2025 (4) TMI 1204 - AT - Income Tax

Withdrawal of the exercised option u/s 115BAC - assessee had decided to opt for the new regime of taxation u/s 115BAC of the Act as applicable for assessment year 2022-23 and accordingly had filed Form No.10-IE but assessee filed his return of income under the old regime of taxation - HELD THAT - It is an admitted fact that although the assessee had originally exercised the option for taxation u/s 115BAC by filing the Form No.10-IE on 18.07.2022 however the assessee has filed the return of income on 20.07.2022 declaring total income under the old regime of taxation. It is also an admitted fact that the return was processed on 07.08.2023 which is much after the date of filing of the return. It is not a case that the assessee has filed Form 10-IE and also filed the return under the new tax regime and thereafter filed a revised return withdrawing the option which according to us is not permissible in the said previous year and the assessee can change the option only in the next year. However in the instant case the assessee after filing the Form 10-IE has opted for the old regime of taxation in the return filed. Therefore we are of the opinion that the assessee cannot be forced to adopt for the new regime. We therefore find merit in the arguments of assessee that the Ld. Addl./JCIT(A) was not justified in upholding the action of the CPC in processing the return of income determining the total income under the new regime of taxation. Accordingly the order of the Ld. Addl./JCIT(A) is set aside and the grounds raised by the assessee are allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

(a) Whether the assessee, having filed Form No.10-IE opting for the new tax regime under section 115BAC(5)(i) of the Income Tax Act, 1961, can subsequently file the return of income under the old tax regime for the same assessment year;

(b) Whether the option once exercised under section 115BAC can be withdrawn for the same assessment year or only for subsequent years, as per the statutory provisions;

(c) Whether the Assessing Officer and the Commissioner (Appeals) were justified in processing the return under the new tax regime and denying the assessee the benefit of additional depreciation under section 32(1A) and deductions under Chapter VI-A, which are not available under the new regime;

(d) The correctness of the Assessing Officer's and Commissioner (Appeals)'s interpretation of section 115BAC(5) and their application of law to the facts of the case.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Validity of withdrawal or change of option under section 115BAC for the same assessment year

Relevant legal framework and precedents: Section 115BAC(5) of the Income Tax Act provides the procedural and substantive framework for exercising the option for the new tax regime. It mandates that the option must be exercised in the prescribed manner on or before the due date for filing the return under section 139(1). The provision further states that the option once exercised shall apply to subsequent assessment years and can be withdrawn only once for a previous year other than the year in which it was exercised. The proviso clarifies that withdrawal in the same year of exercising the option is not permissible.

Court's interpretation and reasoning: The Tribunal noted that the assessee had initially filed Form No.10-IE on 18.07.2022 opting for the new tax regime for assessment year 2022-23. However, subsequently, on 20.07.2022, the assessee filed the return of income under the old regime, declaring income accordingly. The Tribunal emphasized that the statutory language of section 115BAC(5) does not provide for withdrawal of the option in the same assessment year; withdrawal is only permissible for subsequent years.

The Tribunal distinguished the present facts from cases where a taxpayer files a return under the new regime and then files a revised return withdrawing the option, which is impermissible for the same year. Here, the assessee filed Form No.10-IE but exercised the option for the old regime by filing the return accordingly before the due date.

Key evidence and findings: The timeline of filings was critical: Form No.10-IE was filed on 18.07.2022; return of income under old regime was filed on 20.07.2022; processing by CPC occurred on 07.08.2023. The Tribunal found that the return filed under the old regime was valid and timely, and that the CPC's processing under the new regime based solely on the earlier Form No.10-IE was erroneous.

Application of law to facts: The Tribunal held that since the assessee filed the return under the old regime within the prescribed time, the option under the new regime was effectively not exercised for that assessment year. The option to withdraw the new regime is only available for subsequent years, not the same year. Therefore, the Assessing Officer and Commissioner (Appeals) erred in processing the return under the new regime and denying deductions applicable only under the old regime.

Treatment of competing arguments: The Revenue argued that the option once exercised by filing Form No.10-IE cannot be withdrawn for the same year, citing the statutory provision. The assessee contended that filing the return under the old regime constituted a valid exercise of option for the old regime, and the CPC should have processed the return accordingly. The Tribunal found merit in the assessee's argument, noting that the statutory provision requires the option to be exercised in the prescribed manner and that filing the return under the old regime was a valid exercise of option. The Tribunal rejected the Revenue's rigid interpretation that filing Form No.10-IE alone conclusively fixes the option for the new regime.

Issue (c): Denial of additional depreciation under section 32(1A) and deductions under Chapter VI-A

Relevant legal framework and precedents: The new tax regime under section 115BAC disallows certain deductions and exemptions available under the old regime, including additional depreciation under section 32(1A) and various deductions under Chapter VI-A. Therefore, if the new regime applies, these deductions are not allowable.

Court's interpretation and reasoning: Since the Tribunal held that the assessee validly filed the return under the old regime, the denial of additional depreciation and Chapter VI-A deductions by the Assessing Officer and Commissioner (Appeals) was incorrect. These deductions are available under the old regime and should have been allowed.

Key evidence and findings: The Assessing Officer denied additional depreciation of Rs. 71,31,899 and Chapter VI-A deductions of Rs. 1,63,260 on the ground that the new regime applied. The Tribunal found that since the old regime applied, these denials were unjustified.

Application of law to facts: The Tribunal applied the law that these deductions are permissible under the old regime and must be allowed if the return is processed under that regime.

Treatment of competing arguments: The Revenue maintained that the new regime applied due to filing of Form No.10-IE and thus disallowance was justified. The Tribunal rejected this, reiterating that the return filed under the old regime governs the tax treatment.

Issue (d): Correctness of the Assessing Officer's and Commissioner (Appeals)'s interpretation of section 115BAC(5)

Relevant legal framework and precedents: Section 115BAC(5) clearly lays down the procedural requirements and the binding nature of the option once exercised. The provisos clarify the scope of withdrawal of the option.

Court's interpretation and reasoning: The Tribunal found that the Assessing Officer and Commissioner (Appeals) failed to appreciate that the option is exercised by filing the return of income and not merely by filing Form No.10-IE. The Tribunal held that the return filed under the old regime superseded the earlier Form No.10-IE and constituted the valid option for the year.

Key evidence and findings: The Tribunal noted the sequence of filings and the statutory language emphasizing that the option must be exercised in the prescribed manner, which includes filing the return of income.

Application of law to facts: The Tribunal applied the statutory provisions to conclude that the Assessing Officer and Commissioner (Appeals) erred in their interpretation and application of section 115BAC(5).

Treatment of competing arguments: The Revenue's strict interpretation was rejected in favor of a purposive construction that recognizes the return of income as the final exercise of option.

3. SIGNIFICANT HOLDINGS

The Tribunal held, inter alia:

"It is not a case that the assessee has filed Form 10-IE and also filed the return under the new tax regime and thereafter filed a revised return withdrawing the option which according to us is not permissible in the said previous year and the assessee can change the option only in the next year. However, in the instant case, the assessee after filing the Form 10-IE has opted for the old regime of taxation in the return filed. Therefore, we are of the opinion that the assessee cannot be forced to adopt for the new regime."

Core principles established include:

(i) The option under section 115BAC(5) is exercised by filing the return of income in the prescribed manner, and not merely by filing Form No.10-IE.

(ii) Filing Form No.10-IE alone does not conclusively fix the option for the new regime if the return of income is filed under the old regime within the prescribed time.

(iii) Withdrawal of the option once exercised is not permissible for the same assessment year, but the initial exercise of option is determined by the return filed.

(iv) The Assessing Officer and Commissioner (Appeals) must process the return in accordance with the regime under which the return is filed, allowing deductions and exemptions applicable under that regime.

Final determinations on each issue:

(a) The assessee validly exercised the option for the old tax regime by filing the return of income under that regime despite earlier filing of Form No.10-IE.

(b) The Assessing Officer and Commissioner (Appeals) erred in processing the return under the new regime and denying deductions available under the old regime.

(c) The appeal was allowed, the order of the Commissioner (Appeals) was set aside, and the return was to be processed under the old regime allowing the claimed deductions.

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