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2005 (8) TMI 100 - HC - Income TaxDeduction u/s 32AB in respect of deposits made in the Development Bank - Whether the Income-tax Appellate Tribunal was right in holding that filing of the audit report u/s 32AB(5) during the assessment proceedings and not along with the return of income would satisfy the requirements of the aforesaid section? - HELD THAT - A Division Bench of the Gujarat High Court in the later decision in Zenith Processing Mills v. CIT 1995 (9) TMI 37 - GUJARAT HIGH COURT has reached the same conclusion following its earlier decision in CIT v. Gujarat Oil and Allied Industries 1992 (9) TMI 67 - GUJARAT HIGH COURT . The Division Bench has further reasoned that it is an inherent part of section 143(3) that where the Assessing Officer is not inclined to accept the return submitted by the assessee and if he wants to modify the assessment from the return a show-cause notice is required to be given to the assessee. Giving this opportunity will include opportunity to erase the procedural defects if any which is directory in nature. If we examine the matter from that point of view we are satisfied that in the present case the claim made by the assessee though not admissible for want of the auditor s report on record yet the same was allowed under a mistake by the Assessing Officer leaving no opportunity to the assessee to complete the requirements. The condition of non-fulfilment of the requirement under sub-section (6A) was made known to the assessee during the proceedings u/s 263 although the assessee asked for an opportunity to produce the auditor s report to fulfil the requirements u/s 80J(6A). The Commissioner of Income-tax ought to have afforded an opportunity to the assessee to furnish that proof and then examine the admissibility of the claim in the light of the proof furnished. The ratio of all these decisions is primarily founded on the well-known principle of interpretation of statutes that while the substantive provisions of taxing law are subjected strict to the rule of interpretation the machinery rules are not subjected to such strict principles. Thus two principles which can be culled out with reference to section 32AB(5) can be stated thus that from a perusal of sub-section (5) of section 32AB of the Income-tax Act 1961 for claiming deduction u/s 32AB it is apparent that compliance with section 2 is necessary. The first requirement is that the statement of accounts for the previous year relevant to the assessment year for which deduction is claimed may have been audited and the second is that the assessee must furnish along with the return of his income the report of such audit in the prescribed form as a proof of accounts. Further the audit forms a substantive foundation for claiming allowance and such foundation must exist at the time of filing return viz. the accounts must have been audited before claiming deduction in a return and in the absence of which such deduction cannot be claimed. The compliance with the aforesaid requirement is mandatory before deduction is claimed. So far as such compliance along with the return is concerned it is directory and this procedural compliance can be made as such during the course of assessment proceedings. As in the present case indisputably the accounts had been audited on September 25 1988 much before the return of income claiming deduction was filed on February 2 1989 the claim of the assessee to deduction in respect of deposit made with the Development Bank was rightly allowed by the Tribunal. As a result of the discussion we do not find any force in this appeal and the appeal is hereby dismissed.
Issues Involved:
1. Whether the filing of the audit report under section 32AB(5) during the assessment proceedings, rather than along with the return of income, satisfies the requirements of section 32AB of the Income-tax Act, 1961. Issue-wise Detailed Analysis: 1. Filing of Audit Report Under Section 32AB(5): The primary issue in this case is whether the Income-tax Appellate Tribunal was correct in holding that filing the audit report under section 32AB(5) during the assessment proceedings, instead of along with the return of income, satisfies the requirements of section 32AB. Facts of the Case: The respondent-assessee submitted a return declaring a total income of Rs. 4,67,010 and claimed relief under section 32AB for Rs. 1,00,000 deposited with the Development Bank. The accounts were audited before the filing of the return, but the audit report was not furnished along with the return. It was submitted later during the assessment proceedings, leading to the disallowance of the claim by the Assessing Officer. Commissioner of Income-tax (Appeals) Decision: The Commissioner of Income-tax (Appeals) allowed the claim, referencing the decision in CIT v. Malayalam Plantations Ltd., which held that filing the audit report along with the return is directory and not mandatory. The benefit was allowed even if the report was filed subsequently. Tribunal's Decision: The Tribunal affirmed the Commissioner's decision, leading to the present appeal under section 260A of the Income-tax Act, 1961. Legal Provisions and Interpretation: Section 32AB was inserted by the Finance Act, 1986, and was effective until the assessment year 1990-91. Sub-sections (1) and (5) of section 32AB outline the procedure for claiming the deduction, including the requirement that the accounts must be audited, and the audit report must be furnished along with the return. Substantive vs. Procedural Requirements: The court examined whether the requirement to file the audit report along with the return is mandatory or directory. The distinction between substantive and procedural conditions was highlighted, referencing the Supreme Court decision in Mangalore Chemicals and Fertilisers Ltd. v. Deputy Commissioner of Commercial Taxes, which stated that not all statutory conditions are substantive; some may be procedural. Precedents and Judicial Reasoning: Several High Court decisions, including those from Kerala, Gujarat, and Allahabad, were considered. These decisions consistently held that while the audit of accounts is a substantive requirement, the submission of the audit report along with the return is procedural and directory. The Gujarat High Court in CIT v. Gujarat Oil and Allied Industries particularly emphasized that procedural requirements can be fulfilled during the assessment proceedings. Conclusion: The court concluded that the requirement to submit the audit report along with the return is directory. The audit report can be submitted during the assessment proceedings as long as the accounts were audited before the return was filed. The Tribunal rightly allowed the deduction claimed by the assessee, as the substantive requirement of auditing the accounts was fulfilled before the return was filed. Judgment: The appeal was dismissed, affirming that the procedural requirement of filing the audit report along with the return is directory, and compliance during the assessment proceedings is sufficient.
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