The Income Tax Appellate Tribunal (ITAT), Pune Bench “A,” recently deliberated on a notable case concerning the taxation regime opted by Mr. Akshay Nitin Malu, a businessman engaged in cloth manufacturing. This case, ITA No.1651/PUN/2024, pertained to the assessment year 2022–23 and presented a critical examination of the taxpayer’s choice between the old and new taxation regimes under Section 115BAC of the Income Tax Act, 1961.
Background of the Case
Mr. Malu, an individual taxpayer, had initially opted for the new tax regime under Section 115BAC by filing Form 10-IE on July 18, 2022. However, upon further evaluation, he realized that the old tax regime was more beneficial for him. Consequently, he filed his income tax return (ITR) on July 20, 2022, under the old regime, declaring a total income of ₹24,01,740.
The Centralized Processing Center (CPC) processed the return on August 7, 2023, determining the total income as ₹64,41,940 under the new regime. The CPC based its decision on the taxpayer’s submission of Form 10-IE, which indicated his initial preference for the new regime.
Dispute and Appeals
Aggrieved by the CPC’s decision, Mr. Malu approached the Additional Commissioner of Income Tax (Appeals), who upheld the CPC’s action. The appellate authority cited Section 115BAC, which permits withdrawal of the chosen tax regime only in subsequent years, not within the same assessment year. This resulted in the disallowance of two deductions claimed under the old regime:
- Additional depreciation under Section 32(1A): ₹71,31,899
- Chapter VI-A deductions: ₹1,63,260
Unhappy with this outcome, Mr. Malu appealed to the ITAT.
Arguments Presented
Counsel for the Appellant:
Mr. Malu’s representative argued that while Form 10-IE had been submitted, the final ITR was filed under the old regime. Since the CPC processed the return much later, the taxpayer’s decision to adopt the old regime should have been honored. The counsel contended that the provisions of Section 115BAC were incorrectly interpreted, as they should not apply if the return filed explicitly followed the old regime.
Department’s Defense:
The Department maintained that Section 115BAC does not allow taxpayers to retract their initial choice of regime within the same assessment year. It asserted that the taxpayer must adhere to the new regime as indicated in Form 10-IE.
Tribunal’s Observations and Decision
The Tribunal noted that the taxpayer filed his ITR under the old regime before the CPC processed it. It acknowledged that while Form 10-IE indicated an initial preference for the new regime, the taxpayer’s final ITR clearly reflected his decision to revert to the old regime.
The Tribunal emphasized that the taxpayer cannot be compelled to adopt a regime that is disadvantageous, especially when his ITR was filed before processing. It ruled that the denial of deductions claimed under the old regime was unjustified and set aside the decision of the appellate authority.
Tribunal observed that 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, they are of the opinion that the assessee cannot be forced to adopt for the new regime.
Outcome
The Tribunal allowed the appeal in favor of Mr. Malu, permitting him to adopt the old taxation regime and claim the associated deductions.
Cititation: Akshay Nitin Malu vs ITO, Ward 1, Sangli ITA No.1651/PUN/2024 Assessment year : 2022-23
