1983 (2) TMI 87 - AT - Income Tax

Appellate Tribunal allows deduction under section 80J despite audit report delay

The Appellate Tribunal ruled in favor of the assessee, holding that the failure to submit the audit report along with the return for claiming deduction ... Appeal Before AAC, Industrial Undertaking, Profits And Gains Issues:1. Whether the assessee is entitled to deduction under section 80J of the Income-tax Act, 1961 for the assessment year 1977-78.Analysis:The appeal before the Appellate Tribunal ITAT Chandigarh revolved around the single issue of whether the assessee is entitled to deduction under section 80J of the Income-tax Act, 1961 for the assessment year 1977-78. The assessee, a registered firm operating as Mahalaxmi Rice Factory, had filed its return of income for the year, declaring net income and claiming deduction under section 80J. However, the deduction under section 80J was subject to the condition that the accounts of the industrial undertaking have been audited by a qualified accountant and the audit report submitted along with the return. The audit report was filed after the assessment was completed by the Income Tax Officer (ITO), leading to the disallowance of the deduction. The central question was whether the failure to submit the audit report along with the return should preclude the assessee from claiming the deduction.The Commissioner (Appeals) upheld the decision of the ITO, emphasizing the mandatory nature of the provisions under section 80J(6A) which required the audit report to be submitted along with the return for claiming the deduction. The assessee contended that it had made a valid claim for deduction under section 80J and should have been given an opportunity to rectify the defect of not submitting the audit report before the assessment was finalized. The assessee argued that the provisions of section 80J(6A) should be construed as directory rather than mandatory, citing a judgment from the Tribunal in support of this position.The crux of the legal debate centered on whether the failure to submit the audit report along with the return should be considered a fatal defect precluding the assessee from claiming the deduction under section 80J. The revenue authorities maintained that the provisions were mandatory, as indicated by the use of the term 'shall' in the statute. In contrast, the assessee argued that the word 'shall' was not determinative of the nature of the provision and contended that the defect could be rectified even at the appellate stage.The Appellate Tribunal, after considering the arguments presented by both sides, ruled in favor of the assessee. The Tribunal held that the provisions of section 80J(6A) should be construed as directory rather than mandatory, especially when the necessary particulars for claiming the deduction were already on record. Since the audit report had been subsequently filed, the Tribunal directed that the deduction under section 80J be computed in accordance with the law. The Tribunal also acknowledged the procedural nature of section 139(9) and emphasized the applicability of principles of natural justice in income-tax proceedings.Ultimately, the appeal of the assessee was allowed, granting the deduction under section 80J for the assessment year in question. The judgment underscored the importance of procedural fairness and the opportunity for rectification of defects in claiming deductions under the Income-tax Act.