SINDHANAI ARTIFICIAL INTELLIGENCE SYSTEMS PVT. LTD.,CHENNAI V. ITO, CORPORATE WARD-6(3), CHENNAI

ITA 3259/CHNY/2024

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The case involves Sindhanai Artificial Intelligence Systems Pvt. Ltd., which appealed against the orders of the Commissioner of Income Tax (Appeals) denying them a deduction under Section 80IAC for the assessment years 2021-22 and 2022-23. The primary issue was the late filing of Form 10CCB, an audit report required to claim deductions for eligible startups. The assessee argued that the delay was due to staff absence during the COVID-19 pandemic and technical glitches, and that the report was filed before the final assessment was made. The Tribunal, referencing decisions from the Madras High Court, found that the requirement to file the audit report with the return was directory, not mandatory, and thus allowed the deduction.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 29979 (ITAT-CHENNAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2021-2022
• Other Referred Cases: CIT vs. Ramani Realtors (P) Ltd., CIT vs. AKS Alloys (P) Ltd., Commissioner of Income Tax v. Print Systems & Products, Commissioner of Income Tax v. SM Scrap Recycling Private Limited, Commissioner of Income Tax v. ACE MULTITAXES SYSTEMS (P) LTD, Commissioner of Income Tax v. CONTIMETERS ELECTRICALS (P) LTD, Commissioner of Income Tax v. ARUNACHALAM (A.N.), Commissioner of Income Tax v. JAYANT PATEL, Commissioner of Income Tax v. Punjab Financial Corporation
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GOUTHAMI MANIVASAGAM
• Assessee Lawyers: J. SARAVANAN
• Keywords: Condonation of delay; Set aside; Question of law; Rule of consistency; Principle of natural justice
• Section: 143(1); 208; 80IB; 80IA

Judgement Text

" आयकर अपीलीय अिधकरण,‘बी’ ᭠यायपीठ,चे᳖ई IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI ᮰ी धु᭪वुᱧ आर.एल रे᲻ी,, उपा᭟यᭃ एवं ᮰ी एस.आर.रघुनाथा, लेखा सद᭭यके समᭃ BEFORE SHRI DUVVURU RL REDDY, HON’BLE VICE PRESIDENT AND SHRI S.R. RAGHUNATHA, HON’BLE ACCOUNTANT MEMBER आयकर अपीलसं./ITA Nos.: 3259 & 3260/Chny/2024 िनधाŊरण वषŊ / Assessment Years: 2021-22& 2022-23 Sindhanai Artificial Intelligence Systems Pvt. Ltd., New No.33/2, Old No.5/2, Rajeshwari Apartment, 5th Cross Street, Alagiri Nagar, Vadapalani, Chennai – 600 026. [PAN:AAXCS 9635F] V. The Income Tax Officer, Corporate Ward6(3) Chennai. (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) अपीलाथŎ की ओर से/Appellant by : Shri J. Saravanan, Advocate ŮȑथŎ की ओर से/Respondent by : Ms.Gouthami Manivasagam, JCIT सुनवाई कȧ तारȣख/Date of Hearing : 26.03.2025 घोषणा कȧ तारȣख/Date of Pronouncement : 27.03.2025 आदेश /O R D E R PER S. R. RAGHUNATHA, ACCOUNTANT MEMBER: These appeals by the assesseeare filed against two different orders of the Commissioner of Income Tax (Appeals), Addl/JCIT(A), Patna, both dated 04.12.2024for the assessment years2021-22 & 2022-23. Since facts are identical and issue is common, for the sake of convenience we dispose off these appeals by this consolidated order. :-2-: ITA. Nos:3259 & 3260/Chny/2024 ITA No.3259/CHNY/2024 2. The assessee has raised the following grounds:- 1. The Ln AO, CPC and CIT (A) have erred in facts and Circumstances for delay in filing the Form 10CCB. 2. The Order passed U/s 143(1) of the Act is wholly arbitrary and contrary to the law and is in principle violation of Principles of Natural Justice. 3. The Ln AO, CPC and CIT (A) have erred in law and facts by denying the deduction 80 IAC of the Act claimed by the Appellant, for failure t ofurnish the Audit report in form 10CCB within the prescribed due date. 4. The Ln AO, CPC and CIT (A) has erred in law and facts by holding that the time limit for filing the Audit report in form 10CCB along with there turn of Income was mandatory in nature on the facts and circumstances of the Case. 5. For that the Ld. CIT(A) failed to appreciate that the requirement to file Audit Report in Form No. 10CCB for claim of deduction u/s 80IA of the Act is only directory and not mandatory. 6 For that the Ld. CIT(A) ought to have noted that the appellant had fled the Audit Report in Form No.10CCB on 21.07.2022, well before 143(1) order dated 21.12.2022. 7. For that the Ld. CIT(A) failed to note that where Audit Report in Form No. 100CB is filed before the assessment is completed, the said Form would be tenable, enabling deduction u/s 80IAC of the Act. 8. For that the Ld. CIT(A) ought to have appreciated that the Audit Report in Form No.10CCB for claiming deduction u/s 80IAC of the Act can be filed even at the appellate stage 9. The Appellant prays your goodself to condone the delay in filing the form 10CCB to claim deduction u/s 80IAC on account of conditions and circumstances prevailed therein. 10. For the foregoing grounds and any additional grounds that may be raised during the appellant hearing, we request that the deduction claim under Section 80IAC, which was disallowed by the AO, CPC, and CIT(A),be granted. We also request that the delay in filing Form 10CCB be condoned. 3. Brief facts of the case are that the assessee is a private limited company engaged in the business of development of information :-3-: ITA. Nos:3259 & 3260/Chny/2024 technology based products and services in Artificial Intelligence and video analytics domain. The assessee company incorporated on 26.12.2015 and is an eligible startup to claim deduction u/s.80IAC of the Act. Accordingly to claim the deduction u/s.80IAC of the Act of start up, the assessee has to file Form 10CCB report before one month prior to the due date for filing of return of income. For the assessment year 2021-22, the assessee has filed its return of income on 15.03.2022 u/s.139(1) of the Act by declaring ‘nil’ income after claiming deduction u/s.80IAC of the Act of Rs.29,28,164/- and paid taxes u/s.115JB of the Act. Subsequently, the assessee received an intimation u/s.143(1)(a) dated 04.07.2022 proposal for denying the claim of deduction u/s.80IAC of the Act for want of audit report in Form 10CCB. Subsequently, the assessee company filed the Form 10CCB report on 21.07.2022. Later, in response to the above intimation, the assessee filed the acknowledgment of Form 10CCB in the e-proceedings portal of ITD on 03.08.2022 seeking rectification for allowing the deduction u/s.80IAC by considering the form 10CCB filed. However, the CPC denied the deduction claimed u/s.80IAC vide intimation u/s.143(1) of the Act dated 21.12.2022. Aggrieved, the assessee preferred an appeal before the Ld.CIT(A). :-4-: ITA. Nos:3259 & 3260/Chny/2024 3.1 The Addl./JCIT(A), Patna i.e., the Ld.CIT(A) on perusal of the submissions made by the assessee was not convinced to consider the delay in filing the Form 10CCB to claim the deduction u/s.80IAC, dismissed the appeal of the assessee by confirming the order of the CPC. Aggrieved, the assessee is in appeal before us. 4. The Ld.AR for the assessee stated that non-filing of Form 10CCB audit report before filing the return of income was due to absence of staff at the office on account of Covid-19 pandemic. On receipt of the proposed adjustment u/s.143(1)(a) of the Act, the assessee took steps to file the audit report in Form 10CCB on 21.07.2022. Therefore, the assessee had filed the required audit report in Form 10CCB before completing the processing by the CPC and issue of intimation u/s.143(1) of the Act. Hence the Ld.AR stated that before concluding the assessment required audit report was filed and available before the CPC. In support of his arguments, the Ld.AR relied on the Hon’ble Jurisdictional High Court decision in the case of CIT vs. Ramani Realtors (P) Ltd., reportedin 54 taxamann.com 321, wherein the Hon’ble High Court has observed in para 5 as below:- “5. In yet another decision in Commissioner of Income Tax v. Print Systems & Products, (2006) 285 ITR 260 (Mad.), this Court held that filing of audit report along with the return, as contemplated under Section 32AB(5) of the :-5-: ITA. Nos:3259 & 3260/Chny/2024 Income Tax Act, is only directory and not mandatory. The relevant portion of the said decision reads as under: “With regard to the interpretation of section 32AB as well as corresponding section 80J(6A) of the Act, it is a trite law that: (i) since there is no stipulation as to the time when the audit report should be filed, except that it should be filed along with the return, all that the assessee is required to do is to delay the filing of the return until the audit report is made available. The ground relied on that the preparation of the audit report was beyond the control of the assessee and hence, the assessee could justifiably delay in filing the return itself so that it is accompanied by the audit report, should also be taken care of while construing the statute constitutionally valid. In such event, the Income-tax Officer could not deny the deduction merely because the report is not filed along with the return, otherwise, the very purpose of section 32AB(5) would be defeated. If that be so, section 32AB(5) cannot be construed to give such an incongruous result. Therefore, to make section 32AB(5) of the Act constitutionally valid, the only alternative or workable solution is that the audit report should be made available before the assessment is made : (vide K. P. Varghese v. ITO [1981] 131 ITR 597 (SC) and followed in CIT v. A. N. Arunachalam [1994] 208 ITR 481 (Mad)); (ii) a Full Bench of the Punjab and Haryana High Court in CIT v. Punjab Financial Corporation [2002] 254 ITR 6, interpreting section 32AB(5) itself, which is the subject matter in the present appeal, held that the submission of the audit report is directory, but not mandatory. According to the Full Bench, the assessees claim for deduction under section 32AB does not depend on the submission of the audit report along with the return, but on deposit of the amount in the account maintained by him with the Development Bank before the expiry of six months from the end of the previous year or before furnishing the return of income, whichever is earlier. Therefore, the requirement of filing the duly audited report along with the return cannot be treated as mandatory and the assessee cannot be deprived of the benefit of deduction if the same is filed before the finalisation of the assessment. It is, therefore, specifically held that sub-section (5) of section 32AB is not mandatory and the Assessing Officer has discretion to entertain the audit report, even though it has not been filed with the return and give benefit of the deduction to the assessee in terms of section 32AB(1). The Full Bench, while so holding that the filing of the audit :-6-: ITA. Nos:3259 & 3260/Chny/2024 report is not mandatory, has observed that the question as to whether a statute is mandatory or directory depends upon the intent of the Legislature and not upon the language in which the intent is clothed. The meaning and intention of the Legislature must govern not only from the phraseology of the provision, but also by considering its nature, its design and the consequences, which should follow from construing it one way or the other ; (iii) the Full Bench of the Punjab and Haryana Court in Punjab Financial Corporations case [2002] 254 ITR 6 referred to supra, has thus arrived at the conclusion that filing of audit report is directory, but not mandatory, based on the rule of interpretation, with reference to the fiscal statute in the matter of imposing penalty, formulated by the apex court, in State of U.P. v. Manbodhan Lal Srivastava, AIR 1957 SC 912, wherein it has been held as under (page 13): 'All the parts of a statute or section must be construed together and every clause of a section should be construed with reference to the context and other clauses thereof so that construction put to be on a particular provision makes consistent enactment of the whole statute. This would be more so if a literal construction of a particular clause leads to manifestly absurd and anomalous results which could not have been intended by the Legislature. The principle that a fiscal statute should be construed strictly is applicable only to taxing provisions such as a charging provision or a provision imposing penalty, and not to those parts of the statute which contain machinery provisions.' (emphasis supplied) (iv) concededly, this court, interpreting the corresponding provision of section 80J(6A) in CIT v. A. N. Arunachalam [1994] 208 ITR 481, held that the requirement that the audit report should be filed along with the return is not mandatory and the audit report could be filed even after submission of the return, but before framing of the assessment and the same could be construed as a sufficient compliance with the condition contemplated under section 80J(6A); (v) again, in a recent decision of this court in CIT v. Jayant Patel [2001] 248 ITR 199, while interpreting the corresponding section, viz. 80J, which also requires the audit report to be filed along with the return, held that the requirement that the audit report should be furnished along with the return is only directory and not mandatory. :-7-: ITA. Nos:3259 & 3260/Chny/2024 In view of the well-settled principles uniformly held in the decisions cited supra, we have no hesitation to hold that the filing of the audit report along with the return, as contemplated under section 32AB(5) of the Act, is only directory and not mandatory. Hence, finding no substantial question of law arising for consideration, the appeal is dismissed 6. This Court in Commissioner of Income Tax v. SM Scrap Recycling Private Limited (Order dated 15.7.2014 made in T.C.(A) No.875 of 2013), to which one of us R.Sudhakar,J. was a party, following the decision in Commissioner of Income Tax v. Print Systems & Products, (2006) 285 ITR 260 (Mad.) answered the question of law in favour of the assessee and against the Revenue. 7. From the above, it is apparent that the consistent view of this High Court is that filing of audit report along with the return is only directory and not mandatory, which we respectfully agree.” 4.1 Further, the Ld.AR also relied on the Hon’ble Madras High Court decision in the case of CIT vs. AKS Alloys (P) Ltd., reported in 18 taxmann.com 25, wherein it is held as under:- “5. In so far as it relates to the substantial question of law (1) is concerned, namely, whether the filing of audit report in Form 10CCB is mandatory, it is well settled by a number of judicial precedents that before the assessment is completed, the declaration could be filed. In fact, the said issue came to be decided by the Karnataka High Court in the case in THE COMMISSIONER OF INCOME TAX AND ANOTHER vs. ACE MULTITAXES SYSTEMS (P) LTD. (2009) 317 ITR 207(Karnataka), wherein it was held that when a relief is sought for under Section 80IB of the Act, there is no obligation on the part of the assessee to file return accompanied by the audit report, thereby, holding that the same is not mandatory. Therefore, it is clear that before the assessment is completed if such report is filed, no fault could be found against the assessee. That was also the view of the Delhi High Court in the case in COMMISSIONER OF INCOME TAX v. CONTIMETERS ELECTRICALS (P) LTD -(2009) 317 ITR 249(Delhi), wherein the Delhi High Court, by following the judgements of the Madras High Court in COMMISSIONER OF INCOME TAX V. ARUNACHALAM (A.N.)-(1994) 208 ITR 481 and in CIT v. JAYANT :-8-: ITA. Nos:3259 & 3260/Chny/2024 PATEL (2001) 248 ITR 199 (Mad) held that the filing of audit report along with the return was not mandatory but directory and that if the audit report was filed at any time before the framing of the assessment, the requirement of the provisions of the Act should be held to have been met.” 4.2 In light of the above decisions, the Ld.AR prayed for deleting the disallowance of deduction u/s.80IAC claimed by the assessee by setting aside the order of the Ld.CIT(A). 5. Per contra, the Ld.DR supported the orders of the Ld.CIT(A) and stated that the assessee had an option of filing a petition for condonation of delay before the PCIT u/s.119(2)(b) of the Act and the assessee has failed to do so and hence, the appeal of the assessee may be dismissed. 6. We have heard rival contentions and perused the materials available on record. Admittedly, the assessee has filed the return of income on or before the due date prescribed u/s.139(1) of the Act. The assessee has also filed the tax audit report u/s.44AB of the Act along with the payment of taxes u/s.115JB of the Act. However, the assessee had failed to file the Form No.10CCB report inadvertently even after claiming deduction u/s.80IAC of the Act. We note that the assessee has filed the audit report in Form 10CCB on 21.07.2022, which is much prior to the issue of intimation :-9-: ITA. Nos:3259 & 3260/Chny/2024 u/s.143(1) of the Act dated 21.12.2022. In support of the claim of assessee, the Ld.AR relied on the following the judgments of Hon’ble Madras High Court in the case of CIT vs. Ramani Realtors (P) Ltd., (supra) and CIT vs. AKS Alloys (P) Ltd., (supra), wherein their lordship’s have held that filing of audit report is only a directory and not mandatory. Since the assessee has filed the audit report in Form 10CCB much prior to the issue of intimation u/s.143(1) of the Act, the audit report was available before concluding the assessment by the AO. In the present facts and circumstances of the case and respectfully following the decisions referred above, we are of the considered view that denial of deduction claimed u/s.80IAC by the AO and the Ld.CIT(A) is not justified and hence, we set aside the order of the Ld.CIT(A) by directing the AO to allow the deduction claimed u/s.80IAC of the Act by considering the audit report filed in Form 10CCB. 7. Similar are the facts in ITA No.3260/CHNY/2024 for the assessment year 2022-23 except the reason for delay in filing Form No.10CCB was due to technical glitches, for which assessee raised an issue with the grievance cell of Income-tax Department and upon resolving the issue on 09.11.2022, the assessee had filed the Form 10CCB on the same day. Since, the facts and issues in this appeal :-10-: ITA. Nos:3259 & 3260/Chny/2024 is identical to assessment year 2021-22, therefore, following the rule of consistency, the decision in ITA No.3259/Chny/2024 for A.Y. 2021-22 is applicable mutatis mutandis for this A.Y 2022-23 also. Accordingly, we set aside the order of the Ld.CIT(A) directing the AO to allow the deduction claimed u/s.80IAC of the Act by considering the audit report filed in Form 10CCB. 8. In the result, the appeals filed by the assessee are allowed Order pronounced in the open court on 27th March, 2025 at Chennai. Sd/- Sd/- (ŵी धुʫुŜ आर.एल रेǭी,) (DUVVURU RL REDDY) उपाȯƗ /VICE PRESIDENT (एस. आर.रघुनाथा) (S. R. RAGHUNATHA) लेखा सद˟/ACCOUNTANT MEMBER चे᳖ई/Chennai, ᳰदनांक/Dated, the 27th March, 2025 RSR आदेश की Ůितिलिप अŤेिषत/Copy to: 1. अपीलाथŎ/Appellant 2. ŮȑथŎ/Respondent 3.आयकर आयुƅ/CIT – Chennai 4. िवभागीय Ůितिनिध/DR 5. गाडŊ फाईल/GF "