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TMI Blog2001 (12) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... le the audit report with the returns as required by section 32AB(5). On receipt of the notices, the assessee furnished the audit report in the prescribed form but the Assessing Officer declined to accept the same and ordered withdrawal of the deductions. The Commissioner of Income-tax (Appeals), (for short 'the CIT(A)") dismissed the appeal of the assessee, but the Income-tax Appellate Tribunal (hereinafter described as "the Tribunal"), reversed the orders of the Assessing Officer and the Commissioner of Income-tax (Appeals) and restored the deductions by making the following observations; "We have carefully considered the submissions made by both the parties and have perused the order of the tax authorities. It is observed that the Assessing Officer has mentioned in the order made under section 154 in relation to both the assessment years that the assessee in its reply stated that the accounts of the Corporation were duly audited by S. C. Dewan and Co., and copy of the audit report was submitted along with the return and that tax audit report was also enclosed therewith. It has also mentioned that the copies of receipts relating to deposits with the Industrial Development Bank o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e deposit made under the relevant scheme with the Industrial Development Bank of India subject to the conditions that the accounts are duly audited by an accountant. We feel that the assessee had filed the basic information relating to the audit of accounts along with the auditor's report under section 44AB and the tax audit report along with receipt showing the deposit of amounts with the Industrial Development Bank of India for credit into Investment Deposit Account No. CHD 75. We feel that the decision in the case of Jaideep Industries [1989] 180 ITR 81 (P H), which relates to the provisions of section 80J(6A) is not strictly applicable, though the provisions of section 32AB(5) may be somewhat pari materia with the said provisions. The provisions of section 32AB(5) have to be construed in the context of the provisions of section 32AB(1), whereunder deduction is admissible to the assessee on making the deposit with the Industrial Development Bank of India or utilisation of any amount for the purchase of any new machinery or plant. Of course, the provisions of clause (b) of section 32AB(1) are not relevant in the context of the said provisions. We feel that the observations made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eep Industries' case [1989] 180 ITR 81 (P H), but treated the provisions of section 12A(b) as directory in view of circular dated February 9, 1978, issued by the Central Board of Direct Taxes. He also relied on the decisions of the Supreme Court in State of U. P. v. Manbodhan Lal Srivastava, AIR 1957 SC 912; Ram Autar Singh Bhadauria v. Ram Gopal Singh, AIR 1975 SC 2182 and Govind Lal Chaggan Lal Patel v. Agriculture Produce Market Committee, AIR 1976 SC 263. Shri A. K. Mittal, counsel for the assessee, argued that the conditions embodied in sub-section (1) of section 32AB which the assessee is required to fulfil in order to claim the benefit of deduction are mandatory, but the one contained in sub-section (5) requiring the assessee to furnish the report of audit along with the return of income is directory in nature and non-compliance therewith is not sufficient to disentitle the assessee to avail of the benefit of deduction. He referred to the provisions of sections 12A(b), 33AB(2), 33ABA(2), 35CC(3), 36(1)(xi), 80HHC(1) and (4) and 80J(1) and (6A) (omitted by the Finance (No. 2) Act, 1996, with effect from April 1, 1989), which contain provisions similar to section 32AB(1) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the profits of business or profession as computed in the accounts of the assessee audited in accordance with sub-section (5), whichever is less: Provided that where such assessee is a firm, or any association of persons or any body of individuals, the deduction under this section shall not be allowed in the computation of the income of any partner, or as the case may be, any member, of such firm, association of persons or body of individuals: Provided further that no such deduction shall be allowed in relation to the assessment year commencing on the 1st day of April, 1991, or any subsequent assessment year ... (5) The deduction under sub-section (1) shall not be admissible unless the accounts of the business or profession of the assessee for the previous year relevant to the assessment year for which the deduction is claimed have been audited by an accountant as defined in the Explanation below sub-section (2) of section 288 and the assessee furnishes, along with his return of income, the report of such audit in the prescribed form duly signed and verified by such accountant: Provided that in a case where the assessee is required by or under any other law to get his ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mine whether the requirement of furnishing the report of the audit in the prescribed form along with the returns of income embodied in sub-section (5) is mandatory and non-compliance therewith has the effect of depriving the assessee of his right to get the benefit of deductions under subsection (1). Section 32AB falls in Chapter IV of the Act which contains provisions relating to computation of total income. This Chapter is divided into Parts A to F. Part D contains sections 28 to 44D relating to profits and gains of business or profession. Sections 32A to 44D of the Act speak of various deductions. Clause (a) of sub-section (1) of section 32AB lays down that where an assessee whose total income includes income chargeable to tax under the head "Profits and gains of business or profession" has, out of such income, deposited any amount in an account maintained by him with the Development Bank before the expiry of six months from the end of the previous year or before furnishing the return of his income, whichever is earlier, in accordance with, and for the purposes specified in a scheme to be framed by the Central Government, then he shall be allowed a deduction of a sum equal to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Explanation below sub-section (2) of section 288 along with the return of income. The assessee's claim for deduction under clause (a) of sub-section (1) of section 32AB does not depend on the submission of the audit report along with the return of income, but on deposit of the amount in the account maintained by him with the Development Bank before the expiry of six months from the end of the previous year or before furnishing the return of his income, whichever is earlier. In this context, it is important to bear in mind that section 139 of the Act which provides for filing of return in the prescribed form within the stipulated time also provides for filing of revised return and rectification of defect in the return. Therefore, the requirement of filing the duly audited report along with the return cannot be treated as mandatory and the assessee cannot be deprived of the benefit of deduction if the same is filed before the finalisation of the assessment. In other words, the Assessing Officer can, for the purpose of allowing deductions in terms of sub-section (1) of section 32AB of the Act, accept the audit report even though the same may not have been filed along with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is fact. The requirement that a firm shall furnish a declaration in Form No. 12 is merely to prove the facts in a particular way. The requirement that the declaration shall be filed along with the return of income is a procedural requirement. The legislative intent appears to be that while dealing with the assessment of a firm the Income-tax Officer 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. Hence, the procedural requirements 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 under section 185(2). It cannot be ignored or rejected straightaway. Similarly, the requirement that the declaration should be filed along with the return is directory. A firm has four years to file a return under section 139(4) or a revised return under section 139(5) and it could validly file the declaration in Form No. 12 along with such return and it is entitled to continuation of registration. It does not then stand to reason that an assessee who is prompt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a contingency, a prompt assessee who files the return in time would stand to suffer only because the auditor's report has not physically accompanied the return while another assessee who waits till the end of the expiry of the period and files the return with the report will stand to gain,. as he would get the benefit of section 80J(1) while the assessee who files the return at the first opportunity would stand to suffer though, in both the cases, at the time when the assessments are framed, the audited reports are made available by both the assessees to the Income-tax Officer. This would result in absurdity. Hence, in our view, the Tribunal was right when it took the view that the second part of the provision regarding furnishing of the report of the auditor along with the return is not a mandatory provision and it requires substantial compliance in the sense that it should be made available to the Income-tax Officer before the assessment is framed and, by that time, if the assessee puts his house in order, the Income-tax Officer will be required to consider the case of the assessee for deductions under section 80J(1) of the Act on the merits. It has also to be kept in view that, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndered mandatory by the provisions thereof. It is pertinent to note in this behalf that this provision clearly lays down for the assessee to file along with the return, the audit report in the prescribed form duly signed and verified by the accountant. With due respect, it is not possible to agree with this view of the Punjab and Haryana High Court which is merely an ipse dixit of the learned judges. They have not shown how the second part of section 80J, sub-section (6A) is mandatory in nature. So far as the admissibility of the deductions is concerned, it is found in the first part of the provision. We have already seen that it is mandatory in nature. So far as the second part which is procedural, is concerned, we fail to appreciate how non-annexing or furnishing the audit report along with the return would necessarily put the assessee out of the court so far as a claim for deduction under section 80J(1) is concerned. We, therefore, with respect, do not find ourselves in agreement with the view expressed by the Punjab and Haryana High Court." The same view has been expressed by the Madras High Court in CIT v. A.N. Arunachalam [1994] 208 ITR 481, in the following words: "The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HHC. The learned single judge reversed the orders passed by the authorities constituted under the Act and held as under: 'I cannot share the views expressed by the concerned authorities in the matter of interpretation of section 80HHC of the Act. In my view, the first part of sub-section (4) of section 80HHC of the Act makes it mandatory to an assessee to furnish in a prescribed form the report of the accountant certifying that the deduction was correctly claimed in accordance with the provisions of section 80HHC(4) of the Act. But the second part thereof in my view is procedural in nature and requires the assessee to submit a certificate of the special audit report along with the return. It is merely directory in nature as it calls for substantial compliance as observed hereinbefore. It is possible as it happened in this case, that at the time the return of income was filed by the firm, due to some negligence of some persons or for any other good reason, even though the special audit certificate was available, it could not be annexed with the return and on such mistake being found out the report could be filed before the Income-tax Officer before the income of the assessee was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the return of income is rendered mandatory by the provisions thereof. It is pertinent to note in this behalf that this provision clearly lays down that deduction claimed shall not be admissible unless the assessee also furnishes along with the return, the audit report in the prescribed form duly signed and verified by the accountant. This being so, the second question referred has to be answered in the negative, in favour of the Revenue and against the assessee This reference is disposed of accordingly." In Shahzedanand Charity Trust's case [1997] 228 ITR 292 (P H), the Division Bench interpreted section 12A(b) of the Act. After making reference to the judgments of the Calcutta High Court in CIT v. Rai Bahadur Bissesswarlal Motilal Malwasie Trust [1992] 195 ITR 825, the Gujarat High Court in CIT v. Gujarat Oil and Allied Industries [1993] 201 ITR 325, and this court in CIT v. Jaideep Industries [1989] 180 ITR 81, the Division Bench observed as under: "The Gujarat High Court in CIT v. Gujarat Oil and Allied Industries [1993] 201 ITR 325 was considering section 80J(6A). The Gujarat High Court took the view put by this court in CIT v. Jaideep Industries [1989] 180 ITR 81. It wa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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