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Judgment
PER NAVEEN CHANDRA [ACCOUNTANT MEMBER]:
The above-captioned appeal is preferred by the assessee against the order dated 25.09.2025, passed by the Learned Commissioner of Income Tax, Appeals, Addl/JCIT(A)-2, Mumbai (hereinafter referred to as ‘ld. CIT(A)’) under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’), arising out of the intimation dated 16.05.2025 issued under section 143(1) of the Act by CPC, Bangalore (hereinafter referred to as the ‘Assessing Officer’ or simply the ‘AO’) for A.Y 2024-25.
Brief facts of the case are that the assessee has filed its Income Tax Return (ITR) for the Assessment Year 2024-25 on 24.10.2024, declaring a total income of Rs.3,67,63,080/-, claiming therein additional depreciation under Section 32(1)(iia) of the Act on the new plant and machinery. The said return was processed under Section 143(1) of the Act by the Central Processing Unit on 16.05.2025, assessing the total income of the assessee at Rs.5,73,52,240/-. The upward adjustment was made on the ground that the assessee had opted for the concessional tax regime under Section 115BAA, and therefore, it was not entitled to claim for additional depreciation under Section 32(1)(iia) of the Act.
Aggrieved with the CPC order the assessee was filed appeal before the ld.CIT(A). The ld. CIT(A) dismissed the appeal.
Being aggrieved by the aforesaid appellate order dated 25.09.2025, the assessee is in appeal before us with the following grounds:
1)“On the facts and circumstances of the case, the Intimation Order under Section 143(1) of the Income Tax Act, 1961, issued by the Centralized Processing Center (CPC), Income Tax Department, are erroneous, baseless, and prejudicial to the appellant. The rectification order suffers from apparent errors both on the facts and in law. The findings are based on misreading of the facts, wrong conclusions drawn by the Central Processing Centre (CPC), which are clearly contrary to the facts available on record. Additionally, there are errors apparent on the record, which the CPC has failed to address, thus rendering the Intimation order legally unsustainable.
2)On the facts and circumstances of the case, the CPC has erred both on facts and in law in making the assessment without any valid justification or lawful basis at an income chargeable to tax amounting to Rs. 5,73,52,240/-, whereas the returned income was Rs. 3,67,63,080/-, as declared by the appellant.
3)(i) On the facts and circumstances of the case, the CPC has erred both in fact and in law by making an addition of Rs. 2,05,89,160/- to the total income on account of disallowance of additional depreciation, on the grounds that the appellant had opted for the concessional tax regime under section 115BAA of the Act.
(ii)On the facts and circumstances of the case, the CPC has erred both in fact and in law while issuing the Intimation order under Section 143(1) of the Income Tax Act, 1961, raising a demand of Rs. 49,57,800/- which is wholly unjustified and arises from an erroneous and flawed assessment.
(iii)That the CPC has erroneously processed the appellant's return of income under the special provisions of Section 115BAA of the Income Tax Act, 1961, despite the appellant not opting for taxation under these sections, thereby resulting in incorrect computation of total income and tax liability.
4)That the learned CPC erred in assessing the income for AY 2024-25 under the presumptive taxation scheme under Section 115BAA, based on Form 10-IC, whereas the same was erroneously filed.
5)That the Learned Assessing Officer has erred in law and on facts in treating the appellant as having opted for taxation under Section 115BAA of the Income Tax Act, 1961, solely on account of the initial filing of Form 10-IC, without appreciating that the appellant did not fulfill the prescribed conditions under the said section and had, in fact, voluntarily opted out of the concessional tax regime. The appellant had consistently filed its Income Tax Returns for the subsequent Assessment Years 2021-22 and 2022-23 under the normal provisions of the Act, and such returns were duly processed and assessed under the normal provisions, clearly demonstrating the appellant's bona fide intention not to avail the benefit of Section 115BAA. The reliance on the mere technical filing of Form 10-IC, disregarding the substantive conduct and consistent treatment under normal provisions in subsequent years, is arbitrary, unjust, and contrary to the facts and circumstances of the case.
6)That the income for AY 2024-25 should have been assessed under normal provisions as followed consistently in the earlier years, thereby maintaining consistency and avoiding any prejudice to the appellant due to a procedural error.
7)The appellant craves leave to add, amend or alter any of the grounds of appeal.”
Before us, ld. Counsel for the assessee stated the intimation u/s 143(1) by CPC is based on the erroneous invocation of the concessional tax regime under Section 115BAA of the Act. The assessee had timely provided clarification to CPC that it had not opted for taxation under Section 115BAA and yet the CPC proceeded to process the return by erroneously treating the assessee as having opted for the concessional tax regime under Section 115BAA.
The ld AR relied on judicial pronouncements which lay down that any adjustment involving interpretation of law or examination of factual claims such as whether Section 115BAA was opted for or not-cannot be made under Section 143(1). The ld AR relied on
Brahmos Realty Private Limited Vs ITO, Mumbai [Itat Mumbai, Ita No. 4119/Mum/2025, Dated 19th August, 2025]
ii) DCIT vs. Microland Limited (ITAT Bangalore):
iii) Camellia Educare Trust vs. ITO (ITAT Kolkata):
iv) Aashirvad Villa Ltd. vs. ITO (ITAT Kolkata):
Fortum SAR B.V. vs. ITO [TS-471-ITAT-2024(DEL)]:
The ld AR submitted that the assessee had initial filed of Form 10-IC, but did not fulfil the prescribed conditions under the section 115BAA. Further it had voluntarily opted out of the concessional tax regime. The assessee had consistently filed its Income Tax Returns for the subsequent Assessment Years 2021-22 and 2022-23 under the normal provisions of the Act, and such returns were duly processed and assessed under the normal provisions, clearly demonstrating the assessee's intention not to avail the benefit of Section 115BAA. The ld AR submitted that reliance on the mere technical filing of Form 10-IC, disregarding the substantive conduct and consistent treatment under normal provisions in subsequent years, is not valid.
On the other hand, ld. DR relied on the order of the AO and CIT(A).
We have heard the rival submissions and perused the material available on record. It would be prudent to reproduce the provisions of law u/s 115BAA as under:
Tax on income of certain domestic companies.
115BAA. (1) Notwithstanding anything contained in this Act but subject to the provisions of this Chapter, other than those mentioned under section 115BA and section 115BAB, the income-tax payable in respect of the total income of a person, being a domestic company, for any previous year relevant to the assessment year beginning on or after the 1st day of April, 2020, shall, at the option of such person, be computed at the rate of twenty-two per cent, if the conditions contained in sub-section (2) are satisfied: Provided that where the person fails to satisfy the conditions contained in sub-section (2) in any previous year, the option shall become invalid in respect of the assessment year relevant to that previous year and subsequent assessment years and other provisions of the Act shall apply, as if the option had not been exercised for the assessment year relevant to that previous year and subsequent assessment years. ********
We find that Section 115BAA(1) grants an option to a domestic company to be taxed at a reduced rate of 22% (plus applicable surcharge and cess), provided that the conditions in sub-section (2) are satisfied. Section 115BAA(2) prescribes substantive conditions that must be cumulatively satisfied, including no claim for deduction u/s 10AA, section 32(1)(iia), without set off any loss etc.
We further find that for AY 2021-22 and for AY 2022-23, the assessee filed its return under the normal provisions of the Act, without any reference to Section 115BAA. These return were processed and assessed by the Department under normal provisions.
We further find that decision in Brahmos Realty Private Limited vs ITO, Mumbai [ITAT MUMBAI, ITA No. 4119/MUM/2025, dated 19th August, 2025], in similar facts held that the option becomes invalid where the conditions of Section 115BAA(2) are not fulfilled, notwithstanding the filing of Form 10-IC. The facts in the case of Brahmos Realty was that the assessee had filed Form 10-IC opting for Section 115BAA, however, at the time of filing the return of income, the assessee stated 'no' for opting for taxation under Section 115BAA. It computed its tax liability under the normal taxation regime (old regime) at 25% corporate rate, not at the concessional 22% prescribed by Section 115BAA and claimed MAT credit under Section 115JAA. It did not make any adjustments in the income computation to forego deductions barred under Section 115BAA(2). The CPC and CIT(A) took the view that Form 10-IC filing created an irrevocable and binding commitment, regardless of the return's substantive treatment. The Tribunal set aside the CIT(A)'s order and held that the option becomes invalid where the conditions of Section 115BAA(2) are not fulfilled, notwithstanding the filing of Form 10-IC as follows:
"In the present case, according to the proviso to section 115BAA, though the assessee does not have any entitlement to opt out from option once exercised for any previous year or subsequent year, therefore our answer to (Qi) is 'NO'. However, in terms proviso to sub-section (1) r.w. sub-section (2) of Section 115BAA, there are certain conditions imposed on the assessee which needs to be fulfilled before claiming of benefits of low tax regime. However, since the assessee while filing return had opted out from the aforesaid option and have also claimed MAT Credit deductions u/s 115JAA, which are not permissible under the new tax regime, therefore, it can be construed that the assessee had not fulfilled pre requisite condition to avail benefit of new tax regime and accordingly, the same would be treated as if option had not been exercised by the assessee in the relevant assessment year or in subsequent years."
The Tribunal further held:
"In present case, as the assessee who does not have option to opt out once option exercised but since had not fulfilled the condition mandatory as per sub section (2) to Section 115BAA of the Act as well as provisions of Section 115JAA(8) which debars the claim of MAT credit, thus, the option once exercised u/s. 115BAA of the Act by filing of Form 10-IC would be construed as invalidated."
The instant case, the assessee filed return claiming additional depreciation of Rs. 2,05,89,160/- under Section 32(1)(iia), a claim prohibited under Section 115BAA(2)(i). The return makes no adjustments, no reversals, and no notations to indicate that this depreciation is being foregone and tax is computed at normal rate applicable under the old regime, not at the concessional 22% rate prescribed by Section 115BAA. The Form 3CD (Tax Audit Report) filed by the assessee contains no reference to Section 115BAA or to the concessional regime. This means that though the assessee filed Form 10-IC, it did not exercise the option available in section 115BAA(1), by not adhering to the conditions prescribed in section 115BAA(2). Once the assessee fails to satisfy the conditions, according to proviso of section 115BAA, the option “shall” become invalid in respect to the said assessment year. In the instant case, the substantive non-compliance with mandatory conditions of Section 115BAA(2), has rendered the option invalid. Following the ratio of Brahmos Realty, (supra) the non-compliance invalidates the option, notwithstanding Form 10-IC. Moreover, in the present case, the CPC failed to act upon the clarification submitted by the assessee in response to its own communication. In such facts and circumstances, we are of the considered view that the intimation issued under Section 143(1) of the Income Tax Act, 1961 by CPC, is vitiated. The adjustment therefore, based on a disputed legal position, is beyond the permissible scope of Section 143(1) and the same is deleted accordingly. The grounds are disposed of in the aforesaid terms.
In the result, appeal filed by the assessee in ITA No.3126/Del/2026 is allowed.