Startups Eligible for Deduction u/s 80IAC from First Year of DPIIT Recognition: ITAT [Read Order]

The Pune Bench of the Income Tax Appellate Tribunal (ITAT) has held that startups are entitled to claim deduction under Section 80-IAC of the Income Tax Act, 1961 from the first year of recognition by the Department for Promotion of Industry and Internal Trade (DPIIT).

The assessee, Alifcloud IT Consulting Private Limited, was incorporated on 2 August 2020 and qualified as an eligible startup under Section 80-IAC of the Income Tax Act. The company filed its return of income under Section 139(1) of the Income Tax Act on 4 November 2024, declaring a total income of ₹21,720 after claiming a deduction of ₹1,50,59,484 under Section 80-IAC of the Income Tax Act. It also paid Minimum Alternate Tax (MAT) of ₹27,44,871 in accordance with the provisions of Section 115JB of the Income Tax Act.

While processing the return under Section 143(1) of the Income Tax Act, the Centralized Processing Centre (CPC) disallowed the deduction claimed under Section 80-IAC of the Income Tax Act amounting to ₹1,50,59,484 and determined the total income of the assessee at ₹1,50,81,201.

Aggrieved by the adjustment, the assessee filed an appeal before the Additional/Joint Commissioner of Income Tax (Appeals), challenging the disallowance made by the CPC. The appellate authority dismissed the appeal, observing that the company had obtained DPIIT recognition only on 23 October 2023 and had not claimed deduction under Section 80-IAC of the Income Tax Act for Assessment Year 2023–24 due to the absence of such recognition.

It was further held that Assessment Year 2024–25 was the first year in which the assessee claimed the deduction and that the startup was required to complete three consecutive years before becoming eligible to claim the benefit under Section 80-IAC of the Income Tax Act. Aggrieved, the assessee filed the present appeal.

Before the Tribunal, the counsel appearing on behalf of the assessee drew the Tribunal’s attention to the provisions of Section 80-IAC of the Income Tax Act and submitted that the statute does not prescribe any condition requiring completion of three years before claiming the deduction. It was argued that the order of the Additional/Joint Commissioner of Income Tax (Appeals) was contrary to law and liable to be set aside.

The Departmental Representative, on the other hand, supported the findings of the appellate authority.

After examining the provisions of Section 80-IAC, the Tribunal R. K. Panda, Vice President and Ms. Astha Chandra, Judicial Member observed that “A perusal of the provisions of section 80-IAC nowhere shows that the assessee has to complete 3 years consecutively to fulfil the criteria laid out so that it can claim deduction under Section 80-IAC of the Act. We, therefore, find force in the arguments of the Counsel for the assessee that the order of the Addl / JCIT(A) rejecting the claim of deduction under Section 80-IAC holding that the assessee can claim only after the end of 3 years is not correct.

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