ITAT: Claim for Deduction Under Section 80IC is Permissible After Filing of Return but Before Completion of Assessment

ITAT: Claim for Deduction Under Section 80IC is Permissible After Filing of Return but Before Completion of Assessment

The Income Tax Appellate Tribunal (ITAT), Delhi bench, while partly allowing the appeal filed by Canadian Specialty Vinyls (assessee), has reiterated that for making a claim under Chapter VI-A of the Income Tax Act, 1960 (the Act) which also includes provision of deduction under Section 80IC of the Act and the making of such claim for deduction is permissible even after filing of the return, but, before completing the assessment meets directory requirement in the filing of return of income.

The two-member bench of Chandra Mohan Garg (Judicial Member) and M. Balaganesh (Accountant Member) held that, while the fulfilment of requirements for claiming exemption under the relevant sections of Chapter III in the income tax return is mandatory, the requirement for claiming deductions under the relevant sections of Chapter VI-A, including Section 80IC of the Income Tax Act, is considered directory.

The factual matrix of the case was that, the assessee had claimed deduction under Section 80IC of the Act, which was disallowed by the Assessing Officer (AO) on the allegation of non-filing of return within prescribed time limit under Section 139(1) of the Act.

In this regard, the ITAT after considering the proposition rendered by the Hon’ble Supreme Court in the cases of CIT vs. G.M. Knitting Industries (P.) Ltd. (2015) and PCIT vs. Wipro Ltd. held that the Chapter III and Chapter VI-A of the Act operate in different realms and principles of chapter III, which deals with ‘incomes which did not form part of total income’ cannot be equated with mechanism provided for deductions in Chapter VI-A which deals with ‘deductions to be made in computing the total income.’

Therefore, it was held that the fulfillment of requirement for making a claim of exemption under the relevant sections of Chapter III in the return of income is mandatory, but, when it comes to the claim of a deduction, inter alia, under the relevant section of Chapter VI-A, such requirement become directory. In cases where the assessee claims deduction under Chapter VI-A of the Act, the making of a claim even after filing of return, but, before completion of the assessment proceedings and passing of assessment order meets the directory requirement of making a claim in the return of income.

“We are inclined to hold that the AO was not right in holding that the assessee is not entitled to claim deduction under Section 80IC of the Act on account of belated filing of return beyond the prescribed time limit u/s 139(1) of the Act. The ld. CIT(A) was justified and correct in holding that the assessee is entitled to claim deduction u/s 80IC of the Act as it was prevented by sufficient cause in filing the return of income within the prescribed time limit,” the ITAT held.

The ITAT observed that for making a claim under Chapter VI-A of the Act which also includes provision of deduction under Section 80IC of the Act and the making of such claim for deduction is permissible even after filing of the return, but, before completing the assessment meets directory requirement in the filing of return of income.

Therefore, the bench concluded that the AO was incorrect in denying the assessee’s claim for deduction under Section 80IC due to the belated filing of the return beyond the prescribed time limit and ruled assessee was very well entitled to claim deduction under Section 80IC of the Act.