1995 (9) TMI 37 - HC - Income Tax

Summary

Issues involved:
1. Interpretation of section 80J(6A) - Whether mandatory or directory
2. Entitlement of assessee to file statutory audit report in revisional proceedings

Issue 1 - Interpretation of section 80J(6A):
The case involved the interpretation of section 80J(6A) which requires the accounts of an industrial undertaking to be audited by an accountant and the audit report to be furnished along with the return of income. The Commissioner of Income-tax contended that this provision is mandatory, and failure to comply would result in disallowance of deduction under section 80J. The Tribunal upheld this view, stating that the provision is mandatory. However, the High Court, relying on previous judgments, held that while the audit of accounts is mandatory, the manner of submitting the audit report is directory. The court emphasized that substantial compliance suffices, and the provision is procedural in nature. Therefore, the court concluded that the requirement of furnishing the auditor's report in the prescribed form along with the return is directory and not mandatory.

Issue 2 - Entitlement of assessee to file statutory audit report:
The second question revolved around whether the assessee should be allowed to produce the audit report at a later stage during the proceedings. The Revenue argued that the report must be furnished before the assessment is completed. However, the court disagreed, stating that the requirement of furnishing the audit report is to provide proof that the accounts have been audited, and substantial compliance is acceptable. The court highlighted that the assessee should have been given an opportunity to rectify any procedural defects and furnish the necessary proof during the proceedings. Consequently, the court ruled in favor of the assessee, emphasizing the importance of providing opportunities to rectify deficiencies in compliance with the law.

In conclusion, the High Court held that the provision of section 80J(6A) regarding the furnishing of the auditor's report in the prescribed form is directory in nature, not mandatory. Additionally, the court affirmed that the assessee should be permitted to produce the audit report at a later stage during the proceedings to rectify any procedural defects and fulfill the statutory requirements.