2014 (11) TMI 562 - HC - Income Tax

Gross total income as per 80-A would get precedence over deduction u/s. 32AB or not - Whether the Tribunal was right in holding that various deductions under Chapter VI-A with reference to gross total income as per 80-A would get precedence over deduction u/s. 32AB admissible with reference to such income chargeable under the head profits and gains of business or profession Held that - As decided in Motilal Pesticides (I.) Pvt. Ltd. Versus Commissioner of Income-Tax 2000 (2) TMI 9 - SUPREME Court deduction u/s 32AB is to be given first and deduction u/s 80HHC is to be given - in view of the provision, deduction is required to be made on the net income - Section 32AB deduction is to be given first and Section 80HHC deduction is to be given subsequently - Decided in favour of revenue. Whether the Tribunal was right in holding that an unsigned audit report filed in the course of assessment proceedings can be taken note of, even though not filed along with return of income as required by law Held that - in CIT VS. Gujarat Oil and Allied Industries 1992 (9) TMI 67 - GUJARAT High Court - the mere non-filing of the auditors report along with the return of income, the assessee does not stand to gain anything nor does the Revenue stand to lose, as even after the return is filed, it is obvious that it may take time before the Income-tax Officer applies his mind to the merits of the return, when he sits down to frame the assessment - the requirements of Section 80J(1) read with subsection (6A) can be taken into consideration - the main purpose and object of section 80J(1) is to give incentive and development benefit to the new industries covered by the provisions of the Act - the word shall as employed by the Legislature in sub-section (6A) of Section 80J(1) will have to be read as may Decided in favour of revenue.

Summary

Issues:
1. Priority of deductions under Chapter VI-A over deduction u/s. 32AB.
2. Validity of an unsigned audit report filed during assessment proceedings.

Issue 1: Priority of deductions under Chapter VI-A over deduction u/s. 32AB:
The case involved a private limited company engaged in diamond cutting claiming deductions under Sections 80HHA and 80-I without deducting the amount allowable under Section 32AB of the Income-tax Act. The Assessing Officer initially allowed deductions under Sections 80HHA and 80-I after deducting the amount under Section 32AB. The company sought rectification, arguing that deductions under Section 80HHA and 80-I should be based on profits from industrial undertakings, not net income under the business head. The Assessing Officer and CIT(A) relied on Section 29 and 80AB, dismissing the rectification application. However, the Tribunal deleted the prima facie adjustment but did not make a substantive observation. In the subsequent scrutiny assessment under Section 143(3), deductions under Sections 80HHA and 80-I were allowed without deducting Section 32AB. The Tribunal, referring to various precedents, directed the AO to allow deductions under Sections 80HHA and 80-I before Section 32AB, ultimately allowing the appeal.

Issue 2: Validity of an unsigned audit report:
During assessment, the company filed an unsigned audit report in support of a deduction under Section 32AB, which was not allowed as the assessment was completed before a revised return with a signed report was submitted. The CIT(A) and Tribunal favored the company, stating that the audit report could be filed during assessment proceedings, not necessarily with the return. The Tribunal emphasized that the absence of a signature did not warrant disallowance if the report was otherwise compliant. Citing relevant case law, the Tribunal dismissed the Revenue's appeal, affirming the validity of the unsigned audit report.

In conclusion, the High Court upheld the Tribunal's decisions on both issues, emphasizing the precedence of deductions under Chapter VI-A over Section 32AB and validating the filing of an unsigned audit report during assessment proceedings. The judgment provides clarity on the interpretation of relevant provisions and highlights the importance of following procedural requirements while allowing for substantial compliance in certain situations.