Introduction: The Promise of Policy Meets the Pitfall of Procedure
When the Government of India introduced Section 115BAB via the Taxation Laws (Amendment) Act, 2019, it was celebrated as a landmark reform under the ‘Make in India’ vision. The provision offered newly incorporated domestic manufacturing companies a reduced tax rate of 15% (effective rate 17.01% with surcharge and cess), with the goal of attracting large-scale investment and establishing India as a global manufacturing powerhouse.
The benefit was contingent on two clear criteria:
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The company must be incorporated on or after 1 October 2019, and
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Must commence manufacturing by 31 March 2024.
However, as we enter Assessment Year (AY) 2025–26, and companies begin filing returns post-manufacturing commencement, a sharp divide is emerging. While substantive conditions are met, the benefit under Section 115BAB is increasingly denied due to procedural non-compliance—particularly, failure to file Form 10-ID within the due date of the first return of income under Section 139(1).
This article analyses the issue from the statutory, judicial, and interpretative lens, with focus on current-year filing complexities, and proposes a coherent, equitable construction of the law.
Section 115BAB: Legal Framework and Procedural Overlay
Key Conditions under the Law
Section 115BAB(1)–(2) of the Income-tax Act, 1961 outlines the eligibility framework:
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Incorporation on or after 01.10.2019;
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Manufacturing or production as the principal business;
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Commencement of manufacturing on or before 31.03.2024;
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No claim of specified exemptions/deductions, including additional depreciation;
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Option exercised under Section 115BAB(7) by filing Form 10-ID on or before the due date of filing the first return of income under Section 139(1).
Prescribed Manner: Rule 21AE
Rule 21AE requires:
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Electronic filing of Form 10-ID;
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Mention of date of commencement of manufacturing/production;
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Declaration that conditions of Section 115BAB(2) are satisfied and will continue to be so.
The Crux of the Litigation: Timing vs Eligibility
In practice, many eligible companies find themselves at odds with the law due to the timing mismatch between incorporation, first return filing, and actual commencement of manufacturing:
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A company incorporated in FY 2020–21 may not begin manufacturing until FY 2023–24.
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It files its first return under Section 139(1) without having started manufacturing.
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At this stage, it cannot file Form 10-ID, as it cannot truthfully declare compliance.
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When manufacturing commences (before 31.03.2024), the company is now eligible, but the statutory window to opt into Section 115BAB has technically closed.
The result? A company that satisfies all substantive conditions is denied the benefit on procedural grounds, despite being the exact beneficiary envisioned by the law.
Judicial Evolution: From Rigidity to Rationality
Multiple decisions by the Income Tax Appellate Tribunal (ITAT) have addressed this disconnect, with emerging judicial consensus favouring a substantive law approach.
Granules CZRO Pvt. Ltd. v. ITO (Hyderabad ITAT, ITA No. 706/Hyd/2024)
Held that manufacturing commencement by 31.03.2024 is the primary test, and the benefit cannot be denied for not filing Form 10-ID with the first ITR. A harmonious interpretation was applied.
India no Chrome Pvt. Ltd. v. DDIT (Kolkata ITAT, ITA No. 212/Kol/2025)
Where benefit was granted in AY 2022–23 post-manufacturing, the Tribunal ruled that once validly granted, the benefit cannot be withdrawn in future years if conditions continue to be met.
Cosmo Speciality Chemicals Pvt. Ltd. v. ITO (Delhi ITAT, ITA Nos. 809/DEL/2024 & 2766/DEL/2024)
Upheld benefit claimed via a revised return and clarified that filing Form 10-ID is directory, not mandatory, when substantive compliance is evident.
Vivrn Foods Pvt. Ltd. v. ITO (Raipur ITAT, ITA No. 364/RPR/2025)
Adopted a literal view, holding that non-filing of Form 10-ID within the Section 139(1) timeline is fatal. The benefit was denied despite manufacturing commencing in time.
Interpretation of ‘First Return’: The Core of the Controversy
The key phrase in Section 115BAB(7)—
“…on or before the due date of furnishing the return of income under sub-section (1) of section 139…”
—has led to two interpretative camps:
1. Literal/Procedural View (Narrow):
“First return” means first ITR post-incorporation, irrespective of when manufacturing begins. If Form 10-ID isn’t filed then, the option is lost forever.
2. Contextual/Substantive View (Broader):
“First return” should be read as first return post-eligibility—i.e., the first ITR filed after manufacturing has commenced, because only then can Form 10-ID be filed with a true declaration of compliance.
The second view finds support in:
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The purpose of Section 115BAB—to promote genuine manufacturing;
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The language of Rule 21AE, which requires actual date of commencement;
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The legal maxim lex non cogit ad impossibilia—the law does not compel a person to do the impossible.
Filing Form 10-ID before actual manufacturing makes it factually and legally inaccurate.
Substance vs Procedure: What the Law and Judiciary Favour
While Section 115BAB(7) is procedural, Section 115BAB(1)-(2) lay out the substantive conditions—which are:
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Incorporation post 1.10.2019;
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Manufacturing commencement before 31.03.2024;
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Non-availment of deductions;
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Being engaged in eligible activity.
Where all substantive conditions are satisfied, minor procedural lapses—such as delayed filing of Form 10-ID—should not defeat eligibility.
This principle has been upheld in other procedural contexts too:
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Form 67 for foreign tax credit;
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Form 10-IE for old/new regime under Section 115BAC;
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Form 10-IC under Section 115BAA.
Courts have consistently held that procedural prescriptions are directory unless the legislature expresses a contrary intent, especially where no revenue loss or malafide conduct is involved.
Current-Year Filing Guidance for AY 2025–26
If your company:
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Was incorporated after 01.10.2019,
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Has commenced manufacturing before 31.03.2024,
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Meets all conditions under Section 115BAB(2),
...then even if Form 10-ID was not filed earlier, you may still claim the benefit in AY 2025–26 by:
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Filing Form 10-ID with the first return post-eligibility,
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Citing relevant judicial precedents if challenged,
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Filing an appeal if the CPC or AO rejects the claim.
Companies denied the benefit in past years despite eligibility should consider:
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Filing updated returns under Section 139(8A) if within timeline;
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Preferring appeals before CIT(A);
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Seeking ITAT relief based on the evolving jurisprudence.
Conclusion: Toward Legal and Economic Coherence
As India seeks to advance its position in global manufacturing value chains, tax policy should not penalize companies that deliver on ground—create jobs, invest capital, and commence production—simply because of rigid technicalities.
Section 115BAB was not enacted to reward form-filing efficiency but to incentivize real industrial activity. Courts have now recognized this, and equity, purpose, and the Constitution demand that the law be interpreted accordingly.
The phrase “first return” must be read in context—not in isolation. Once a company becomes substantively eligible, procedural rectification should be permitted. Denial of benefit despite full compliance with manufacturing deadlines would be both inequitable and legally unsustainable.
