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TMI Blog2016 (5) TMI 947X X X X Extracts X X X X X X X X Extracts X X X X ..... legality 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. - Income Tax Appeal No. - 248 of 2015 - - - Dated:- 3-5-2016 - Hon'ble Dilip Gupta And Hon'ble Ravindra Nath Kakkar, JJ. For the Appellant : Ashok Kumar,Ashish Agrawal,Jr. S.C. For the Respondent : Rahul Agarwal ORDER This appeal has been filed by the Principal Commissioner of Income Tax (Central), Kanpur under Section 260-A of the Income Tax Act, 1961 the act against the order dated 18 February 2015 of the Income Tax Appellate Tribunal 'G' New Delhi the Tribunal relating to the assessment year 2005-06. The questions of law that have been framed in the appeal are as follows:- 1. Whether Hon'ble ITAT was justified in dismissing Revenue's appeal by observing that the assessee's claim of deduction under Section 80IP is allowable on undisclosed income that was declared in consequence of search ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t report was a directory requirement and as the audit report had been furnished prior to the completion of the assessment proceedings, the provisions of sub-section (7) of Section 80IB stood complied. In regard to the disallowance of the deduction under Section 40A(3) of the Act, the CIT Appeals observed that the Assessing Officer was justified in not allowing the deduction but observed that since such amount would become the income of the eligible project, there was no reason why the assessee should be denied deduction under Section 80IB of the Act. The Assessing Officer was, therefore, directed to recompute the eligible deduction under Section 80IB of the Act. The revenue filed an appeal before the Tribunal. The Tribunal noted that it was an admitted position that the assessee was eligible to claim deduction under Section 80IB of the Act as the claimed deduction of ₹ 41,83,113/- was earlier allowed by the Assessing Officer in the original assessment. However, the return filed in response to the notice issued under Section 153 of the Act, the said claim was enhanced to ₹ 18,43,552/- on account of the additional income declared in the return. The Tribunal noted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted under Section 153 A of the Act and, therefore, the requirement of sub-section (7) of Section 80IA stood satisfied. Learned Senior Counsel also submitted that the CIT Appeals and the Tribunal committed no illegality in holding that even if the deduction claimed under Section 40A(3) of the Act was disallowed, the same was required to be added to the deduction claimed under Section 80IA of the Act for the reason that it was linked to the profit of the eligible project. We have considered the submissions advanced by the learned counsel for the parties. Section 80IB of the Act deals with the deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings. Sub-section (13) of Section 80IB provides that the provisions contained in sub-section (5) and sub-sections (7) to (12) of Section 80IA shall, so far as may be, applied to the eligible business under this section. The provision of Section 80IB(1) and sub-section (7) of Section 80IA of the Act are reproduced below :- 80IB(1) - Where the gross total income of an assessee includes any profits and gains derived from any business referred to in sub-sections ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed the deductions for the reason that the said requirement was merely directory which stood satisfied when the assessee furnished the audit report during the course of the assessment proceedings. The requirement of sub-section (7) of Section 80IA of the Act has been held to be directory by various High Courts. The High Courts have decided this issue while examining the provisions of Section 80IB of the Act as also the provisions of Section 80J(6A) and Section 184 of the Act. The decisions directly dealing with the provisions of Section 80IB shall be discussed first. The Karnataka High Court in Commissioner of Income Tax and Another v. ACE Multitaxes Systems Private Limited [2009] 317 ITR 207 (Kar) specifically examined whether the filing of the audit report for getting the benefit of deductions under Section 80IB was directory or mandatory. After placing reliance on the earlier decisions of the Punjab and Haryana High Court in Commissioner of Income Tax v. Shahzedanand Charity Trust [1997] 228 ITR 292 and the Calcutta High Court in Murali Export House And Others v. Commissioner Of Income-Tax [1999] 238 ITR 257 it was observed that sub-section (7) of Section 80IA of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the substance or the essence. It is a procedural requirement. The legislative intent appears to be that while dealing with the assessment of a firm the ITO should have clear-cut evidence that the essential fact that there has been no change in the constitution of the firm or in the shares of the partners has been proved satisfactorily in the required manner. The procedural requirements hence are to be treated as directory. If there is some defect in the declaration form, the assessee is to be given an opportunity for rectifying it [See Section 185(2)]. It cannot be ignored or rejected straightaway. Similarly, the requirement that the declaration should be filed along with the return of income is directory, because the ITO is enabled to assess the firm provided, the return is filed up to the time he makes the assessment. This decision has been followed by the Gujrat High Court in Commissioner of Income Tax v. Gujarat Oil and Allied Industries [1993] 201 ITR 325 (Guj), while interpreting the provisions of Section 80J-6(A) of the Act, which is as follows:- 80J-6(A) - Where the assessee is a person other than a company or a co-operative society, the deduction under sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urn 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. The next submission of the learned counsel for the appellant is that the CIT Appeals committed an illegality in reversing the finding of Assessment Officer that the assessee was not entitled to deductions under Section 40 A(3) of the Act. Section 40A (3) of the Act is as follows:- Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure. The CIT Appeals and the Tribunal had maintained the finding of the Assessing Officer that the assessee was not entitled to deductions under sub-section (3) of Section 40A of the Act but observed that eve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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