Income Tax | Manual Returns Invalid After E-Filing Became Mandatory For Companies on May 14, 2007: Madras High Court

The Madras High Court has held that from May 14, 2007, companies had to file their income tax returns electronically, and that paper returns filed after that date carry no legal validity

A bench of Justices Anita Sumanth and Mummineni Sudheer Kumar rejected a claim for deduction under Section 80-IC of the Income Tax Act, holding that electronic filing of returns was a mandatory requirement for availing the benefit.

The case reached the High Court after the Income Tax Department filed an appeal against an order of the Income Tax Appellate Tribunal, which had earlier allowed the taxpayer-company's claim.

The court pointed out that the Income Tax (Fourth Amendment) Rules, 2007 had come into effect on May 14, 2007, by which time companies were already expected to shift to electronic filing of returns.

In this case, Gemini Communication Ltd, a Chennai company was filing its return for assessment year 2008-09. The company first filed a paper return on September 30, 2008, and then filed the electronic return on November 6, 2008, which was past the due date.

Gemini Communication had claimed a deduction under Section 80-IC, which grants tax incentives to eligible enterprises operating in specified industries and locations across the country

The department denied the deduction, holding that for companies, e-filing of returns was mandatory from assessment year 2007–08, and that timely filing of the return was a condition under Section 80AC for claiming the deduction.

The company's first appeal was dismissed. However, the ITAT allowed the company's appeal, holding that the scheme for electronic filing of returns had been framed only by the Central Board of Direct Taxes (CBDT), and that there was nothing in the Act that mandates the filing of income tax returns electronically.

Disagreeing with this view, the High Court held that e-filing of returns by companies was mandatory under the Rules from May 2007. 

"E-filing of Returns by companies was hence mandatory under Rule 12(3) of the Income Tax (Fourth Amendment) Rules, 2007, with effect from 14.05.2007", observed the bench.

The bench found that there is no option under the rules for filing a return manually, followed by an electronic return thereafter, and that too beyond the due date.

Referring to a Central Board of Direct Taxes (CBDT) Circular from October 2006, the court stated that, as per the circular, the company was mandatorily required to file its income tax return electronically by following the prescribed procedure.

The bench further noted that after the issuance of this circular, companies were not required to file manual returns and also observed  that the company had filed electronic returns in earlier years.

In view of the above, the High Court allowed the Revenue's appeal and set aside the ITAT's order.