2008 (4) TMI 272 - HC - Income Tax

Whether Tribunal was justified in holding that even if the company did not fulfill the condition of sub section (5) of Section 32 AB, it is entitled for deduction u/s 32 AB Held, yes - held that the filing of auditor s report along with return is not mandatory and in case, if it is not filed along with return, but filed subsequently and was available for consideration at the time of passing of the assessment order, deduction u/s 32 AB cannot be disallowed revenue s appeal dismissed

Summary

Issues:
1. Interpretation of Section 32 AB of the Income Tax Act regarding the mandatory requirement of furnishing auditor's report.
2. Admissibility of deduction under Section 32 AB if the auditor's report is not filed along with the return but is available during the assessment.

Analysis:
1. Interpretation of Section 32 AB: The case involved appeals under section 260-A of the Income Tax Act related to assessment years 1987-88 and 1989-90. The main issue raised was whether the company, despite not fulfilling the condition of sub-section (5) of Section 32 AB, was entitled to a deduction under the said section. The assessee, a U.P. Government undertaking, had failed to furnish the auditor's report in the prescribed proforma along with the return of income, leading to a disallowance under section 32 AB. The Commissioner of Income Tax (Appeal) upheld this disallowance, which was challenged before the Tribunal.

2. Admissibility of Deduction: The Tribunal, in its impugned order, allowed the deduction under section 32 AB, even though the auditor's report was not filed along with the return. The Revenue contended that the word "shall" in sub-section (5) of Section 32 AB made it mandatory for the assessee to comply with the condition of filing the auditor's report along with the return. However, the High Court analyzed the provisions of Section 32 AB, particularly sub-section (5), and referred to previous decisions by the Full Bench of Punjab and Haryana High Court and the Division Bench of the Calcutta High Court.

3. The Full Bench of Punjab and Haryana High Court had held that the requirement of filing the audit report along with the return was not mandatory for claiming deductions under section 32 AB. The High Court agreed with this interpretation, stating that the Assessing Officer could accept the audit report even if not filed along with the return, as long as it was available before finalizing the assessment. The Division Bench of the Calcutta High Court also held that the word "shall not be admissible" in sub-section (5) of Section 32 AB was directory, not mandatory.

4. Based on the precedents and the interpretation of the provisions of Section 32 AB, the High Court concluded that the filing of the auditor's report along with the return was not mandatory. Therefore, if the report was filed subsequently and available during the assessment, the deduction under section 32 AB could not be disallowed. The High Court upheld the orders of the Tribunal, dismissing the appeals.

In conclusion, the High Court's judgment clarified the interpretation of Section 32 AB regarding the mandatory requirement of furnishing the auditor's report and established that the deduction under this section could not be disallowed if the report was filed subsequently and available during the assessment process.