Court's Direction on Special Audit Certificate for Deduction

The court held that while the requirement for a special audit certificate along with the return for claiming deduction under section 80HHC is mandatory, the filing of the certificate before completion of assessment is procedural and directory. The Assessing Officer has the power to rectify defects in the return under sections 139(5) and 139(9) and can direct the assessee to remove such defects before finalizing the assessment. Additionally, the Assessing Officer cannot disallow a claim under section 143(1)(a) without providing the assessee an opportunity to furnish necessary proof. The court directed the Assessing Officer to allow the deduction under section 80HHC upon filing the special audit certificate within two months.

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Issues Involved:
1. Whether the requirement of filing a special audit certificate along with the return for claiming deduction u/s 80HHC of the Income-tax Act, 1961, is mandatory.
2. Whether the Assessing Officer has the power to rectify defects in the return u/s 139(5) and 139(9) of the Act.
3. Whether the Assessing Officer can disallow a claim for deduction u/s 143(1)(a) without proof being furnished with the return.

Summary:

Issue 1: Filing of Special Audit Certificate u/s 80HHC
The court examined whether the requirement to file a special audit certificate along with the return for claiming deduction u/s 80HHC is mandatory. The firm had filed its return for the assessment year 1991-92 claiming 100% exemption on export profits but failed to attach the special audit certificate in Form No. 10CCAC. The Assessing Officer disallowed the deduction due to the absence of this certificate. The court held that while the first part of sub-section (4) of section 80HHC is mandatory, requiring the certificate of an accountant, the second part, which requires the certificate to be filed along with the return, is procedural and directory. The court opined that substantial compliance is sufficient, and the certificate could be filed before the assessment is completed.

Issue 2: Power to Rectify Defects u/s 139(5) and 139(9)
The court discussed the powers of the Assessing Officer to rectify defects in the return u/s 139(5) and 139(9). It was argued that the Assessing Officer should have allowed the firm to file the special audit certificate before completing the assessment. The court referred to the Explanation to section 139(9), which lists conditions under which a return is considered defective. The court concluded that the Assessing Officer has the power to direct the assessee to remove defects, including the non-filing of the special audit certificate, before finalizing the assessment.

Issue 3: Disallowance of Claim u/s 143(1)(a)
The court addressed whether the Assessing Officer can disallow a claim for deduction u/s 143(1)(a) without proof being furnished with the return. It was held that the Assessing Officer cannot unilaterally disallow a claim for lack of proof without giving the assessee an opportunity to furnish the required documents. The court emphasized that the stage for furnishing proof is reached when the Assessing Officer demands it through a notice u/s 143(2).

Conclusion:
The court set aside the orders of the lower authorities and directed the Assessing Officer to allow the deduction u/s 80HHC if the special audit certificate is filed within two months from the date of communication of the order. The writ petition was allowed with no order as to costs.

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