2012 (2) TMI 401 - AT - Income Tax

Revision u/s 263 by commissioner - Deduction under 80IB - Failure to file audit report - Held That - In view of 80IA(7) read with rule 18BBB, unless audit report of p/y is furnished no deduction is available. Therefore We have no hesitation in holding that the learned CIT was justified in holding the order of the AO as erroneous in so far as it was prejudicial to the interests of Revenue. Decide against assesee.

Summary

Issues Involved:
1. Validity of the revision order under Section 263 of the Income-tax Act, 1961.
2. Requirement and timing of filing the audit report for claiming deduction under Section 80IB of the Income-tax Act, 1961.

Detailed Analysis:

1. Validity of the Revision Order under Section 263 of the Income-tax Act, 1961:
The primary issue is whether the Commissioner of Income-tax (CIT) was justified in invoking Section 263 to revise the assessment order passed by the Assessing Officer (AO). The CIT argued that the assessment order was erroneous and prejudicial to the interests of the Revenue because the assessee did not file the mandatory audit report under Section 80IB either with the return or during the assessment proceedings. The assessee contended that the revision lacked jurisdiction both legally and factually. Legally, the assessee cited sub-rule (3) of Rule 12 of the Income Tax Rules, 1962, which, post the Income-tax (Seventh Amendment) Rules, 2006, mandated that returns filed electronically need not be accompanied by documents, including the audit report. Factually, the assessee argued that the AO had conducted due verification of the deduction claim and did not request the audit report during the assessment proceedings.

The Tribunal found that the CIT was justified in invoking Section 263, as the AO allowed the deduction without the mandatory audit report, making the order erroneous and prejudicial to the Revenue's interests. The Tribunal upheld the CIT's decision to cancel the assessment order and directed the AO to conduct a fresh assessment.

2. Requirement and Timing of Filing the Audit Report for Claiming Deduction under Section 80IB:
The assessee claimed a deduction under Section 80IB but did not file the audit report with the return or during the assessment proceedings. The CIT issued a show cause notice, stating that the failure to file the audit report resulted in an erroneous assessment, leading to an underassessment of Rs. 1,19,98,303/-.

The assessee argued that the audit report was obtained before filing the return and was not submitted due to the amendment in Rule 12, which eliminated the requirement to file documents with electronically filed returns. The assessee also claimed that the AO did not request the audit report during the assessment proceedings and that the deduction claim was verified and allowed after due inquiry.

The Tribunal noted that Section 80IA(7) read with Section 80IB(13) and Rule 18BBB mandates the filing of an audit report for the deduction to be admissible. The Tribunal agreed with the CIT that the AO's failure to obtain the audit report before allowing the deduction made the assessment order erroneous. However, the Tribunal also acknowledged that the audit report was submitted during the 263 proceedings and directed the AO to consider this report while making the fresh assessment.

Conclusion:
The Tribunal upheld the CIT's invocation of Section 263, agreeing that the assessment order was erroneous and prejudicial to the Revenue's interests due to the absence of the mandatory audit report. The Tribunal directed the AO to re-examine the deduction claim under Section 80IB, taking into account the audit report provided during the 263 proceedings. The appeal filed by the assessee was partly allowed, emphasizing the importance of procedural compliance for claiming tax deductions.