2026 (3) TMI 1275 - AT - Income Tax

Section 35AD deduction allowed where Form 10CCB was filed before completion of fresh assessment after section 263 remand.

Section 35AD deduction cannot be denied merely because Form 10CCB was not filed with the return if the audit report is furnished before completion of the ... Disallowance of deduction u/s 35AD - assessee has failed to file Form 10CCB before the due date of filing of return of income - sufficient compliance of the procedural requirement - audit report in Form No. 10CCB was not filed along with the return of income but was furnished subsequently during the course of fresh assessment proceedings conducted by the AO pursuant to the revision order passed u/s 263. HELD THAT: - The Tribunal held that the rule requiring filing of the audit report in Form No.10CCB is directory and where the report is furnished before completion of assessment the deduction cannot be denied. The view follows the binding precedent cited by the authorities, as reproduced in the impugned order, that filing before completion of assessment suffices - CIT vs. G. M. Knitting Industries (P.) Ltd. [2015 (11) TMI 397 - SC ORDER] and CIT vs. Panama Chemical Works [2006 (8) TMI 159 - MADHYA PRADESH HIGH COURT] . Tribunal rejected the Revenue's distinction between original assessment and fresh assessment under section 263, reasoning that once the assessment is set aside and restored for re-examination the subsequent proceedings assume the character of a fresh assessment and all material placed before the assessing officer prior to its completion must be considered. Tribunal also noted the assessee had disclosed the claim in return and in the tax audit (Form No.3CD) and had waived depreciation on the said assets, indicating bona fide compliance with substantive conditions for the deduction. For these reasons the AO's disallowance solely on the ground of non-filing with the return was held unsustainable. [Paras 13, 14, 15, 16, 17] Deduction under section 35AD upheld as the Form No.10CCB was furnished before completion of the fresh assessment and substantive conditions for deduction were met. Final Conclusion: The Tribunal dismissed the Revenue's appeal, upheld the CIT(A)'s allowance of the deduction under section 35AD as Form No.10CCB was furnished before completion of the fresh assessment proceedings, and directed that income be recomputed under section 115JC accordingly. Issues: (i) Whether an assessee is entitled to claim deduction under Section 35AD of the Income-tax Act, 1961 when the audit report in Form No. 10CCB was not filed with the return but was furnished during the course of fresh assessment proceedings conducted pursuant to an order under section 263, provided the Form 10CCB was filed before completion of that fresh assessment.Analysis: The statutory framework requires production of the audit report in the prescribed form as a precondition for claiming deduction under Section 35AD, read with Section 80-IA and the relevant rules (Rule 18BBB and proviso to Rule 12(2)). Judicial precedents accept that where the prescribed certificate/report is furnished before completion of assessment, the deduction cannot be denied merely on the ground that it was not filed with the return. When an assessment is set aside under section 263 and remitted for fresh examination, the ensuing proceedings constitute a fresh assessment; material furnished to the Assessing Officer before completion of that fresh assessment must be considered for allowability of the deduction. The assessee had disclosed the claim in the return and in the tax audit report (Form 3CD), had foregone depreciation for the same assets, and furnished Form 10CCB during the fresh assessment before its completion. No contrary material was placed on record to rebut the bona fides of the claim.Conclusion: The deduction under Section 35AD is allowable because the audit report in Form No. 10CCB was furnished before completion of the fresh assessment proceedings; therefore the revenue's appeal is dismissed and the CIT(A)'s direction to allow the deduction and recompute income under section 115JC is upheld in favour of the assessee.