D.b. Income Tax Appeal v. M/S. Godha Chemicals Pvt. Ltd

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN ATJODHPUR ::JUDGMENT:: D.B. INCOME TAX APPEAL NO. 1/2008Commissioner of Income Tax, Udaipur Vs. M/s. Godha Chemicals Pvt. Ltd. .. Date of Judgment :: 10[th]January 2013. HON'BLE MR. JUSTICE DINESH MAHESHWARIHON'BLE MR. JUSTICE ARUN BHANSALI Mr. K.K. Bissa, for the appellant.Mr. Anjay Kothari, for the respondent. <<>> Reportable BY THE COURT: (Per Hon'ble Dinesh Maheshwari,J.) This appeal by the revenue under Section 260-A of theIncome Tax Act, 1961 [‘the Act’] is directed against the judgmentand order dated 15.06.2007 as passed by the Income TaxAppellate Tribunal, Jodhpur Bench, Jodhpur [‘the Tribunal’] in ITANo.596/JDPR/2006 in relation to the assessment proceedingsconcerning the respondent-assessee for the assessment year2003-04. The question involved in this appeal has been indicatedin the order of admission dated 10.01.2008 that may be noticedas under:- “Heard learned counsel for the appellant and perusedthe impugned order. Learned Tribunal has passed the impugned orderrelying upon one judgment of the Calcutta High Court, andanother judgment of Punjab and Haryana High Court, and hasheld, that though, the Audit Report in Form No.10CCAC wasnot originally filed along with the return of income but was dulyfiled during the assessment proceedings, therefore, theassessee is entitled to deduction under Section 80HHC, to thetune of Rs.37,08,019.97.relying upon one judgment of the Calcutta High Court, andanother judgment of Punjab and Haryana High Court, and hasheld, that though, the Audit Report in Form No.10CCAC wasnot originally filed along with the return of income but was dulyfiled during the assessment proceedings, therefore, theassessee is entitled to deduction under Section 80HHC, to thetune of Rs.37,08,019.97. It is contended by the learned counsel for theappellant, that there is no decision on this point, either fromthis Court, or from the Hon'ble Supreme Court. In our view, on the basis of the language of Section80HCC (4), the requirement is of filing of the report in theprescribed form “along with the return of income”. The question thus is, as to whether the expression“along with the return of income” can be interpreted to bepermitting filing of such report even during assessmentproceedings? Since, the appeal involved above the substantialquestion of law, requiring the detailed hearing, and decision,by this Court, the appeal is admitted. Issue notice.” The relevant background aspects of the matter could benoticed in the following: In its return for the assessment year2003-04, the respondent-assessee claimed deduction underSection 80HHC of the Act to the tune of Rs.39,86,538/-.However, a copy of the audit report in Form No.10CCAC was notfiled alongwith the return. During the course of assessmentproceedings, the assessee filed one letter dated 21.11.2005alongwith a plain unsigned paper carrying the computation forsuch deduction of Rs.39,86,538/-. Further, during theproceedings, the authorsed representative of the assesseesubmitted, alongwith his letter dated 19.12.2005, the report in theprescribed Form No.10CCAC dated 23.05.2003 claimingdeduction under Section 80HHC at Rs.37,08,019.97. TheAssessing Officer [‘the AO’] declined to allow the deduction asclaimed by the assessee under Section 80HHC of the Act whileholding that the requirement of furnishing the audit report in FormNo.10CCAC alongwith the return was a mandatory one and, forhaving failed to fulfill this requirement, the assessee was notentitled to the claimed deduction. The AO, inter alia, observedand held as under:- “I have considered the submission of the assessee and the factsof the case. The form No.10 CCAC as one of annexures does notfind a place in the list of the documents attached with the Returnof Income. The assessee company has filed the certificate onlyduring assessment proceeding with the plea that it can be filedanytime before the assessment. As per the provisions of thesection 80 HHC, it is mandatory to file the CA’s certificate in theprescribed form 10CCAC along with the return of income to claimthe deduction……” “…..There fore in view of the detailed discussion I hold that theassessee company is not eligible for any deduction u/s 80 HHCsince it has failed to fulfill the requirement of filing the form 10CCAC alongwith the return of income. Therefore, the entirededuction u/s 80 HHC as claimed by the assessee in the return ofincome is disallowed.” In appeal before the Commissioner of Income Tax(Appeals), Udaipur [‘the CIT(A)’], the assessee relied upon thedecision of the Hon'ble Punjab & Haryana High Court in CIT Vs.Gupta Fabs: (2005) 274 ITR 620 and that of the Hon'ble KeralaHigh Court in CIT Vs. G.Krishnan Nai: (2003) 259 ITR 727 tocontend that even if the requirement of filing of the certificateunder Section 80HHC(4) was mandatory, the time of its filing wasdirectory; and the same could be filed at any time beforecompletion of the assessment. However, the learned CIT(A)observed that the referred decisions were not binding for beingnot of the jurisdictional High Court; and affirmed the decision ofthe AO. In further appeal, the Tribunal, however, held that onprinciples, the assessee could not be denied the benefit ofdeduction under Section 80HHC because the audit report in FormNo.10CCAC had indeed been filed during the course ofassessment proceedings. The Tribunal further proceeded toobserve that the assessee in its return claimed the deduction at(about) Rs.39.86 lakhs whereas this amount, as per the audit report, was (about) Rs.37.08 lakhs; and that there was noquestion of granting any deduction for an amount in excess ofwhat had been calculated by the Chartered Accountant in FormNo.10CCAC. Hence, the Tribunal proceeded to grant the benefitto the assessee to the tune of the amount stated in the auditreport i.e., a sum of Rs.37,08,019.97. The Tribunal, inter alia,observed and held as under:- “4.We have heard both the sides and perused the relevantmaterial on record. The undisputed fact is that the audit reportin Form No.10CCAC, which was not originally filed alongwith thereturn of income was duly filed during the assessmentproceedings. A consistent view has been taken by the Hon'bleHigh Courts and the Tribunal that where the audit report in FormNo.10CCAC is filed during the course of assessmentproceedings, this factor alone cannot disentitle the assessee tothe benefit of deduction u/s 80 HHC. To cite a few decisions, wecan have guidance from Murli Export House Vs. CIT [1999] 238ITR 257 [Cal] and CIT Vs. Gupta Fabs [2005] 274 ITR 620[P&H]. On principle, we hold that the assessee cannot bedenied the benefit of deduction u/s 80HHC as the audit report inForm No.10CCAC was duly filed during the course ofassessment proceedings. However, we observe that theamount of deduction claimed by the assessee in its return ofincome is at Rs.39.86 lakhs whereas the said amount as peraudit report in Form No.10 CCAC furnished during the course ofassessment proceedings is at Rs.37.08 lakhs. There is noquestion of granting any deduction for an amount in excess ofthat calculated by the Chartered Accountant in FormNo.10CCAC. We, therefore, grant the benefit of deduction u/s80HHC at Rs.37,08,019.97. This ground is, therefore, partlyallowed.” Assailing the order aforesaid, it is contended by the learnedcounsel for the appellant that the Tribunal has failed to considerthe matter objectively and in its correct perspective. It issubmitted that the assessee not only claimed an excessdeduction but also made the claim without getting the amountcertified by the Chartered Accountant and without complying withthe mandatory requirement of furnishing the audit report in FormNo.10CCAC with the return. Thus, according to the learnedcounsel, the AO had rightly rejected the claim of deduction under Section 80HHC and his order had rightly been affirmed by the CIT (A); and the Tribunal had been in error in interfering. Per contra, the learned counsel for the respondent-assessee has supported the order impugned with reference to thedecisions in CIT Vs. Gupta Fabs: (2005) 274 ITR 620 (P&H) andCIT Vs. Dr.L.M.Singhvi: (2007) 289 ITR 425 (Raj.). After having given thoughtful consideration to the rivalsubmissions and having examined the record, we are clearly ofthe view that the question of law as formulated in the presentcase deserves to be answered against the revenue and in favourof the assessee but then, for appropriate orders regarding eligiblededuction, the matter is required to be restored to the file of theAO. As noticed, the question calling for determination in thiscase is as to whether the requirement of furnishing of report of anaccountant in the prescribed form alongwith the return of incomecould be interpreted to mean that filing of report even duringassessment proceedings is permissible. In our view, the decisionof this Court in Dr.L.M.Singhvi's case (supra) on pari materiaprovisions as contained in Section 32AB of the Act read with thedecision of Hon'ble Punjab and Haryana High Court in GuptaFab's case (supra) on the provisions contained in Section80HHC, clinches the issue. In Dr.L.M.Singhvi's case, a Division Bench of this Courtwas concerned with the question as to whether filing of the auditreport under Section 32AB(5) during the assessmentproceedings and not alongwith return of income would satisfy therequirements of aforesaid Section. The Division Bench, inter alia, examined the provisions of Section 32AB of the Act as also theprovisions of Section 80HHC, with which we are concerned in thepresent case; and, after finding these provisions pari materia,held the requirement of furnishing of report alongwith return to bethat of procedural requirement with reference to several of thecited cases including the one of the Full Bench of the Hon'blePunjab and Haryana High Court in CIT Vs. Punjab FinancialCorporation: (2002) 254 ITR 6 (P&H) (FB) wherein a DivisionBench decision of the said High Court was reversed and it washeld that the provisions relating to filing of audit report alongwithreturn was a part of procedure for adducing evidence in respect ofthe fact on which the claim for deduction was founded on; andsuch requirement was directory in nature. The relevantobservations of the Division Bench of this Court inDr.L.M.Singhvi's case could be noticed in the following:- “5.These provisions under s. 32AB are pari materia withthe provisions relating to certain benefits extended toassessees under ss. 80 and 80HHC of the IT Act. For thepresent purposes primary requirement of s. 32AB (1) is (i) thattotal income of assessee must include income chargeableunder head 'Profit and gains of business or profession', (ii) thatthe amount must be deposited in deposit account maintainedfor this purpose in a Development Bank, and (iii) such amountmust be deposited before six months from the end of previousyear or before filing return. With alternative to above deposit,utilisation in terms of cl. (b) of s. 32AB, is not the presentconcern. The respondent-assessee had fulfilled all theseconditions is not in dispute. Procedural requirement is thatdeduction is not admissible until the accounts of the assesseeclaiming such deduction of the previous year relevant toassessment year in question are audited and report of suchauditor is furnished along with return.” 12. The consistent view which prevailed with the different HighCourts except a Division Bench decision of Punjab andHaryana High Court in CIT vs. Jaideep Industries (1989) 180ITR 81 (P&H), which too has subsequently been overruled bya Full Bench of the same High Court in CIT vs. PunjabFinancial Corpn. (2002) 172 CTR (P&H) (FB) 561: (2002) 254ITR 6 (P&H) (FB), is that provisions relating to filing of auditreport along with the return is a part of procedure for producing evidence in respect of the fact that claim todeduction is founded on audited accounts, while getting theaccounts audited before filing returns claiming such relief hasbeen held to be substantive condition and mandatory.Submitting the proof of accounts being part of proceduralrequirement, compliance of substantive provision has beenheld to be directory. The provisions requiring the filing of audit report along withthe return has been held to be directory and not mandatory.” The Hon'ble Division Bench ultimately held, inter alia, as under:- “.....Further the audit forms substantive foundation forclaiming allowance and such foundation must exist at the timeof filing reference viz., the accounts must have been auditedbefore claiming deduction in a return, and in the absence ofwhich, such deduction cannot be claimed. Compliance of theaforesaid requirement is mandatory before deduction isclaimed. So far as such compliance along with return isconcerned, it is directory and this procedural compliance canbe made as such during the course of assessmentproceedings.....” It may also be noticed that in Gupta Fab's case (supra), theHon'ble Punjab and Haryana High Court was precisely concernedwith the question as to whether the AO was justified in allowingdeduction under Section 80 HHC of the Act when the condition offiling of audit report alongwith the return of income was notsatisfied. The Division Bench of Punjab and Haryana High Courtreferred to the decision in Punjab Financial Corporation's case(supra) wherein, as noticed, the Full Bench of that High Court hadheld that the requirement of filing of duly audited report alongwithreturn could not have been treated as mandatory; and that theassessee could not be deprived of benefit of deduction if thereport was filed before finalisation of the assessment. Afternoticing the provisions and dictum of the Full Bench, the Hon'bleHigh Court held as under:- “6. Since the provisions of s. 80HHC of the Act aresubstantially similar to s. 32AB(5), we have no hesitation tohold that the Tribunal did not commit any error by grantingrelief to the assessee.” “6. Since the provisions of s. 80HHC of the Act aresubstantially similar to s. 32AB(5), we have no hesitation tohold that the Tribunal did not commit any error by grantingrelief to the assessee.” Thus, this Court, while concerned with a similar naturequestion qua the provisions of Section 32AB(5), held that the timeof filing of the report was a condition directory in nature and alsoheld that the provisions of Section 32AB on relevant aspects werepari materia with the provisions of Section 80HHC of the Act.Then, the Hon'ble Punjab and Haryana High Court held therequirement of filing of the report alongwith return for the purposeof deduction under 80HHC to be directory and, again, held thatthe two provisions i.e., Section 80HHC and Section 32AB(5) weresubstantially similar. It may be observed that Section 32AB(1) provides forcertain deductions in respect of an assessee whose total incomeincludes income chargeable to tax under the heads “Profits andgains of business or profession” and the assessee makes depositor utilizes any amount for the purposes specified in the Section.Furnishing of the report of the accountant in prescribed formalongwith the return is necessary for the purpose of claiming suchdeduction. On the other hand, under Section 80HHC, anassessee who is engaged in the business of specified export, isentitled to a deduction to the extent of the referred profit derivedfrom the specified export. The deduction is also allowed to asupporting manufacturer who sells the goods or merchandises toany Export House or Trading House on fulfillment of the givenconditions. Furnishing of the report for the purpose of sub-section (1) as also sub-section (1A) of Section 80HHC is necessary. For the present purpose, the relevant part of theprovisions as occurring in sub-section (5) of Section 32AB and insub-section (4) of Section 80HHC could be noticed injuxtaposition as under:- Sub-sec. (5) of Sec. 32ABSub-sec. (4) of Sec. 80HHC (5). The deduction under sub-section(4). The deduction under sub-(1) shall not be admissible unless thesection (1) shall not be admissibleaccounts of the business or professionunless the assessee furnishes inof the assessee for the previous yearthe prescribed form, along with therelevant to the assessment year forreturn of income, the report of anwhich the deduction is claimed haveaccountant, as defined in thebeen audited by an accountant asExplanation below sub-section (2)defined in the Explanation below sub-of section 288, certifying that thesection (2) of section 288 and thededuction has been correctlyassessee furnishes, along with hisclaimed in accordance with thereturn of income, the report of suchprovisions of this section:audit in the prescribed form duly signedand verified by such accountant: . On the material aspects pertaining to the questionsinvolved in this appeal, obvious it is that the two provisionsaforesaid are pari materia. Thus, the interpretation as made by aco-ordinate Bench of this Court in respect of Section 32AB(5)would apply to the requirement of sub-section (4) of Section80HHC too. In view of the above and following the principles enunciatedin the two decisions aforesaid and particularly for the view astaken in Dr.L.M.Singhvi's case by a Division Bench of this Court,we have no hesitation in coming to the conclusion that theexpression “alongwith return of income” as occurring in sub-section (4) of Section 80HHC could always be interpreted asdirectory so far it relates to the time of filing of the report andhence, even if the report is filed during assessment proceedings,the assessee cannot be denied the claim of deduction. In other In view of the above and following the principles enunciatedin the two decisions aforesaid and particularly for the view astaken in Dr.L.M.Singhvi's case by a Division Bench of this Court,we have no hesitation in coming to the conclusion that theexpression “alongwith return of income” as occurring in sub-section (4) of Section 80HHC could always be interpreted asdirectory so far it relates to the time of filing of the report andhence, even if the report is filed during assessment proceedings,the assessee cannot be denied the claim of deduction. In other words, while filing of the accountant's report in sub-section (4) ofSection 80HHC, could be considered to be a mandatoryrequirement for the purpose of the assessee being entitled toclaim deduction but the time of filing of the same could only beconsidered directory in nature and such report cannot beremoved out of consideration only because of having not beenfiled at the time of filing of the return. On the facts of the present case, we may, however,observe that even when the report as filed during the course ofassessment proceedings may not be removed out ofconsideration and, to that extent, the Tribunal does not appearunjustified yet, we have reservations about the other part of theorder passed by the Tribunal where the benefit of deductionunder Section 80HHC has directly been allowed at Rs.37,08,019.97 only on the basis of the amount stated in the auditreport in Form No.10CCAC. As noticed, the deduction claimedby the assessee in the first place had been Rs.39,86,538/-.Some inconsistency having occurred, in our view, the matterought to have been sent to the AO concerned for appropriateorders. Accordingly, in view of the above, to the question of lawformulated in the present case, our answer is that the expression“alongwith return of income” occurring in Sub-section (4) ofSection 80HHC of the Income Tax Act, 1961 is directory in natureinsofar it relates to the time for furnishing of the report of anaccountant by the assessee in the prescribed form; and even ifsuch a report in the prescribed form is not furnished alongwith thereturn of income, but is furnished during the course of D.B. INCOME TAX APPEAL NO. 1/2008CIT, Udaipur Vs. M/s. Godha Chemicals Pvt. Ltd.11 assessment proceedings, it cannot be removed out ofconsideration only for the reason of the same having not beenfiled at the initial stage of filing of the return. In view of the above answer to the question involved in thematter, the order as passed by the Tribunal does not call for anyinterference and stands confirmed insofar it is held that theassessee cannot be denied the benefit of deduction underSection 80HHC. However, the other part of the directions ofTribunal, where the benefit of deduction under Section 80HHChas directly been allowed at Rs. 37,08,019.97 only on the basis ofthe amount stated in the audit report in Form No.10CCAC, thesame stands modified in the manner that the issue aboutquantification of the eligible deduction under Section 80HHC isrestored to the file of the Assessing Officer who shall re-examinethe matter as regards the amount eligible for deduction and then,shall pass appropriate consequential orders in accordance withlaw. The appeal stands disposed of accordingly. No costs. (ARUN BHANSALI), J. (DINESH MAHESHWARI), J.