2010 (7) TMI 619 - AT - Income Tax

Deduction u/s 10B - During the year consideration, the assessee has claimed exemption u/s 10B of the Income Tax Act of Rs. 2,06,36,797 - Ld. Departmental Representative pointed out that in section 10(b)(i) by Finance Act, 2006 a proviso has been inserted from 1-4-2006 which specifically provides that no deduction under this section shall be allowed to assessee who has not furnished any return of income on or before the due date - Act envisages that relief regarding exemption should be considered and granted when application is made after the specified period in cases of genuine hardship clearly indicates that provision in this regard is directory and not mandatory Accordingly AO is directed to examine the merits of the assesseee s claim of exemption u/s 10B Appeal filed by revenue is allowed for statistical purposes

Issues Involved:
1. Eligibility for statutory deduction under Section 10B of the Income Tax Act.
2. Interpretation of the proviso to Section 10B(1) regarding the due date for filing returns.
3. Validity of the return filed after the due date.
4. Genuine hardship and the role of Section 119(2)(b).

Issue-wise Detailed Analysis:

1. Eligibility for Statutory Deduction under Section 10B:
The primary issue was whether the assessee was eligible for a deduction under Section 10B despite filing the return after the due date specified under Section 139(1). The Assessing Officer (AO) disallowed the deduction of Rs. 2,06,36,797 on the grounds that the return was filed late, as per the proviso to Section 10B(1) inserted by the Finance Act, 2006, effective from AY 2006-07.

2. Interpretation of the Proviso to Section 10B(1):
The AO referred to the proviso, which states that no deduction under Section 10B shall be allowed if the return is not furnished on or before the due date specified under Section 139(1). The due date in this case was 30-11-2006, but the return was filed on 18-1-2007. The AO thus concluded that the deduction was not allowable.

3. Validity of the Return Filed After the Due Date:
Before the Commissioner of Income-tax (Appeals), the assessee argued that the return was valid and the assessment was completed based on it. They contended that the word "shall" in the proviso was not absolute and that genuine reasons for delay should be considered. The Commissioner of Income-tax (Appeals) accepted this argument, noting that the delay was due to technical issues with the new E-filing system and financial problems that delayed tax payment. The Commissioner held that the conditions were directory, not mandatory, and directed the AO to allow the deduction.

4. Genuine Hardship and the Role of Section 119(2)(b):
The Departmental Representative argued that the remedy for the assessee lay in applying to the CBDT under Section 119(2)(b) for relief due to genuine hardship. However, the Tribunal found that the provision in Section 10B(1) was directory and not mandatory, citing precedents where similar provisions were interpreted as directory. The Tribunal noted that the delay was marginal (1.5 months) and due to genuine reasons, and the return was ultimately accepted as valid.

Conclusion and Remand:
The Tribunal concluded that the rejection of the assessee's claim under Section 10B(1) was not justified due to the genuine hardship faced and the directory nature of the proviso. However, since the merits of the case were not fully examined by the AO or the Commissioner of Income-tax (Appeals), the Tribunal remitted the issue back to the AO to examine the merits of the claim for exemption under Section 10B, ensuring the delay in filing the return would not be reconsidered. The appeal by the revenue was allowed for statistical purposes.

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