All about Action Plan for Non-Filing of Form 10-IC

Action Plan for Non-Filing of Form 10-IC for AY 2020-21 and Addressing Tax Demand

If your domestic company did not file Form 10-IC for the Assessment Year 2020-21, and the Income Tax Department has processed your return by denying the concessional tax rate of 22% U/S 115BAA and raised a tax demand, you must take immediate legal and procedural steps to resolve the issue. Under Vidur’s Knowledge, the requirement to file Form 10-IC is considered procedural, and multiple remedies are available to safeguard your substantive right to the concessional tax regime.

Below is a comprehensive guide on the legal provisions, available remedies, procedural steps, and supporting judicial precedents to help you address the outstanding tax demand.

Understanding the Legal Framework and the Issue

U/S 115BAA of the Income Tax Act, 1961, domestic companies have the option to pay tax at a concessional rate of 22% (plus applicable surcharge and cess), subject to the satisfaction of certain conditions specified in the sub-section)

To exercise this option, sub-section (5) of Section 115BAA, read with Rule 21AF of the Income Tax Rules, 1962, mandates that the assessee company must submit Form 10-IC electronically on or before the due date of filing the return of income U/S 139(1) [1][2]. Once this option is exercised, it applies to all subsequent assessment years.

Failure to submit Form 10-IC on or before the prescribed due date generally results in the Centralised Processing Centre or the Assessing Officer (AO) denying the 22% concessional rate, processing the return at the normal higher tax rate (usually 30%), and raising a tax demand U/S 143(1) or Section 156 of the Income-tax Act, 1961

Step-by-Step Remedies to Resolve the Tax Demand

1. Evaluate Eligibility Under CBDT Condonation Circular No. 6/2022

Recognizing the genuine hardships faced by domestic companies in the initial year of implementing Section 115BAA (AY 2020-21 was the first year), the Central Board of Direct Taxes issued Circular No. 6/2022 U/S 119(2)(b) of the Act. This circular condoned the delay in filing Form 10-IC for AY 2020-21, provided the following three conditions are met:

• Timely Return Filing: The return of income for AY 2020-21 must have been filed on or before the due date specified U/S 139(1) of the Act .
• Option Exercised in ITR: The company must have explicitly opted for taxation U/S 115BAA in item (e) of “Filing Status” in “Part A-GEN” of the Form of Return of Income (ITR-6).
• Belated Filing of Form 10-IC: Form 10-IC must have been filed electronically on or before June 30, 2022, or within 3 months from the end of the month in which the Circular was issued, whichever is later.

Action: If you filed Form 10-IC electronically on or before June 30, 2022, and met the other two conditions, you can file a rectification application U/S 154 of the Income Tax Act, 1961 or submit a response to the outstanding demand online, citing Central Board of Direct Taxes Circular No. 6/2022 .

2. File a Condonation Application U/S 119(2) (b)

If you failed to file Form 10-IC even within the extended timeline provided by Circular No. 6/2022 (i.e., after June 30, 2022), you should file a formal application for condonation of delay U/S 119(2)(b) of the Act .

• Authority: The application must be submitted to the Principal Commissioner of Income Tax or Chief Commissioner of Income Tax having jurisdiction over your case .
• Grounds for Condonation: Taxpayer must demonstrate “genuine hardship” and reasonable cause for the delay, such as technical glitches on the Income Tax Portal, professional oversight, or administrative difficulties during the COVID-19 pandemic period relevant to AY 2020-21 .
• Substantive Intent: Highlight that the company’s intent to opt for the concessional regime was clear from the contemporaneous filings (ITR-6 and Tax Audit Report) .

3. File an Appeal Before the Commissioner of Income Tax (Appeals) / NFAC

If the Centralised Processing Centre has processed your return U/S 143(1) and raised a demand, and the time limit for filing an appeal has not expired, you should file an appeal before the National Faceless Appeal Centre (NFAC)

• Challenging the Adjustment: Argue that the denial of the concessional tax rate and the subsequent adjustment do not fall within the narrow scope of prima facie adjustments permissible U/S 143(1)(a)
• Procedural vs. Substantive Law: Argue that the requirement of filing Form 10-IC is merely procedural and directory in nature, and it cannot override the substantive compliance of the conditions of Section 115BAA of the Income-tax Act, 1961.

Establishing “Substantive Compliance” to Defend Your Case

If the taxpayer’s case goes to appeal or is remanded to the assessing officer, you can argue that you have complied with the “substance” of the law. Under Vidur’s knowledge, courts and tribunals have held that if an assessee has demonstrated a clear, unambiguous intent to opt for Section 115BAA of the Income Tax Act, 1961, through other contemporaneous filings, the technical non-filing or delayed filing of Form 10-IC should not result in the denial of the substantive benefit.

Taxpayers can establish substantive compliance by proving the following facts from your records:

• ITR-6 Declaration: In Part A-GEN of your ITR-6, under “Filing Status,” the taxpayer selected “Yes” to the query: “Whether the company has opted for taxation U/S 115BAA?”
• Tax Computation: Taxpayer income tax computation filed with the return was calculated at the rate of 22% (plus surcharge and cess), and no Minimum Alternate Tax provisions were invoked, consistent with Section 115JB(5A) .
• Foregoing of Exemptions: Taxpayer did not claim any of the prohibited deductions or exemptions listed U/S 115BAA(2) of the Income-tax Act, 1961, such as additional depreciation U/S 32(1)(iia) or deductions under Chapter VI-A (except Section 80JJAA of the Income-tax Act, 1961).
• Tax Audit Report (Form 3CD): Under Clause 8(a) of Form 3CD, your statutory tax auditor explicitly disclosed and certified that the company opted for taxation U/S 115BAA of the Income-tax Act, 1961.
• Timely Filing of Return: Taxpayer ITR-6 was filed on or before the due date specified U/S 139(1) of the Income-tax Act, 1961.
• Subsequent Consistency: Taxpayer have successfully filed Form 10-IC and paid taxes U/S 115BAA in subsequent assessment years (e.g., AY 2021-22 or AY 2022-23), proving a consistent tax position.

Comparison: Substantive Compliance vs. Procedural Compliance

Compliance Type	Requirement / Indicator	Status in Your Case	Legal Standing
Substantive	Selecting “Yes” for Section 115BAA in Part A-GEN of ITR-6	Complied	Primary declaration of intent; highly favored by courts [3].
Substantive	Foregoing prohibited deductions (e.g., additional depreciation)	Complied	Demonstrates actual adherence to the conditions of Section 115BAA(2)
Substantive	Disclosure in Clause 8(a) of Tax Audit Report (Form 3CD) [3][5]	Complied	Third-party statutory attestation of the option
Substantive	Filing the ITR-6 on or before the Section 139(1) due date	Complied	Mandatory statutory timeline U/S 115BAA(5)
Procedural	Electronic filing of Form 10-IC on the IT Portal	Missed / Delayed	Directory/procedural requirement; delay can be condoned

Key Judicial Precedents to Support Your Case

Taxpayer can cite the following rulings in your submissions before the appellate authorities or the Principal Commissioner of Income Tax:

• Kcreate Konnect E Solutions (P.) Ltd. v. DCIT (ITAT Ahmedabad): The Tribunal held that where the assessee had selected “Yes” in ITR-6, computed income at 22%, forewent exemptions, and disclosed the option in Form 3CD, the substantive components of Form 10-IC were already embedded in the return. The belated filing or non-filing of the form was merely procedural and could not override substantive compliance
• Kanoria Energy and Infrastructure Ltd. v. CCIT (Rajasthan High Court): In this case, the petitioner filed ITR-6 opting for Section 115BAA but missed filing Form 10-IC. The Centralised Processing Centre raised a demand U/S 143(1). The appellate authorities accepted that the petitioner had exercised the option and directed the AO to apply the concessional rate, showing that judicial forums look favorably upon genuine cases of procedural omission
• JSW Minerals Trading (P.) Ltd. v. ITO (ITAT): The Tribunal noted that the filing of Form 10-IC is a procedural requirement and does not invalidate the substantive right of the assessee to claim the benefit of Section 115BAA, especially when the portal did not initially provide smooth options for filing or condonation
• PCIT v. Fastner Commodeal (P.) Ltd. (Calcutta High Court/ITAT): The court restored the matter to the Assessing Officer to accept the belated Form 10-IC and grant the concessional tax benefit, provided other substantive conditions of the law were met.

Conclusion on Action Plan for Non-Filing of Form 10-IC

If the taxpayer has received a tax demand due to the non-filing of Form 10-IC for AY 2020-21, you should not panic. Since you have already demonstrated your intent by opting for the regime in your ITR-6 and complying with the substantive conditions of Section 115BAA, the omission is purely procedural

Taxpayers should immediately file a condonation of delay application under Section 119(2)(b) before the jurisdictional principal commissioner of income tax / chief commissioner of income tax. Simultaneously, if an active demand or assessment/rectification order is pending, file an appeal before the CIT(A)/NFAC, citing the CBDT Circular No. 6/2022 and the favorable judicial precedents of Kcreate Konnect E Solutions and Kanoria Energy to seek directions for the AO to apply the 22% concessional tax rate and delete the demand.