The Delhi Bench of the Income Tax Appellate Tribunal has held that where a company is not entitled to the concessional tax regime under Section 115BAA of the Income-tax Act, 1961 because the prescribed conditions were not fulfilled, its tax liability must nevertheless be computed at the normal rate applicable under law. Accordingly, where the relevant turnover did not exceed Rs. 400 crore, tax could not be charged at 30% when the applicable rate was 25%.
Background of the Case
Rajasthan Pulses Private Limited filed its return of income for Assessment Year 2020-21 on 12 November 2020 and opted for taxation under Section 115BAA, paying tax at 22%. However, the company failed to file Form 10-IC within the prescribed time.
While processing the return under Section 143(1), CPC, Bengaluru denied the benefit of Section 115BAA and charged tax at 30%.
The assessee subsequently filed a rectification application under Section 154 on 19 April 2024 and amended its return position without claiming the benefit of Section 115BAA. It contended that its turnover for FY 2017-18 was only Rs. 91.40 crore and, therefore, the normal corporate tax rate applicable to it was 25% rather than 30%.
The CPC rejected the rectification request, and the Addl./JCIT (Appeals), Bhubaneswar also dismissed the assessee’s appeal.
Issue Before the ITAT
The principal issue before the Tribunal was whether, after denial of the concessional rate under Section 115BAA for failure to satisfy the prescribed conditions, the assessee could be subjected to tax at 30%, even though its turnover for FY 2017-18 was below Rs. 400 crore and the applicable normal corporate tax rate was 25%.
ITAT’s Findings
The Tribunal noted that the assessee itself accepted that it was not eligible for the benefit of Section 115BAA because the prescribed conditions had not been fulfilled.
However, denial of the benefit under Section 115BAA did not mean that tax could automatically be levied at 30%. Once the assessee was required to be taxed under the normal provisions, the applicable rate had to be determined in accordance with the statutory provisions governing the relevant assessment year.
Since the assessee’s turnover for FY 2017-18 did not exceed Rs. 400 crore, the Tribunal held that its income was liable to tax at 25% and not at 30% as charged by CPC.
The Tribunal also relied upon the Mumbai Bench decision in Bholanath Precision Engineering (P.) Ltd. v. CIT(A) [2022] 145 taxmann.com 180 (Mumbai – Trib.), where the tax liability was directed to be computed by applying the rate prescribed under the applicable provisions of law.
Decision
Respectfully following the earlier Tribunal decision and considering the assessee’s turnover, the ITAT allowed the grounds raised by Rajasthan Pulses Private Limited and directed the Assessing Officer to determine the applicable tax rate in accordance with its findings.
The assessee’s appeal was accordingly allowed.
Key Takeaway
Failure to satisfy the procedural conditions for availing the concessional regime under Section 115BAA does not permit the Revenue to levy an otherwise inapplicable higher corporate tax rate. Where the assessee falls back into the normal tax regime, its liability must be computed strictly at the rate applicable under the relevant statutory provisions based on its turnover.
