High Court rules audit report filing under Section 80IA(7) pre-2020 not mandatory, supports assessee's deduction claim

The High Court of Madras ruled in favor of the assessee in a tax case appeal regarding the interpretation of Section 80IA(7). The Court held that prior to the 2020 amendment, filing the audit report along with the return of income was not mandatory but directory. Since the assessee had submitted the audit report during the assessment for the relevant year, complying with the Section 80IA(7) requirement, the Court upheld the decisions of the CIT(A) and the Tribunal. The Court emphasized that the assessee's entitlement to claim deduction under Section 80IA could be supported even if the audit report was filed at a later stage, ultimately dismissing the Tax case Appeal filed by the Revenue.

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Issues:
1. Interpretation of Section 80IA(7) - Mandatory or Directory Requirement

Analysis:
The High Court of Madras heard an appeal by the Revenue against the order of the Income Tax Appellate Tribunal regarding the disallowance of a claim under Section 80IA by the assessee for the assessment year 2009-2010. The Tribunal had dismissed the Revenue's appeal, leading to this tax case appeal. The main contention was whether the requirement of filing an audit report under Section 80IA(7) along with the return of income is mandatory or directory.

The Revenue argued that the audit report is a mandatory requirement under Section 80IA(7) and should be filed along with the return of income. They contended that the CIT(A) and the Tribunal erred in holding that the audit report can be filed before the framing of assessment. The Revenue stressed that the Tribunal's decision contradicted the clear mandate of Section 80IA(7) and should be set aside.

On the other hand, the assessee argued that filing the audit report along with the return of income is not mandatory for claiming deduction under Section 80IA. They cited a decision of the Karnataka High Court to support their position, stating that the audit report can even be filed at the appellate stage. The assessee maintained that the Tribunal's decision did not require intervention by the High Court.

The High Court analyzed the provisions of Section 80IA(7) and noted that, as per the Finance Act, 2020 amendment effective from 01.04.2020, the audit report must be furnished along with the return of income. However, prior to this amendment, the requirement was not mandatory but directory, allowing the audit report to be filed before the assessment. In this case, the assessee had submitted the audit report during the assessment for the relevant year, fulfilling the Section 80IA(7) requirement. The Court upheld the decisions of the CIT(A) and the Tribunal, stating that the assessee had complied with the law.

Referring to a decision of the Karnataka High Court, the High Court of Madras emphasized that the assessee's entitlement to claim deduction under Section 80IA could be supported even if the audit report was filed at a later stage. Consequently, the High Court ruled in favor of the assessee, dismissing the Tax case Appeal filed by the Revenue.

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