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

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 ... Mandatory and directory distinction in statutory duties - audit of accounts as a precondition for deduction under section 80J - filing of audit report 'along with the return' held directory - power of Income tax Officer to accept belated audit report before completion of assessment - No statutory duty on the Income tax Officer to prompt the assessee to file the audit report - revisionary power of the Commissioner under section 263Audit of accounts as a precondition for deduction under section 80J - filing of audit report 'along with the return' held directory - power of Income tax Officer to accept belated audit report before completion of assessment - Character and effect of the two conditions in section 80J(6A) - whether audit and filing of the audit report along with the return are mandatory or directory and the consequence of non filing. - HELD THAT: - Sub section (6A) imposes two linked prerequisites for claiming deduction under section 80J. The Court held that the requirement that the industrial undertaking's accounts be audited by an accountant is a mandatory precondition to admissibility of the deduction. The separate requirement that the assessee furnish the auditor's report in the prescribed form is likewise a mandatory requirement as to the contents and signature of the report, but the statutory phrase 'along with the return' is not absolute in the strict sense. The Court analysed legislative purpose and the practical consequences of rigid compliance and concluded that filing the audit report contemporaneously with the return is directory: if the assessee files the required auditor's report after filing the return but before completion of assessment and offers a satisfactory explanation for the delay, the Income tax Officer has the discretion to accept it and to consider the claim on that basis. That discretion is not unlimited: acceptance depends on satisfaction with the explanation for non filing in time and the report must otherwise comply with the statutory requirements. The Court rejected an interpretation that would read 'along with the return' as interchangeable with an unfettered right to file at any time before assessment completion, stressing that statutory wording cannot be rewritten into a different time limit. The Court also distinguished cases where the report is wholly absent or where there is no evidence that the accounts were audited, observing that total non compliance cannot be cured by post hoc filings where no audit exists.Accounts audit is a mandatory precondition; the requirement to file the auditor's report 'along with the return' is directory and the Income tax Officer may accept a belated report filed before completion of assessment if satisfied with the explanation and compliance.No statutory duty on the Income tax Officer to prompt the assessee to file the audit report - revisionary power of the Commissioner under section 263 - Whether the Commissioner was wrong in exercising suo motu revision under section 263 and whether the Tribunal was justified in remitting the matter to direct the Commissioner to require the Income tax Officer to give the assessee an opportunity to file the audit report. - HELD THAT: - Given the admitted position that no auditor's report had been filed and there was no material to show the accounts were audited, the Income tax Officer's allowance of the deduction was erroneous and prejudicial to Revenue. The Commissioner correctly exercised revisionary power to set aside that order. The Court held that the principles of natural justice do not impose upon the statute an obligation to require the officer to prompt the assessee to perform his statutory duty; the assessee cannot shift his burden to the Officer by claiming it was the Officer's duty to point out the omission. While in other contexts an officer may consider condonation applications for belated submissions, there is no general statutory duty to ask the assessee to file the audit report prior to rejecting the claim. Consequently the Tribunal erred in directing remand for the Commissioner to give an opportunity to file the audit report when there was total non compliance.The Commissioner rightly revised the Income tax Officer's order; the Tribunal should not have remitted the matter directing the Commissioner to give an opportunity to file the audit report, and no duty is cast on the Income tax Officer to prompt the assessee to file the report.Final Conclusion: The Court answered the reference against the assessee and in favour of the Revenue: audit of accounts is a mandatory prerequisite for deduction under section 80J, filing the auditor's report 'along with the return' is directory and may be accepted if lodged before completion of assessment with satisfactory explanation, and the Commissioner rightly set aside the Income tax Officer's allowance where there was total non compliance; the Tribunal's direction to remit for giving an opportunity to file the report was not justified. 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.