2022 (10) TMI 942 - AT - Income Tax

Disallowance of deduction u/s 80IB - want of filing the audit report in Form No.10CCB electronically/online - claim denied for non-filing of the audit report in Form No.10CCB electronically - whether filing of the audit report in Form No.10CCB electronically is not mandatory but directory? - HELD THAT - Outcome of the denial of deduction under section 80IB of the Act on the ground of late filing of the return of income would not be more than the disallowance of deduction made by the AO and consequently it is not the case of enhancement of the assessment but the disallowance of deduction as made by the Assessing Officer has been further strengthened by the CIT(A) by taking the issue of late filing of the return of income. In any case since the CIT(A) has not issued any show cause notice to the assessee before taking up this issue and passed the order on the same therefore it is a clear case of violation of the principles of natural justice which renders the impugned order of the ld. CIT(A) not sustainable. Accordingly the order of the ld. CIT(A) to the extent of taking up the fresh issue and deciding the same against the assessee is set aside and the matter is remanded to the record of the CIT(A) for deciding the same after giving an opportunity of hearing to the assessee on this issue. It is clarified that the issue with respect to the late filing of the return of income is remanded to the record of the ld. CIT(A) and the remand proceedings before the ld. CIT(A) are confined only on the said issue. Appeal of the assessee is partly allowed.

Issues Involved:
1. Disallowance of exemption under section 80IB for not filing the audit report in Form No. 10CCB electronically.
2. Whether the assessee was liable to get its accounts audited under section 44AB and file the return in the prescribed manner.
3. Timeliness of filing the audit report in Form No. 10CCB.
4. Application of section 80AC due to late filing of the return under section 139(1).
5. Reasonable cause for not filing the return of income on time.
6. Conflicting opinions of various ITAT benches on section 80AC.
7. Liberal construction of section 80IB as an incentive provision.
8. CBDT Circular No. 40 dated 11.4.1955 and its application to the case.
9. Violation of principles of natural justice by the Commissioner of Income Tax (Appeals).

Detailed Analysis:

1. Disallowance of exemption under section 80IB for not filing the audit report in Form No. 10CCB electronically:
The primary issue is whether the disallowance of deduction under section 80IB by the Assessing Officer (AO) for not filing the audit report electronically was justified. The assessee argued that filing the audit report electronically is not mandatory but directory. The Tribunal referred to the judgment of the jurisdictional High Court in the case of CIT vs. M/s Fortune Foundation Engineers & Consultants Private Limited, which held that filing the audit report in Form No. 10CCB is directory and not mandatory. Consequently, the Tribunal decided in favor of the assessee, stating that the claim under section 80IB cannot be denied merely because the audit report was submitted manually.

2. Whether the assessee was liable to get its accounts audited under section 44AB and file the return in the prescribed manner:
The assessee contended that it was not liable to get its accounts audited under section 44AB and therefore was not required to file the return and audit report electronically. However, this issue was not the primary focus of the Tribunal's decision.

3. Timeliness of filing the audit report in Form No. 10CCB:
The Tribunal noted that the audit report in Form No. 10CCB was filed manually during the assessment proceedings and not electronically due to technical difficulties. The Tribunal accepted this explanation, especially considering that this was the first year for mandatory electronic filing of the audit report.

4. Application of section 80AC due to late filing of the return under section 139(1):
The Commissioner of Income Tax (Appeals) [CIT(A)] raised a fresh issue regarding the late filing of the return, which was not addressed by the AO. The Tribunal found that the CIT(A) did not issue a show cause notice to the assessee before deciding this issue, violating the principles of natural justice. The Tribunal set aside this part of the CIT(A)'s order and remanded the matter for reconsideration after giving the assessee an opportunity to be heard.

5. Reasonable cause for not filing the return of income on time:
The Tribunal observed that the assessee had a bona fide reason for not filing the audit report electronically due to technical glitches. This explanation was accepted as reasonable, especially given that this was the first year of mandatory electronic filing.

6. Conflicting opinions of various ITAT benches on section 80AC:
The assessee argued that in cases of conflicting opinions, the decision favorable to the assessee should be adopted. The Tribunal did not specifically address this argument but focused on the jurisdictional High Court's judgment, which supported the assessee's position.

7. Liberal construction of section 80IB as an incentive provision:
The Tribunal acknowledged that section 80IB is an incentive provision and should be construed liberally. This view was supported by the CIT(A)'s decision for the subsequent assessment year, where the assessee's claim under section 80IB was allowed despite similar issues.

8. CBDT Circular No. 40 dated 11.4.1955 and its application to the case:
The assessee cited the CBDT Circular to argue that the AO should have condoned the delay in filing the return and allowed the deduction under section 80IB. The Tribunal did not specifically address this circular but focused on the broader principle of liberal interpretation of incentive provisions.

9. Violation of principles of natural justice by the Commissioner of Income Tax (Appeals):
The Tribunal found that the CIT(A) violated the principles of natural justice by deciding the issue of late filing of the return without issuing a show cause notice to the assessee. This part of the CIT(A)'s order was set aside, and the matter was remanded for reconsideration.

Conclusion:
The Tribunal ruled in favor of the assessee on the primary issue of disallowance under section 80IB for not filing the audit report electronically, based on the jurisdictional High Court's judgment. The issue of late filing of the return was remanded to the CIT(A) for reconsideration after providing the assessee an opportunity to be heard. The appeal was partly allowed.

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