1993 (9) TMI 30 - HC - Income Tax

Requirement to file the audit report with the return for claiming deduction under s.80J is directory, not mandatory

Commissioner Of Income-Tax Versus Shivanand Electronics

HC held that the requirement to file the audit report with the return for claiming deduction under s.80J is directory, not mandatory. An assessee who ... Deduction of a sum under section 80J - non-compliance with condition of filing of audit report - requirement of filing the audit report 'along with the return of income' - statute is mandatory or directory - manufacture of electronics and electrical equipment, etc. - Commissioner, being of the opinion that the order of the Income-tax Officer was erroneous and prejudicial to the interests of the Revenue - Tribunal of the opinion that in compliance with the requirements of the principles of natural justice and fairness - HELD THAT:- It is well-settled that the question whether a statute is mandatory or directory depends upon the intent of the Legislature and not upon the language in which the intent is clothed. The intent of the Legislature also has to be gathered not merely from the words used by the Legislature but from a variety of other circumstances and conditions. One of the tests often adopted is to ascertain whether the object of the Legislature will be defeated or furthered by holding it directory. If the object of the enactment will be defeated by holding it directory, it should be construed as mandatory whereas if by holding it mandatory, serious general inconvenience will be created to innocent persons without very much furthering the object of the enactment, it should be construed as directory. When the Legislature casts a duty on the assessee claiming a certain benefit, to comply with requirements which are associated with such benefit, the assessee cannot get the benefit without doing his part of the duty. He cannot be allowed to say that it was for the Income-tax Officer to ask him to do so. If the assessee does not do his part of the statutory duty, the Income-tax Officer may proceed to decide the allowability or otherwise of the relief on the basis of the facts and material available before him. It will be contrary to the language of sub-section (6A) of section 80J to cast an obligation on the Income-tax Officer to ask the assessee to do his duty and to comply with the statutory requirements, whether directory or mandatory on the pretext of complying with the principles of natural justice. The principles of natural justice cannot be stretched that far to lead to such absurd results. The position may, however, be different where an assessee does a particular act not within the specified time but after the expiry thereof and makes an application for condonation of delay. In such cases, depending on the language of the statute and the object sought to be achieved by prescribing the time limit, it would be the duty of the Officer to consider the documents submitted even belatedly, if there is reasonable explanation for the delay. We are, therefore, of the clear opinion that no duty is cast on the Income-tax Officer to ask an assessee, who has failed to file the report of the audit, to do so before rejecting his claim for relief under section 80J of the Act. The requirement of filing the audit report 'along with the return of income' is directory and if the assessee complies with the same before completion of the assessment and offers a satisfactory explanation for his failure to submit the same in time, the Income-tax Officer may consider the same and examine the claim of the assessee for deduction under section 80J on the basis of such report. We, however, do not subscribe to the view taken by the Tribunal that it is the duty of the Income-tax Officer to tell the assessee that as he had not submitted the report of audit required by sub-section (6A), his claim would not be allowed and to give him an opportunity to file the same. Issues Involved:1. Whether non-compliance with the condition of filing an audit report is fatal to the assessee's claim for relief u/s 80J(6A).2. Whether the requirement of filing the audit report 'along with the return of income' is mandatory or directory.3. Whether it is the duty of the Income-tax Officer to inform the assessee about the non-filing of the audit report and give an opportunity to file the same.Summary:Issue 1: Non-compliance with the condition of filing an audit report u/s 80J(6A)The court examined whether the failure to file an audit report as required by section 80J(6A) is fatal to the assessee's claim for relief. The assessee, a registered partnership firm, claimed deductions u/s 80J for the assessment years 1976-77 and 1977-78, which were initially allowed by the Income-tax Officer. However, the Commissioner of Income-tax, upon review, found the order erroneous and prejudicial to the interests of the Revenue due to non-compliance with the audit report requirement and initiated revision proceedings u/s 263. The Tribunal remitted the case to the Commissioner to allow the assessee to file the audit report, but the High Court found this approach incorrect, emphasizing that non-compliance with the audit report requirement is indeed fatal to the claim.Issue 2: Mandatory vs. Directory Requirement of Filing the Audit ReportThe court analyzed whether the requirement to file the audit report 'along with the return of income' is mandatory or directory. Sub-section (6A) of section 80J stipulates two conditions: (i) the accounts must be audited by an accountant, and (ii) the audit report must be filed along with the return. The court held that the first condition is mandatory, while the second condition, regarding the timing of filing the report, is directory. The court concluded that if the audit report is filed before the completion of the assessment and the delay is satisfactorily explained, the Income-tax Officer may accept it. However, this does not grant the assessee the right to file the report at any time before the assessment's completion.Issue 3: Duty of the Income-tax OfficerThe court addressed whether it is the duty of the Income-tax Officer to inform the assessee about the non-filing of the audit report and provide an opportunity to file it. The court rejected this notion, stating that it is the assessee's responsibility to comply with statutory requirements to claim benefits. The Income-tax Officer is not obligated to remind the assessee to file the audit report. The principles of natural justice do not extend to imposing such a duty on the Officer.Conclusion:The court answered the question in favor of the Revenue, stating that the requirement of filing the audit report 'along with the return of income' is directory. If the assessee files the report before the completion of the assessment with a satisfactory explanation for the delay, the Income-tax Officer may consider it. However, it is not the Officer's duty to inform the assessee about the non-filing and provide an opportunity to rectify it. The Tribunal's view that the Officer should inform the assessee was not upheld.