1992 (9) TMI 67 - HC - Income Tax

s.80J(6A) permits directory auditor report filing; substantial compliance enough if report available by assessment framing

The HC held that s.80J(6A) requires the industrial undertaking's accounts to be audited to satisfy the Income-tax Officer when deciding admissibility of ... Interpretation of Section 80J(6A) - timing of filing the audit report - Deduction For New Industrial Undertaking - entitlement to the benefit of section 80J, subsection (2) - non-compliance with the provisions of section 80J(6A) - Whether, the Tribunal was right in law in coming to the conclusion that section 80J(6A) merely requires that the audit report should be so furnished so that it would be available at the time of assessment? - HELD THAT:- The first part of sub-section (6A) of section 80J(1) shows that the Income-tax Officer will not admit the deductions as claimed by the assessee unless it is shown to his satisfaction that the accounts of the industrial undertaking of the previous year for which deductions have been claimed have been audited by a qualified accountant. Thus, it is at the stage of deciding whether the deductions are admissible or not that the Income-tax Officer has to look into these aspects of the matter and not at the previous stage of the filing of the return. It was then submitted by learned counsel for the Revenue that, if the Income-tax Officer had framed the assessment prior to the time when the audited accounts and the auditors' report were submitted by the assessee on March 7, 1979, the assessee could not have raised any grievance about the rejection of his claim. This is neither here nor there. So long as that had not happened, the assessee had locus penitentiae to put his house in order by submitting the report which he has done in this case and, therefore, on the construction of the pro visions, we find that the view taken by the Tribunal is quite just and appropriate and it needs no interference. We find considerable force in the submission of Mr. Kaji, learned counsel for the assessee. Once it is held, as we have done, that the second part which is procedural is directory in nature, its substantial compliance should be considered to be sufficient for the purpose of getting the benefit of deduction under section 80J(1) and to that extent, the word shall ' as employed by the Legislature in the second part of sub-section (6A) of section 80J(1) will have to be read as 'may'. The provision about furnishing of the auditors' report along with the return has to be treated as a procedural provision, directory in nature, and its substantial compliance should suffice, meaning thereby that such report should be made available by the assessee to the Assessing Officer latest when the question of framing of assessment is taken up by the Incometax Officer and when he applies his mind to the claim of the assessee and if by that time, the assessee has put his house in order and has furnished the report of the auditor for supporting the return, he can be said to have satisfied the requirement of section 80J(6A) of the Act. As a result of the aforesaid discussion, the question referred for our opinion has to be answered in the affirmative, in favour of the assessee and against the Revenue. The question is, accordingly, answered. Issues Involved:1. Interpretation of Section 80J(6A) regarding the timing of filing the audit report.2. Determination of whether the procedural requirement of filing the audit report along with the return is mandatory or directory.Summary:Issue 1: Interpretation of Section 80J(6A) regarding the timing of filing the audit report.The core question referred for opinion was whether 'section 80J(6A) merely requires that the audit report should be so furnished so that it would be available at the time of assessment.' The assessee filed the return without the audit report but submitted it before the assessment was framed. The Income-tax Officer and the Appellate Assistant Commissioner denied the benefit u/s 80J(1) due to non-compliance with the procedural requirement of section 80J(6A). The Tribunal, however, held that the audit report should be available at the time of assessment, thus favoring the assessee.Issue 2: Determination of whether the procedural requirement of filing the audit report along with the return is mandatory or directory.The court analyzed the statutory context of section 80J and concluded that the first part of section 80J(6A) is mandatory, requiring the accounts to be audited by a qualified accountant. However, the second part, which requires the audit report to be furnished along with the return, is procedural and directory. The court reasoned that substantial compliance, meaning the report should be available before the assessment is framed, suffices. This interpretation avoids absurdity and ensures the beneficial provision of section 80J(1) is not frustrated by technicalities.The court referenced various decisions, including those from the Supreme Court and other High Courts, to support its conclusion that procedural provisions should be construed reasonably and not strictly. The court disagreed with the Punjab and Haryana High Court's view that the requirement is mandatory, labeling it as an 'ipse dixit.' Instead, it endorsed the Tribunal's interpretation that substantial compliance is sufficient.Conclusion:The question was answered in the affirmative, favoring the assessee and against the Revenue, confirming that the procedural requirement of filing the audit report along with the return is directory and requires substantial compliance.