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TMI Blog2024 (1) TMI 911X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 80IC of the Act can be considered for being condoned, we have done above. As in the present case, the delay in question was incurred for reasons beyond the control of the assessee. Otherwise too, we are covered by Ambey Developers [ 2017 (12) TMI 1008 - PUNJAB AND HARYANA HIGH COURT] which has been rendered qua the assessee and it is, therefore, binding, which holds that if substantial compliance is established, a minor deviation would not vitiate the very purpose for which the deduction was being made available. Still further, as noted hereinabove, the CBDT Circular No.37 of 2016, dated 02.11.2016, a copy whereof has been filed with us, states that the Board has clarified that no appeal shall be filed by the Revenue in cases where disallowance relating to business activity was made by the AO, but deduction under Chapter VI-A is allowable to the assessee. In the present case, the real deduction under Section 80IC of the Act has been held to be allowable to the assessee and has been so allowed by the Tribunal. The Department s appeal against the said Tribunal order for assessment year 2013-14 has attained finality. There is no change whatsoever in the facts and circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntained through out. Again, as correctly observed by the CIT(A), in the light of the case laws discussed, mere decrease in gross profit as compared to the earlier year is not a ground sufficient for making an addition and that too, without finding any specific defect in the books of account regularly maintained by the assessee - The action of the ld. CIT(A) in deleting the addition made on account of low gross profit by the AO is confirmed. Decided against revenue. - Shri A.D. Jain, Vice President And Shri Vikram Singh Yadav, Accountant Member For the Assessee : Shri Dhruv Goyal, CA For the Revenue : Shri Sarabjeet Singh, CIT-DR ORDER PER A.D. JAIN, VICE PRESIDENT This is an appeal filed by the Revenue against the order of the Ld. CIT(A) Panchkula dated 15.01.2019 pertaining to assessment year 2014-15. 2. The Department has raised the following grounds of appeal : 1. Whether on the facts and in the circumstances of the case, the CIT(A) is right in deleting the addition made by the AO on account of disallowance of deduction u/s 80IC of the I.T. Act, 1961. 2. Whether on the facts and in the circumstances of the case, the CIT(A) is right in not appreciating the provisions of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rn of income for claim of deduction u/s 80IC must be furnished on or before the due date specified u/s 139(1) of the Act; and that since the assessee could not justify its claim, the deduction claimed u/s 80IC was being disallowed and added to the income of the assessee. 5. The ld. CIT(A), by virtue of the impugned order, deleted the disallowance, bringing the Department in appeal before us by way of Ground Nos. 1 to 3. 6. Challenging the impugned order, the ld. DR has contended that on the facts and in the circumstances of the case, the CIT(A) is right in deleting the addition made by the AO on account of disallowance of deduction u/s 80IC of the I.T. Act, 1961; that on the facts and in the circumstances of the case, the CIT(A) is right in not appreciating the provisions of section 80AC of the I.T. Act, 1961 which provides that in order to claim deduction u/s 80IC of the I.T. Act, 1961, the assessee was required to file its return of income on or before the due date as prescribed in section 139(1) of the I.T. Act, 1961 whereas the assessee has filed its return of income after the due date; and that on the facts and in the circumstances of the case, the CIT(A) is right in holding t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on or before the due date specified under sub section (1) of section 139. The appellant's reliance on the judgment of Hon'ble Supreme Court in Kullu Valley Transport Company (supra) and on judgments of Hon'ble Punjab Haryana High Court in Jagriti Aggarwal (supra) and Jagtar Singh Chawla (supra) are not applicable on the facts on the instant case as the judgments are on consideration of return filed under sub section (4) of section 139 accepted as return filed u/s 139 of the Act. Whereas, the provisions of section 80AC clearly mandates for allowing the deduction unless the return of income has been filed as per due date prescribed under sub section (I) of section 139 of the Act. 5.4 In this regard, a reference is made to the decision of Hon'ble Supreme Court in the case of Prakash Nath Khanna Vs. CIT 266 ITR 1 on the interpretation of 'due date' as per provisions contained in section 139(1) and 139(4) of the Act. The Hon'ble Supreme Court observed as under :- Interpretation sought to be put by the appellants on section 276CC to the effect that, if a return is filed under sub section (4) of section 139, it would mean that the requirements of sub section ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sufficed. It could not be said that the legislature without any purpose or intent specified only the sub sections (1) and (2) and the conspicuous omission of sub section (4) has no meaning or purpose behind it. Sub section (4) of section 139 cannot by any stretch of imagination control operation of sub section (1) wherein a fixed period for furnishing the return is stipulated. The mere fact that for purposes of assessment and carrying forward and to set off losses it is treated as one filed under sub section (1) or (2) cannot be pressed into service to claim it to be actually one such, though it is factually and really not be extending it beyond its legitimate purpose. 5.5 Further, I place reliance on decisions of Hon'ble IT AT, where similar claim u/s 80IB/80IC were not allowed in case of return filed beyond the prescribed due date u/s 139(1) of the Act. The Hon'ble ITAT Chennai Bench in P Bhavani Vs. ACIT [2015] 61 taxmann.com 251 held that since assessee filed return belatedly, the assessee was not entitled for deduction u/s 80IB of the Act. The Hon'ble ITAT, Chennai Bench in DCIT Vs. Sucram Pharmaceuticals [2015] 58 taxmann.com 138 held that for non filing of retur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant with Mr. Bhalotia and his son who were having minor shareholding in M/s Saitech, the routine exercise normal? done by the tax consultant without any follow up for supervision of digital signatures had been interested to the tax consultant for uploading of documents etc. in the income Tax portal, the mischief was occurred. .. 6.5 Accordingly, in the peculiar facts and circumstances of the case, as we have discussed at length and seen from the record, we are of the view that the delay in filing of the return in the facts of the present case was for reasons beyond the control of the assessee and in fact, there was reasonable cause in the late filing of the return within the extended period statutorily available under sub-section (4) of section 139 of the Act. .. 6.7 Accordingly, considering the peculiar facts and circumstances of the case and position of law as canvassed by the parties before the Bench, we hold that the claim of the assessee could not be ousted on the fact that the return was filed within the extended period of sub section (4) of section 139. Accordingly, we hold that the assessee deserves to succeed in principle. The matter is remanded to the AO for the purposes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see and once again not disputed on behalf of the department, the department s appeal against the aforesaid Tribunal order for assessment year 2013-14 before the Hon'ble High Court was withdrawn. 10.1 Further, it also remains undisputed that as contended on behalf of the assessee, the Auditor of the assessee company, who was looking after the filing of their had filed Balance Sheet alongwith annexures, Tax Audit Report and Audit Report u/s 80IC of the Act before the due date for filing of return of income, but it uploaded the return of income after the due date, this despite the fact that digital signatures of the assessee were handed over to him much before the due date of the filing of the return. In this regard, the assessee has placed on record an affidavit of Shri Jagbir Singh S/o Shri Om Pal, Managing Director of the assessee company, offering the reasons for delay in the filing of the Income Tax Return of the assessee company for assessment year 2014-15, which facts, as stated, had also been submitted before and considered by the ld. CIT(A). In the said affidavit, it has been stated that the deponent, i.e. Shri Jagbir Singh is the Managing Director of the assessee company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r C.A., who told them the intricacies of the order and thereafter, they confronted the same to their Tax Consultant, who did not give any satisfactory reply for delay in filing of the Income Tax Return and they asked for his resignation and changed their consultants as well as auditors for both the companies; that his replies confirmed their suspicions that he was hand in glove with Mr. Bhalotia and the mischief, i.e., the non filing of the Income Tax Return in time was played on them at the behest of Mr. Bhalotia; that the Bhalotias had filed the case only in July, 2015, after then (the deponent) had issued 7 lakh shares of Saitech Medicare P.Ltd. to the assessee company, Symbiosis Pharmaceuticals (P) Ltd.; that he was showing his grievance against the allotment, on some technical grounds, which only a professional like a Chartered Accountant would be in a position to guide about; that due to the case filed with the Company Law Board, which has since been transferred to the National Company Law Tribunal, Chandigarh Bench, in February, 2017, they had not been able to hold the AGM of Saitech Medicare P. Ltd. since 2015; that whenever they tried to hold the AGM, Mr. Bhalotia invoked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on behalf of the Department that this condition contained in Section 80AC is maintained and violation thereof disentitles the assessee to allowances of claim u/s 80IC, which was correctly ordered by the AO and has wrongly been overturned by the ld. CIT(A). The assessee, on the other hand, maintains that such condition is merely directory and not mandatory, since, it is only technical in nature and not a substantive condition. 11.3 In this regard, as contended by the ld. Counsel for the assessee, it is settled law that conditions whose requirements/provisions relate to the essence of the thing to be performed, or to matters of substance, are mandatory and those which do not so relate to the essence and whose compliance is merely a matter of convenience rather than that of substance, are directory. It is seen that so far as regards the case at hand, the mandatory conditions as laid down in Section 80IC of the Act are all duly met by the assessee. The condition prescribed by Section 80AC, however, is merely directory in nature and not mandatory. It was introduced with a view to ensure the compliance of the filing of the return of income. The Explanatory Notes on the provisions relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;s own case for the immediately preceding assessment year, we find no hesitation in reiterating that the provisions of Section 80AC of the Act are machinery provisions which are directory in nature and not mandatory, due to which, the delay in filing the return of income as a condition contained in the provisions of Section 80IC of the Act can be considered for being condoned, we have done above. 14. In PCIT Vs Ambey Developers Pvt. Ltd., 2017 (12) TMI 1008 (P H) (copy at ACL PB II pages 54 to 59), while dealing with deduction u/s 80IB, wherein, as per Section 80IB(10(a) Explanation (2), wherein, deduction is to be allowed from the date of Completion Certificate issued by the Competent Authority for the year ending on 31.03.2010 and the certificate was issued on 31.12.2011, the Hon'ble jurisdictional High Court upheld the Tribunal order confirming the grant of deduction by the CIT(A), such deduction having been claimed u/s 80IB of the Act, relying on CIT Vs Tarnetar Corporation , 362 ITR 174 (Gujrat), held that every condition of the Statute cannot be seen as mandatory; that if substantial compliance thereof is established on record in a given case, the Court may take the view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all in a statutory provision, though generally taken in a mandatory sense, does not necessarily mean that in every case it shall have that effect, that is to say, that unless the words of the statute are punctiliously followed, the proceeding or the outcome of the proceeding, would be invalid. On the other hand, it is not always correct to say that where the word 'may has been used, the statute is only permissible or directory in the sense that noncompliance with those provisions will not render the proceedings invalid-State-of U. P. v. Manbodhan Lal Srivastava, AIR 1957 SC 912. (3) All the parts of a statute or sections must be construed together and every clause of a section should be construed with reference to the context and other clauses thereof so that the construction put to be on a particular provision makes consistent enactment of the whole statute. This would be more so if a literal construction of a particular clause leads to manifestly absurd and anomalous results which could not have been intended by the Legislature. (4) The principle that a fiscal statute should be construed strictly is applicable only to taxing provisions such as a charging provision or a provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the return to be filed within time. 14.4 Again in Fiberfill Engineers Vs DCIT 2017 (8) TMI 730 (Delhi High Court) (copy filed at ACL PB pages 88 to 97) delay of 46 days in filing return of income was condoned and deduction u/s 80IC was allowed for assessment year 2010-11. While doing so, their Lordships held that since in that case, the entitlement of the assessee to the deduction u/s 80IC of the Act even for assessment year 2010-11 had not been questioned by the Department on merits, there was no justification for not viewing the delay of 46 days in filing the return to be bonafide; and that it was not one of those cases where the delay was so extra ordinary so as to not to be condoned. Likewise in the present case, it has never through-out been the case of the department that the assessee is not entitled to the deduction claimed u/s 80IC of the Act. Too, the delay is not so extra ordinary that it is not entitled to be condoned. Further still, even such delay as occurred was beyond the control of the assessee, as discussed herein before. 14.5 In Fiberfill Engineers (supra), it was also observed that CBDT Circular No. 9/2015 dated 09.06.2015 would apply to the belated filing of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ginal return and the time period for filing of the revised return had also elapsed. The assessee preferred an application u/s 264 for condoning the delay. The Hon'ble High Court held that the delay occurred due to bonafide reasons and there was no malafide intent of the assessee in delaying the filing of the revised return. The claim of the assessee u/s 80IB was allowed. 14.9 In ACIT, Circle 10(1), New Delhi Vs Dhir Global Industries (P) Ltd. 2010 (7) TMI 619 (ITAT Delhi) : 43 SOT 640 (Delhi), where there was a delay in filing the return of income, and proviso had been inserted in Section 10(B)(i), which specifically provided that no deduction u/s 10B of the Act, shall be allowed to the assessee who has not furnished any return of income on or before the due date, it was held that the Act envisages that relief regarding exemption should be considered and granted when application is made after the specified period in cases of genuine hardship; and that thus clearly indicates that the provision in this regard is directory and not mandatory. 14.10 In M/s Heera Moti Agro Industries Vs DCIT, Central Circle-I, Chandigarh vide order dated 23.02.2017 (ACL PB II, pages 121-139), passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mped together. This is so, because if mandatory requirements are complied with, the enactment can be said to have been substantially complied with, the non compliance of directory requirements not-withstanding. In such cases, substantial compliance having been found, there is actual compliance with the Statute, though procedurally faulty. It is to observe the need of complying strictly with the conditions important to invoke a tax exemption, and to forgive non compliance for either unimportant and tangential, or requirements that are so confusingly or incorrectly written that an earnest effort at compliance should be accepted, and the doctrine of substantial compliance becomes operative. Thus, since it is the substance or essence of the Statute, compliance whereof, with strict adherence, is to be examined, to give effect to the doctrine. On the contrary, if the requirements are procedural or directory, in that they are not of the essence of the thing to be done (here, fulfilling of the conditions of Section 80IB of the Act) but are given with a view to the orderly conduct of business, they may be fulfilled by substantial, if not strict, compliance. In the present case, as dwelt upo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umstances for the year under consideration. Therefore, the said CBDT Circular is squarely applicable to the facts of the case and it is binding on the taxing authorities. On this count also, the addition is liable to be deleted. 17. Considering the above elaborate discussion and finding force in ground Nos. 1 to 3, these grounds are rejected. The order under appeal is found to be well versed, requiring no interference whatsoever at our hands on this score. Accordingly, the deletion of disallowance is confirmed. 18. The only other issue is the challenge of the Department against the action of the ld. CIT(A) in deleting the addition made on account of low gross profit declared by the assessee. There was a fall in gross profit from 16.61% in assessment year 2013-14 to 14.11% during the year under consideration. It is specified that the explanations offered by the AO for such fall in GP, the AO made addition of 2% as against the fall of 2.5%, without pointing out any mistake in the books of account and vouchers and without rejecting the books of account. The addition so made amounted to Rs. 1,81,48,854/-. The ld. CIT(A) deleted the addition. 18.1 The grievance of the Department is that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rits also, the stand taken by the assessee for the fall in GP during the year is not a totally unpalatable stand. The assessee has maintained, as noted by both the authorities below, that the major reason for fall in GP was a substantial increase in turnover by almost 50% from Rs. 60.71 Cr during the earlier year to Rs. 90.74 Cr during the year under consideration; that to achieve such an increase in turnover, a business has to decrease its margins to obtain much higher sales; that the primary reason for the decrease in gross profit rate was the increase in the cost of material consumed; that there was a increase of 4.28% in the consumption of raw material as a percentage of sales compared to the earlier year and that on the other hand, other manufacturing expenses were comparable; that the cost of the raw material is beyond the control of the assessee as most of the raw material used is to be imported from other countries; that has resulted, the NP rate during the year under consideration fall by only 1.07%, even though the GP rate had decreased by 2.50%; that this shows that there was better management of resources and no trading expenses decreased as a percentage of sales. 19. 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