2013 (3) TMI 223 - HC - Income Tax

High Court: Filing audit report with income return under Section 80HHC(4) of Income Tax Act is procedural, not mandatory.

The High Court held that the requirement to file the audit report 'along with the return of income' under Section 80HHC(4) of the Income Tax Act is ... Deduction u/s 80HHC denied - Audit Report in Form No.10CCAC was not originally filed along with the return of income but was duly filed during the assessment proceedings - Held that:- No hesitation in coming to the conclusion that the expression “alongwith return of income” as occurring in subsection (4) of Section 80HHC could always be interpreted as directory so far it relates to the time of filing of the report and hence, even if the report is filed during assessment proceedings, the assessee cannot be denied the claim of deduction. See CIT Vs. Gupta Fabs [2005 (1) TMI 48 - PUNJAB AND HARYANA HIGH COURT] & Commissioner of Income-Tax Versus Dr. L. M. Singhvi [2005 (8) TMI 100 - RAJASTHAN HIGH COURT] Thus while filing of the accountant's report in sub-section (4) of Section 80HHC, could be considered to be a mandatory requirement for the purpose of the assessee being entitled to claim deduction but the time of filing of the same could only be considered directory in nature and such report cannot be removed out of consideration only because of having not been filed at the time of filing of the return. The order as passed by the Tribunal does not call for any interference and stands confirmed insofar it is held that the assessee cannot be denied the benefit of deduction under Section 80HHC. However, the other part of the directions of Tribunal, where the benefit of deduction under Section 80HHC has directly been allowed at Rs. 37,08,019.97 only on the basis of the amount stated in the audit report in Form No.10CCAC, the same stands modified in the manner that the issue about quantification of the eligible deduction under Section 80HHC is restored to the file of the Assessing Officer who shall re-examine the matter as regards the amount eligible for deduction and then, shall pass appropriate consequential orders in accordance with law. Issues Involved:1. Whether the expression 'along with the return of income' in Section 80HHC(4) of the Income Tax Act, 1961, permits the filing of the audit report during assessment proceedings.2. The correctness of the Tribunal's decision to allow the deduction under Section 80HHC based on the audit report filed during the assessment proceedings.Issue-wise Detailed Analysis:1. Interpretation of 'Along with the Return of Income' in Section 80HHC(4)The primary issue in this case was whether the requirement to file the audit report in Form No.10CCAC 'along with the return of income' under Section 80HHC(4) of the Income Tax Act, 1961, is mandatory or directory. The Tribunal had allowed the deduction because the audit report was filed during the assessment proceedings, even though it was not filed along with the return. The Tribunal relied on judgments from the Calcutta High Court and the Punjab and Haryana High Court, which supported the view that the timing of filing the audit report is directory, not mandatory.The High Court examined its own precedent in Dr. L.M. Singhvi's case, which dealt with similar provisions under Section 32AB(5). The Court noted that the requirement of filing the audit report along with the return is procedural and directory, not mandatory. The Court also referenced the Full Bench decision of the Punjab and Haryana High Court in CIT Vs. Punjab Financial Corporation, which held that the filing of the audit report along with the return is a procedural requirement and can be fulfilled during the assessment proceedings.The Court concluded that the expression 'along with the return of income' in Section 80HHC(4) is directory regarding the timing of filing the report. Therefore, even if the report is filed during the assessment proceedings, the assessee cannot be denied the deduction.2. Tribunal's Decision on Deduction under Section 80HHCThe Tribunal had allowed the deduction under Section 80HHC to the extent of Rs.37,08,019.97 based on the audit report filed during the assessment proceedings. The Tribunal held that the assessee could not be denied the benefit of the deduction because the audit report was eventually filed.However, the High Court had reservations about the Tribunal's decision to directly allow the deduction based on the amount stated in the audit report. The Court noted that the assessee initially claimed a deduction of Rs.39,86,538/-, and there was an inconsistency in the amounts. The High Court held that the matter should be sent back to the Assessing Officer (AO) for re-examination to determine the correct amount eligible for deduction.ConclusionThe High Court answered the question of law in favor of the assessee, holding that the requirement to file the audit report 'along with the return of income' is directory concerning the timing. The Court confirmed the Tribunal's decision that the assessee could not be denied the deduction under Section 80HHC. However, the Court modified the Tribunal's order regarding the quantification of the eligible deduction and restored the issue to the AO for re-examination.DispositionThe appeal was disposed of with no costs. The matter was remanded to the AO for appropriate orders regarding the eligible deduction under Section 80HHC.