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2020 (4) TMI 824 - HC - Income TaxDeduction u/s 80-IA - Assessee not filed form No.10CCB alongwith return of income in original assessment proceedings - AO fails to file the audit report under Section 80-IA(7) along with the original return of income filed under Section 139 but presents the same during the course of assessment proceedings u/s 143 - Whether Unit-II was eligible for claiming deduction u/s 80-IA of the Act, when the profits shown by the Unit-II in respect of sales to consumption of raw material clearly showed that the profit claimed by Unit-II for deduction u/s 80-IA of the Act was erroneous? - HELD THAT - In a decision reported in Commissioner of Income Tax vs. Punjab Financial Corporation) 2001 (12) TMI 50 - PUNJAB AND HARYANA HIGH COURT section 32AB(5) of the Act is not mandatory and the Assessing Officer has the discretion to entertain the audit report even though the same has not been filed with the return but presented during the course of assessment proceedings and give benefit of the deduction to the assessee in terms of Section 32AB(1) - provision under Section 139 of the Act which provides for filing of revised return and rectification of defect in the return and, therefore, the requirement of filing the duly audited report along with the return was held to be not mandatory. Be it noted, the provision under Section 32AB(5) of the Act is similar to Section 80-IA(7) of the Act. Therefore, we are unable to take any different view in the matter than the one arrived at by the Punjab and Haryana High Court in Punjab Financial Corporation (supra). First point under issue No.(a) is held in affirmative. Where the assessee files the audit report in Form No.10CCB before completion of the assessment, we do not find any reason to hold that the condition envisaged under Section 80-IA of the Act had not been fulfilled. Benefit as admissible in case of reassessment proceedings - Basic purpose of Section 148 of the Act is merely to empower the Assessing Authority with the machinery for assessment. Fundamentally, both the assessment and reassessment need the same machinery. In other words, the provisions relating to regular assessments shall apply to the assessment made pursuant to the notice of reassessment. Once that is so, all the essential traits and requirements of procedure embodied for framing of regular assessment under the Act would also apply to reassessment proceedings as well. Therefore, the audit report furnished at the time of reassessment proceedings could not be ignored by the Assessing Officer while adjudicating the issue of admissibility of deduction under Section 80-IA of the Act. The point No.(ii) noticed above is decided accordingly. At the time of passing of the order, there was material before the Assessing Officer to rely upon the audit report duly filed by the assessee in Form No.10CCB as contemplated under Section 80-IA(7) of the Act. Once the accounts of the assessee for the relevant year were examined and the audit report was submitted at the time of reassessment proceedings, it could not have been discarded by the Assessing Officer on the ground that no separate audited financial statements were attached in the original assessment proceedings. There is nothing to show that the Assessing Officer had doubted the correctness of the said audit report so as to make it necessary for the assessee to have submitted separate audited financial statements of Unit No.II and in absence of which the audit report had been incomplete. Admittedly, since the audit report in Form No.10CCB was ultimately filed before completion of the reassessment, we do not find any reason to hold that condition under Section 80-IA(7) of the Act had not been satisfied. Consequently, question No.(A) is answered in favour of the assessee and against the Revenue. Deduction u/s 80IA - Once the assessee was maintaining separate accounts for both the units and product manufactured was different and raw material used was also different then it was not open to the Assessing Officer to compare the value of sales of Unit-II by combining the accounts of Unit-I and Unit-II. Thus, we do not find any force in the submission of the learned counsel for the appellant that profit shown by Unit-II in respect of sales to consumption of raw material was erroneous and therefore, deduction under Section 80-IA of the Act was not allowable to the Unit-II. Accordingly, the question No.(B) is also answered against the Revenue.
Issues Involved:
1. Filing of audit report under Section 80-IA(7) of the Income Tax Act. 2. Proportionality of profits shown by Unit-II in relation to sales and consumption of raw materials. Detailed Analysis: 1. Filing of Audit Report under Section 80-IA(7): *Issue:* Whether the assessee, who had failed to file the audit report at the time of original assessment, was entitled to present it during the course of reassessment proceedings and claim deduction under Section 80-IA of the Act. *Analysis:* The court examined whether the requirement of filing the audit report in Form No.10CCB along with the return of income, as per Section 80-IA(7), is mandatory or directory. The court referred to a similar provision under Section 32AB(5) of the Act, which was held by the Punjab and Haryana High Court to be directory. The court concluded that the requirement of filing the audit report is not mandatory and can be fulfilled during the reassessment proceedings. The court held that the audit report filed before the completion of the reassessment satisfies the condition under Section 80-IA(7) of the Act. *Conclusion:* The court affirmed that the assessee is entitled to claim the deduction under Section 80-IA even if the audit report was filed during reassessment proceedings. 2. Proportionality of Profits Shown by Unit-II: *Issue:* Whether the Tribunal rightly allowed deduction under Section 80-IA for Unit-II when the profits were not in proportion to the sales and consumption of raw materials. *Analysis:* The court considered the findings of the CIT(A) and the Tribunal, which indicated that Unit-II was a separate and independent unit from Unit-I, manufacturing different products with different raw material consumption. The court noted that the products and raw materials for Unit-I and Unit-II were entirely different, and hence, the proportionality of raw material consumption and sales could not be the same. The court found no merit in the argument that the profit shown by Unit-II was erroneous based on the combined accounts of Unit-I and Unit-II. *Conclusion:* The court upheld the deduction under Section 80-IA for Unit-II, agreeing with the findings that the separate accounts for both units were duly audited and maintained. Final Judgment: The court dismissed the appeal, affirming the decisions of the CIT(A) and the Tribunal. It concluded that the assessee was entitled to the deduction under Section 80-IA, having fulfilled the requirement of filing the audit report during reassessment, and that the profits of Unit-II were correctly accounted for, given the distinct nature of its operations and products. The substantial questions of law were answered against the Revenue.
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