2006 (2) TMI 120 - HC - Income Tax

Whether, Tribunal was right in law in setting aside the order of the Commissioner of Income-tax passed under section 263, even though the assessee has not fulfilled the mandatory requirement as per the provisions of section 32AB(5) to get deduction under section 32AB? - we have no hesitation to hold that the filing of the audit report along with the return, as contemplated under section 32AB(5) of the Act, is only directory and not mandatory. Hence, finding no substantial question of law arising for consideration, the appeal is dismissed.

Summary

Issues:
- Whether the assessee fulfilled the mandatory requirement under section 32AB(5) of the Income-tax Act for claiming deduction under section 32AB?
- Whether the requirement of filing the audit report along with the return is mandatory or directory under section 32AB(5)?
- Whether the Income-tax Appellate Tribunal was right in setting aside the Commissioner's order under section 263 of the Income-tax Act?

Analysis:
- The case involved an appeal against the Income-tax Appellate Tribunal's order regarding the deduction allowed under section 32AB for the assessment year 1988-89. The Commissioner rectified the mistake and directed the withdrawal of the investment allowances granted to the assessee. The core contention was the failure of the assessee to file the audit report along with the return, a requirement under section 32AB(5) for claiming deduction under section 32AB.

- The court referred to established rules of interpretation in taxing statutes, emphasizing the need to look at the language used without any intendment or presumption. The court highlighted that not every provision in a taxing statute is mandatory and that provisions should be construed to make them constitutionally valid. The objective of the section should be fulfilled, and provisions should not be interpreted to frustrate that objective.

- The court analyzed the interpretation of section 32AB and corresponding section 80J(6A) of the Act. It noted that the requirement to file the audit report along with the return is not time-bound, and the assessee can delay filing the return until the audit report is available. The court emphasized that denying deduction solely based on the audit report not being filed with the return would defeat the purpose of the provision. Referring to previous judgments, the court held that the filing of the audit report is directory, not mandatory, and the Assessing Officer has discretion to entertain the report even if not filed with the return.

- Citing decisions from the Punjab and Haryana High Court and previous judgments of the Madras High Court, the court concluded that the filing of the audit report along with the return under section 32AB(5) is directory, not mandatory. Therefore, the court dismissed the appeal, finding no substantial question of law to consider, as the assessee's failure to file the audit report along with the return did not invalidate the claim for deduction under section 32AB.