxing statute, and more particularly, interpretation of charging and exemption provisions, have held that when the words in Uma Developers a statute are clear, plain and unambiguous and only one meaning can be inferred, the Courts are bound to give effect to the said meaning irrespective of consequences. If the words in the statute are plain and unambiguous, it becomes necessary to expound those words in their natural and ordinary sense. The words used declare the intention of the legislature. However, if the plain language results in absurdity, the Court is entitled to determine the meaning of the word in the context in which it is used keeping in view the legislative purpose. Further, if the plain construction leads to anomaly and absurdity, the Court having regard to hardship and consequence that flow from such a provision can even explain the true intention of the legislature. The Hon’ble Court observed, the ‘plain meaning’ suggests that when the language is plain and unambiguous, the Court has to read and understand the plain language as such and there is no scope for any interpretation. The Hon’ble Supreme Court went on to observe that strict interpretation of a statute certainly involves literal or plain meaning test. The other tools of interpretation, namely, contextual or purposive interpretation cannot be applied nor any resort to be made to look to other supporting material especially in taxation statute. The Hon’ble Court observed, it is well settled that in a taxation statute, there is no room for any intendment, that regard must be had to the clear meaning of the words and that the matter should be governed wholly by the language of the notification. Equity has no place in Uma Developers interpretation of a tax statute. Strictly, one has to look to the language used. There is no room for researching intendment or drawing any presumption. Furthermore, nothing has to be read into nor anything to be employed other than essential inferences while considering a taxation statute.

11. After deliberating upon the ratio laid down in various decisions, the Hon’ble Supreme Court observed, while interpreting the taxing statute, if there is any ambiguity with regard to the charging provisions the benefit must necessarily go in favour of subject/assessee, but, in case of any ambiguity in exemption notification, benefit of doubt must go in favour of the Revenue and such exemption should be allowed to be availed only to those subjects/assessees who demonstrate that a case for exemption squarely falls within the parameters enumerated in the notification and the person claiming the benefit of such notification must satisfy all the conditions precedent for availing exemption. The question whether a particular subject falls within the exemption clause has to be strictly construed. Once, the ambiguity or doubt is resolved by interpreting the applicability of exemption clause strictly, the Court may construe the exemption clause liberally. Thus, a person claiming exemption has to establish that his case squarely falls within the exemption clause.

12. If we apply the principle laid down in the aforesaid decision of the Hon’ble Supreme Court to the facts of the present case, it is quite clear that as per the provision of section 80AC of the Act, which is very much clear and unambiguous in its expression, for claiming deduction under section 80-IB(10) of the Act, it is a mandatory requirement that the assessee must file its return of income within the due date prescribed under section 139(1) of the Act, notwithstanding the fact whether or not the assessee has actually claimed deduction in the said return of income. Once the return of income is filed within the due date prescribed under section 139(1), even without claiming deduction under the specified provisions, the assessee can claim it subsequently either in a revised return filed under section 139(5) of the Act or by filing a revised computation during the assessment proceeding. In that situation, the condition of section 80AC would stand complied. The words used in section 80AC of the Act being plain and simple, leave no room for a different interpretation. Therefore, as per the ratio laid down by the Hon’ble Supreme Court in the decision cited supra, the provision contained under section 80AC of the Act has to be construed strictly as per the language used therein. Otherwise, the very purpose of enacting the provision would be defeated and the provision would be rendered otiose.

13. No doubt, the decision of the Tribunal, Pune Bench, in M/s. Anand Shelters Developers and Builders Pvt. Ltd. (supra), supports the contention of the learned Authorised Representative that the provision of section 80AC of the Act is directory.

However, the foundation of this decision is the decision of the Hon’ble Andhra Pradesh High Court in ITO v. S. Venkataiah, ITA No. 114/2013, dated 26-6-2013, as well as some other decisions of the Tribunal. Whereas, the Hon’ble Calcutta High Court in Shelcon Properties Pvt. Ltd. (supra) and the Hon’ble Uttarakhand High Court in Umeshchandra Dalakot (supra) have clearly and categorically held that the provision contained under section 80AC of the Act is mandatory. Further, the Special Bench of the Tribunal in Saffire Garments (supra) while considering pari materia provision contained under the proviso to section 10A(1A) of the Act has held that the condition imposed requiring furnishing of return of income within the due date prescribed under section 139(1) of the Act for availing deduction is mandatory. It is relevant to observe, the Hon’ble Delhi High Court in CIT v. Unitech Ltd., ITA No. 236/2015, dated 5-10-2015, while considering somewhat a similar issue relating to interpretation of section 80AC, has observed that while the decisions of the Hon’ble Calcutta High Court in Shelcon Properties Pvt. Ltd. (supra) and of the Hon’ble Uttarakhand High Court in Umeshchandra Dalakot (supra) are Uma Developers directly on the issue and support the case of Revenue that section 80AC of the Act is mandatory, but, the Court observed that the decision of the Hon’ble Andhra Pradesh High Court in S. Venkataiah (supra) was one declining to frame a question of law thereby affirming the order of the Tribunal. Thus, ultimately the Hon’ble Delhi High Court left open the issue whether the provision of section 80AC of the Act is directory or mandatory. It is to be noted that the Tribunal, Pune Bench, primarily proceeded on the basis that if there are two conflicting views on a particular issue, the view favourable to the assessee has to be taken.

However, after the decision of the Hon’ble Supreme Court in Dilip Kumar & Co. & Ors. (supra) the legal position has materially changed and the provisions providing for exemption/deduction have to be construed strictly in terms with the language used therein and if there is any doubt, the benefit should go in favour of the Revenue.

Certainly, the Tribunal, Pune Bench, did not have the benefit of the aforesaid judgment of the Hon’ble Supreme Court while rendering its decision.

14. Thus, considering the overall facts and circumstances of the case in the light of the decisions referred to above and more particularly applying the ratio of the decision of the Hon’ble Supreme Court in Dilip Kumar & Co. & Ors. (supra), we hold that the condition imposed under section 80AC of the Act has to be fulfilled for claiming deduction under Uma Developers section 80-IB(10) of the Act. Since, the assessee has not fulfilled the aforesaid condition, deduction claimed under section 80-IB(10) of the Act has been rightly denied by the Departmental Authorities. Accordingly, the order passed by learned Commissioner (Appeals) is upheld. Grounds raised are dismissed.

17. Accordingly, in view of the aforesaid precedents including that from the Hon’ble Supreme Court Constitutional bench, in our considered opinion, the orders of authorities below deserved to be upheld. Hence, we affirm the order of authorities below that since the assessee has not followed the mandate of the Act to be eligible to the above said deduction, the assessee’s appeal is to be dismissed. Accordingly, we uphold the order of authorities below.

18. In the result, this appeal by the assessee stands dismissed.

Order pronounced under rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1962, by placing the details on the notice board on 11-1-2021.