2023 (2) TMI 386 - AT - Income Tax

Tribunal upholds denial of deduction under Income Tax Act for failure to comply with audit report requirement

The Tribunal dismissed the appeals for the assessment years 2016-17 and 2019-20, upholding the denial of deduction under Section 10AA of the Income Tax ... Mandatory nature of statutory pre-condition for claiming tax deduction - furnishing of accountant's audit report in Form 56F as condition precedent to allowance of deduction under section 10AA - applicability of section 10A(5) to section 10AA(1) via section 10AA(8) - binding effect of Supreme Court decision in Pr. CIT v. Wipro Ltd. on interpretation of time linked/filing conditions for tax exemptions/deductionsFurnishing of accountant's audit report in Form 56F as condition precedent to allowance of deduction under section 10AA - applicability of section 10A(5) to section 10AA(1) via section 10AA(8) - Deduction under section 10AA is not admissible where the audit report in Form 56F, required by section 10A(5) as made applicable by section 10AA(8), was not furnished along with the return of income. - HELD THAT: - The Tribunal examined the plain language of section 10AA(8), which makes subsection (5) of section 10A applicable to deductions under section 10AA. Section 10A(5) requires the accountant's report in the prescribed form to be filed along with the return of income; Rule 16D prescribes Form 56F. Following the Supreme Court's recent ruling in Pr. CIT v. Wipro Ltd., which held that analogous time linked/filing conditions for claiming exemption under section 10B(8) are mandatory and must be literally complied with, the Tribunal held that the condition of filing the audit report in Form 56F along with the return is a mandatory condition precedent for admissibility of the deduction under section 10AA. The Tribunal rejected the assessee's contention that the requirement is merely procedural or directory and emphasised that exemption/deduction provisions must be strictly complied with. As the undisputed fact was that Form 56F was not furnished with the return for the relevant year, the mandatory pre condition was not satisfied and the claim could not be allowed. [Paras 7, 8, 10, 11]Claim of deduction under section 10AA disallowed for non furnishing of Form 56F with the return; the disallowance in the intimation under section 143(1) is sustained.Effect of belated filing of Form 56F on admissibility of deduction - binding effect of Supreme Court decision in Pr. CIT v. Wipro Ltd. on prior contrary precedents - Belated filing of the audit report in Form 56F (filed after completion of assessment and many years later) does not cure the failure to satisfy the mandatory statutory condition and does not entitle the assessee to the deduction under section 10AA. - HELD THAT: - The Tribunal noted that the assessee filed Form 56F on 01.03.2022, long after the return was filed and after processing under section 143(1). Reliance on earlier decisions treating filing requirements as directory was held to be superseded by the Supreme Court's decision in Pr. CIT v. Wipro Ltd., which requires literal compliance with time linked filing conditions for exemption/deduction claims. The Tribunal therefore held that belated compliance cannot retrospectively satisfy the statutory requirement of furnishing the accountant's report along with the return and cannot validate the deduction claim. [Paras 7, 8, 9, 10]Belated filing of Form 56F does not validate the deduction; the assessee remains disentitled to the claimed deduction.Final Conclusion: Appeals for AY 2016-17 and AY 2019-20 dismissed; deduction under section 10AA denied because the mandatory requirement of furnishing the audit report in Form 56F with the return was not complied with, and belated filing did not cure the defect in view of the binding precedent in Pr. CIT v. Wipro Ltd. Issues Involved:1. Denial of deduction under Section 10AA of the Income Tax Act.2. Procedural vs. mandatory requirement of filing Form 56F along with the return of income.3. Applicability of the Supreme Court decision in Pr.CIT v. Wipro Ltd. to Section 10AA claims.Issue-wise Detailed Analysis:1. Denial of Deduction under Section 10AA of the Income Tax Act:The primary issue in both appeals is the denial of deduction under Section 10AA of the Income Tax Act, amounting to Rs.75,71,621 for the assessment year 2016-17. The appellant contended that the National Faceless Appeal Centre (NFAC) erred in confirming the denial of this deduction. The appellant argued that the deduction was previously allowed for other assessment years despite a similar procedural lapse and that the denial in the current year was unsustainable.2. Procedural vs. Mandatory Requirement of Filing Form 56F:The appellant argued that filing Form 56F along with the return of income is procedural and not mandatory, except for the first year of the claim. The appellant cited previous years where the deduction was allowed despite the delayed filing of Form 56F. The NFAC, however, held that the filing of the audit report in Form 56F along with the return of income is a mandatory requirement as per Section 10AA(8) of the Act, referencing Section 10A(5), which mandates the submission of the audit report with the return of income. The NFAC relied on the Supreme Court's decision in Pr.CIT v. Wipro Ltd., which emphasized the mandatory nature of such procedural requirements.3. Applicability of the Supreme Court Decision in Pr.CIT v. Wipro Ltd.:The appellant contended that the Supreme Court's decision in Pr.CIT v. Wipro Ltd., which dealt with Section 10B(8), should not apply to Section 10AA claims. However, the NFAC and the Tribunal found that the principles laid down in the Wipro case were applicable. The Supreme Court had held that the conditions for filing declarations and reports within specified timelines are mandatory in nature for claiming deductions. The Tribunal upheld this view, stating that the plain language of Section 10A(5), applicable to Section 10AA, clearly mandates the filing of the audit report along with the return of income for the deduction to be admissible.Conclusion:The Tribunal concluded that the appellant did not fulfill the mandatory requirement of filing the audit report in Form 56F along with the return of income. Consequently, the deduction under Section 10AA was not admissible. The Tribunal dismissed the appeals for both assessment years 2016-17 and 2019-20, upholding the NFAC's decision and the disallowance made by the Assessing Officer. The Tribunal emphasized the binding nature of the Supreme Court's decision in Pr.CIT v. Wipro Ltd., which mandates strict compliance with procedural requirements for claiming deductions under the Income Tax Act.Order Pronounced:The appeals filed by the assessee for the assessment years 2016-17 and 2019-20 were dismissed, and the order was pronounced on the 08th day of February, 2023, in Chennai.