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2005 (8) TMI 100 - HC - Income TaxDeduction u/s 32AB in respect of deposits made in the Development Bank - Whether, the Income-tax Appellate Tribunal was right in holding that filing of the audit report u/s 32AB(5) during the assessment proceedings and not along with the return of income would satisfy the requirements of the aforesaid section? - HELD THAT:- A Division Bench of the Gujarat High Court in the later decision in Zenith Processing Mills v. CIT [1995 (9) TMI 37 - GUJARAT HIGH COURT] has reached the same conclusion following its earlier decision in CIT v. Gujarat Oil and Allied Industries [1992 (9) TMI 67 - GUJARAT HIGH COURT]. The Division Bench has further reasoned that it is an inherent part of section 143(3), that where the Assessing Officer is not inclined to accept the return submitted by the assessee and if he wants to modify the assessment from the return, a show-cause notice is required to be given to the assessee. Giving this opportunity will include opportunity to erase the procedural defects, if any, which is directory in nature. If we examine the matter from that point of view we are satisfied that in the present case, the claim made by the assessee though not admissible for want of the auditor's report on record, yet the same was allowed under a mistake by the Assessing Officer leaving no opportunity to the assessee to complete the requirements. The condition of non-fulfilment of the requirement under sub-section (6A) was made known to the assessee during the proceedings u/s 263 although the assessee asked for an opportunity to produce the auditor's report to fulfil the requirements u/s 80J(6A). The Commissioner of Income-tax ought to have afforded an opportunity to the assessee to furnish that proof and then examine the admissibility of the claim in the light of the proof furnished. The ratio of all these decisions is primarily founded on the well-known principle of interpretation of statutes that while the substantive provisions of taxing law are subjected strict to the rule of interpretation, the machinery rules are not subjected to such strict principles. Thus, two principles which can be culled out with reference to section 32AB(5) can be stated, thus, that from a perusal of sub-section (5) of section 32AB of the Income-tax Act, 1961, for claiming deduction u/s 32AB, it is apparent that compliance with section 2 is necessary. The first requirement is that the statement of accounts for the previous year relevant to the assessment year for which deduction is claimed may have been audited and the second is that the assessee must furnish along with the return of his income the report of such audit in the prescribed form as a proof of accounts. Further the audit forms a substantive foundation for claiming allowance and such foundation must exist at the time of filing return, viz., the accounts must have been audited before claiming deduction in a return, and in the absence of which, such deduction cannot be claimed. The compliance with the aforesaid requirement is mandatory before deduction is claimed. So far as such compliance along with the return is concerned, it is directory and this procedural compliance can be made as such during the course of assessment proceedings. As in the present case indisputably the accounts had been audited on September 25, 1988, much before the return of income claiming deduction was filed on February 2, 1989, the claim of the assessee to deduction in respect of deposit made with the Development Bank was rightly allowed by the Tribunal. As a result of the discussion, we do not find any force in this appeal and the appeal is hereby dismissed.
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