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2016 (5) TMI 947 - HC - Income TaxDeduction under Section 80IB - denial of claim as audit report was not furnished with the return of income - Held that - In the present case, the return of income under Section 153-A of the Act was filed on 8 April 2010 and the audit report was filed on 19 July 2011 before passing of the assessment order. The requirement, therefore, stood satisfied and the benefit of Section 80IB of the Act could not have been denied to the assessee merely for the reason that the audit report was not furnished with the return of income. It needs to be remembered that the audit report had been submitted earlier by the assessee with the return of income submitted on 18 January 2006 for the assessment year 2005-06 and only the additional benefit of ₹ 18,45,552/- under section 80IB was subsequently claimed in the return filed on 8 April 2010 as the income had increased. - Decided in favour of assessee. Entitlement to deductions under Section 40A(3) for deduction under Section 80IB - Held that - No infirmity in the view taken by the CIT Appeals and the Tribunal nor illegality any has been pointed out by learned Counsel for the appellant. If deductions under sub-section (3) of Section 40A of the Act is not allowed then the same would have adjusted to the profits of the undertaking as a result of which it will be entitled to seek deductions under Section 80IB of the Act.- Decided in favour of assessee.
Issues Involved:
1. Justification of ITAT in allowing the assessee's claim of deduction under Section 80IB on undisclosed income declared post-search. 2. Justification of ITAT in allowing the assessee's claim of deduction under Section 80IB for disallowance under Section 40A(3) on undisclosed income declared post-search. 3. Justification of ITAT in allowing the assessee's claim of deduction under Section 80IB(13) on enhanced income. Detailed Analysis: Issue 1: Deduction under Section 80IB on Undisclosed Income The assessee filed a return for the assessment year 2005-06, declaring an income of ?34,89,935/- after claiming a deduction of ?41,83,813/- under Section 80IB. This claim was initially allowed by the Assessing Officer. However, a subsequent search revealed an undisclosed income of ?5,68,80,271/-. The assessee then filed a revised return declaring an income of ?94,91,330/- and claimed an enhanced deduction under Section 80IB. The Assessing Officer disallowed this claim due to the absence of an audit report with the return. The CIT Appeals and the Tribunal found that the requirement to file an audit report with the return was directory, not mandatory, and since the audit report was furnished during the assessment proceedings, the deduction was allowable. Various High Courts have held that the requirement to file an audit report with the return is directory, provided it is submitted before the assessment order is passed. Issue 2: Deduction under Section 80IB for Disallowance under Section 40A(3) The Assessing Officer disallowed ?54,52,697/- under Section 40A(3) due to cash payments exceeding ?20,000/-. The CIT Appeals and the Tribunal upheld this disallowance but observed that since this amount relates to the profits of the eligible project, it should be included in the deduction under Section 80IB. The Tribunal directed the Assessing Officer to recompute the eligible deduction under Section 80IB. The High Court found no infirmity in this view, stating that the disallowed amount under Section 40A(3) should be adjusted to the profits of the undertaking, thus entitling the assessee to the deduction under Section 80IB. Issue 3: Deduction under Section 80IB(13) on Enhanced Income The assessee's original return included a deduction claim under Section 80IB, which was enhanced in the revised return filed post-search. The Tribunal noted that the enhanced claim was not a new claim but was based on the additional income declared. The Tribunal held that the requirement to file an audit report with the return is directory, and since the audit report was furnished during the assessment proceedings, the enhanced claim was allowable. The High Court upheld this view, citing various High Court decisions that have consistently held the requirement to file an audit report with the return as directory, provided it is submitted before the assessment order is passed. Conclusion: The High Court dismissed the appeal, upholding the Tribunal's decision that the requirement to file an audit report with the return is directory and that the assessee was entitled to the deductions under Section 80IB for both the undisclosed income and the disallowed amount under Section 40A(3). The questions of law framed by the appellant were answered against the revenue and in favor of the assessee.
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