New provision under section 115BAA was introduced in October 2019 and applicable from AY 2020-21 wherein companies were allowed lower tax rate of 22% and after adding surcharge and cess it ended up at 25.17% and under this provision companies had to let go various deductions and benefits under Income Tax Act.
To read the provision of section 115BAA in detail CLICK HERE: Section 115BAA – 22% Tax on non-manufacturing Companies (Better than normal 25% tax rate) – Taxontips
There were majorly two issues that people have faced in intimation issued to companies who have opted for beneficial provision of section 115BAA:
Issue 1: Calculating tax at higher rate due to non-filing of Form 10-IC:
To opt for the beneficial tax rate under section 115BAA, assessee company was required to file a Form 10-IC before the due date of filing income tax return u/s 139(1) and if the form was not filed within due time, company cannot take benefit of tax rate mentioned u/s 115BAA.
To read about Form 10-IC CLICK HERE: Forms notified for exercising option u/s 115BAA and 115BAB – Taxontips
Once, a company had opted for beneficial tax rate u/s 115BAA it cannot opt out of the beneficial provision.
Requirement of filing Form 10-IC was introduced for the first time in AY 2020-21 and there was no column in Income tax return for mentioning the Acknowledgement number or date of filing of Form 10-IC. Also, if one had opted for provision of section 115BAA for tax calculation and not filed Form 10-IC, no error would be highlighted while filing Income Tax return.
Now, because of the above issues and also Covid many people filed to Form 10-IC and later received notices/ intimation from Income tax department wherein the benefit under section 115BAA was not allowed and tax demand was raised.
To read about the notices issued by Income Tax Department in this regard CLICK HERE: Form 10-IC not filed in AY 2020-21 before filing of Income tax return by companies and demand raised in intimation order – Taxontips
Because of the above problem assessee were receiving intimation where tax was charged at the rate of 30% and even the benefit of 25% tax rate where turnover of company is below Rs. 400 crore was not available.
After this a relaxation was provided by CBDT wherein companies were allowed to file condonation request if they have not filed Form 10-IC within due time for AY 2020-21.
To read more about the condonation allowed by CBDT CLICK HERE: [Breaking news] CBDT has allowed Condonation in filing of Form 10-IC for section 115BAA for Assessment Year 2020-21 – Taxontips
Issue 2: Not allowing adjustment of additional depreciation or earlier year to opening WDV of asset as on 01.04.2019:
Sub-section 3 of section 115BAA prescribes that the benefit of unabsorbed depreciation or losses from section mentioned in sub-section 2 have been give full effect or benefit once the company opts for new regime under section 115BAA.
However, proviso to sub-section 3 of section 115BAA prescribes an adjustment to WDV of asset as on 01.04.2019 in relation to additional depreciation which remained as unabsorbed depreciation on 31.03.2019. However, this benefit was available only for companies which were opting for the new regime in AY 2020-21.
Relevant extract of sub-section 3 is as under:
“(3) The loss and depreciation referred to in clause (ii) and clause (iii) of sub-section (2) shall be deemed to have been given full effect to and no further deduction for such loss or depreciation shall be allowed for any subsequent year:
Provided that where there is a depreciation allowance in respect of a block of asset which has not been given full effect to prior to the assessment year beginning on the 1st day of April, 2020, corresponding adjustment shall be made to the written down value of such block of assets as on the 1st day of April, 2019 in the prescribed manner, if the option under sub-section (5) is exercised for a previous year relevant to the assessment year beginning on the 1st day of April, 2020.”
CBDT had also issued notification No. 82/2020 Dt. 01.10.2020, clarifying the above provisions.
Link for the notification is as: Notification No. 82/2020 (incometaxindia.gov.in)
Companies who had opted for new tax regime had made adjustment of such additional depreciation in their Tax audit report as well as Income tax return in the prescribed.
However, while processing the Income Tax return under section 143(1) of the Act, CPC is not considering such adjustment and not allowing the prescribed depreciation and thereby increasing returned income of assessee company which is in turn increases the tax liability of the companies in Income Tax return.
Thee have been various instances where different companies have not been allowed such depreciation and thus raising demand after processing of such return.
To resolve the issue Income Tax department should take an initiative, issue a circular, reprocess all the returns and provide correct depreciation to all companies and remove demand, thus resolving the issue as soon as possible. Also, simultaneously assessee should also apply for rectification in such cases before the CPC or try to even file the appeal if no resolution is received in rectification application.
Have you also faced any such issue?
If yes comment your experience below and tweet this article by tagging Income Tax India and Our finance Minister so that the issue is brought before them and can be resolved at the earliest.
Guidance on above article by:
CA Naman Maloo (C.A., B.Com)
He is currently working as Partner – Direct Tax with Jain Shrimal & Co. in Jaipur having experience in dealing Assessments, Tax Audit, Tax planning for NRI, Business planning and consultation.
E-mail: email@example.com | LinkedIn: Naman Maloo
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