1990 (10) TMI 107 - AT - Income Tax

ITAT upholds deduction under section 80HH, emphasizing audit requirement fairness.

The Appellate Tribunal ITAT Ahmedabad-C upheld the Commissioner of Income Tax (Appeals) decision to allow the assessee's claim for deduction under section ... Backward Area, Industrial Undertaking Issues:Admissibility of assessee's claim for deduction u/s 80HH of the IT Act, 1961 based on the filing of the audit report along with the return.Analysis:The appeal before the Appellate Tribunal ITAT Ahmedabad-C revolves around the admissibility of the assessee's claim for deduction under section 80HH of the Income Tax Act, 1961. The Income Tax Officer (ITO) had initially rejected the claim amounting to Rs. 23,464 as the audit report was not filed along with the return, citing section 80HH(5) as the basis for this decision. However, the Commissioner of Income Tax (Appeals) [CIT(A)] accepted the assessee's claim on the grounds that the audit report had indeed been filed before the completion of the assessment process.The crux of the issue lies in the interpretation of section 80HH(5) of the IT Act, which stipulates that the deduction under this section is contingent upon the audit of the accounts by a qualified accountant and the submission of the audit report along with the income tax return. The Tribunal opined that the key requirement for the claim's admissibility is the proof of audit by an accountant, substantiated by the audit report in the prescribed format signed and verified by the accountant. The Tribunal emphasized that the language of the provision, specifically the phrase 'shall not be admissible,' underscores the necessity of fulfilling the audit requirement, rather than mandating the submission of the report along with the return.Drawing from various precedents and decisions, including those of the Gujarat High Court and Tribunal cases, the Tribunal asserted that the procedural nature of section 80HH(5) allows for a flexible interpretation, guided by principles of fairness and justice. The Tribunal highlighted that the admissibility of the claim should be assessed at the time of the assessment, not at the return filing stage, as long as the audit report is submitted before the assessment is finalized. This aligns with the approach endorsed by the Supreme Court, emphasizing equity in interpreting procedural provisions of fiscal statutes.In contrast to the Punjab & Haryana High Court decision cited by the Departmental Representative (D.R.), which emphasized the mandatory nature of similar provisions in a different context, the Tribunal opted to follow the more lenient interpretation upheld by the Supreme Court and the Gujarat High Court. In the case at hand, the Tribunal found that the assessee had met all requirements for claiming the deduction under section 80HH, as the audit report was submitted and verified by the accountant before the assessment was concluded. Consequently, the Tribunal upheld the CIT(A)'s decision to allow the deduction and dismissed the appeal brought by the Revenue.