2024 (7) TMI 1660 - AT - Income Tax

Disallowing deduction u/s 80IB - belated submission of audit report in Form 10CCB - directory v/s mandatory provision - as argued assessee corrected the error by submitting the audit report in Form 10CCB on 15th September 2018 which is within 30 days from receipt of communication by post - said return was processed (assessed) u/s 143(1) by CPC Bangalore on 4th October 2018 that is after the date of filing the report in Form 10CCB. HELD THAT - We find that this issue has already been decided in favour of the assessee and held by various coordinate benches of the tribunal that the submission of Form 10CCB is directory and not mandatory and compliance of the provisions will suffice if the auditor s report in Form 10CCB is filed before completion of assessment in respect of deductions claimed u/s 80IB. See SANJAY KUKREJA 2024 (2) TMI 41 - ITAT DELHI we hold that the submission of form 10CCB is directory in nature and not mandatory and it is sufficient compliance if the said report is filed with the AO before completion of assessment which is an admitted fact in the instant case. As such the assessee is entitled to the claim of deduction u/s 80IB of the Act 61 as per claim in his return of income and the same is allowed.

Summary

The core legal issue considered in this appeal is whether the claim for deduction under section 80IB of the Income Tax Act (Act 61) can be denied solely on the ground that the audit report in Form 10CCB was not filed along with the return of income, despite being filed belatedly but before the completion of assessment under section 143(1) of the Act.

Additional related questions considered include:

• Whether the filing of Form 10CCB is mandatory "along with the return" or merely directory, allowing submission before assessment completion.
• The effect of electronic filing schemes on the interpretation of the requirement to file Form 10CCB along with the return.
• The applicability and interplay of procedural provisions such as sections 139(9) and 143(1)(a) regarding error communications and correction timelines.
• The relevance of judicial precedents on the mandatory versus directory nature of audit report filing for claiming deductions under section 80IB and similar provisions.

The Tribunal's detailed analysis on these issues is as follows:

Relevant Legal Framework and Precedents:

Section 80IB of the Act provides for certain deductions subject to compliance with prescribed conditions, including the filing of an audit report in Form 10CCB. Section 139(1) mandates the filing of the return of income, and section 143(1) permits assessment based on the return and accompanying documents. Section 143(1)(a) empowers the Assessing Officer (AO) to communicate errors and allow correction within a specified period. Section 139(9) provides for treating a return as defective if certain documents are not filed within prescribed time.

Judicial precedents from various High Courts and coordinate benches of the Tribunal have consistently held that the filing of the audit report in Form 10CCB is directory and not mandatory in a strict sense. Notably, the Karnataka High Court in CIT v. ACE Multitaxes Systems (P.) Ltd., the Delhi High Court in CIT v. Contimeters Electricals (P.) Ltd., and the Madras High Court in CIT v. A.N. Arunachalam have held that filing the audit report before completion of assessment satisfies the statutory requirement. The Hon'ble Allahabad, Bombay, Gujarat, Punjab & Haryana, and Calcutta High Courts have also endorsed this view. The Supreme Court in C.I.T v. G.M. Knitting Industries Pvt. Ltd. has held that mere procedural irregularities should not defeat substantive claims for deduction.

Court's Interpretation and Reasoning:

The Tribunal observed that the assessee had filed the return on 25/08/2017 claiming deduction under section 80IB, but the audit report in Form 10CCB was filed belatedly on 15/09/2018, after the stipulated date under section 139(1). However, this filing was made within 30 days of receipt of an error communication under section 143(1)(a) dated 23/07/2018 (received by post on 21/08/2018), and crucially, before the assessment was completed on 04/10/2018.

The Tribunal noted that the AO and the first appellate authority had denied the deduction on the narrow ground that the audit report was not filed "along with the return," taking a literal and rigid interpretation of the phrase "filed along with the return." The appellate authority also relied on the introduction of electronic filing to argue that subsequent filing of documents is not permissible for processing under section 143(1).

Rejecting this narrow view, the Tribunal emphasized that the phrase "along with the return" should be construed in a practical and purposive manner, allowing for filing of the audit report before completion of assessment to meet the statutory requirements. The Tribunal highlighted that the audit report was indeed before the AO at the time of assessment, and thus the procedural lapse in not filing it simultaneously with the return should not result in denial of the substantive deduction claim.

The Tribunal extensively relied on judicial precedents that have held the filing of Form 10CCB to be directory and that compliance before assessment completion suffices. The Tribunal quoted the Delhi ITAT's decision in Sanjay Kukreja and the Madras High Court's ruling in CIT v. AKS Alloys Pvt. Ltd., which firmly establish that the audit report need not be filed strictly with the return but must be available before assessment to claim the deduction.

The Tribunal also rejected the Revenue's argument that the judgments cited by the assessee were not applicable in the electronic filing era, clarifying that the legal principles continue to apply and procedural safeguards like section 143(1)(a) error communications provide adequate opportunity for correction.

Key Evidence and Findings:

• The audit report in Form 10CCB was uploaded on 15/09/2018, with an e-acknowledgment number, before the assessment on 04/10/2018.
• The assessee received error communication under section 143(1)(a) allowing 30 days for correction, and the report was filed within this period.
• The AO and CIT(A) did not consider the audit report filed before assessment, leading to denial of deduction.
• Precedents uniformly support that filing before assessment completion is sufficient.

Application of Law to Facts:

The Tribunal applied the settled legal principles to the facts, holding that since the audit report was filed before assessment, the procedural requirement was complied with. The denial of deduction on the ground of non-filing "along with the return" was therefore unsustainable. The Tribunal directed the AO to allow the deduction under section 80IB as claimed.

Treatment of Competing Arguments:

The Revenue's argument rested on a strict, literal interpretation of the phrase "filed along with the return" and the impact of electronic filing rules. The Tribunal rejected this rigid approach, emphasizing the purposive interpretation and the directory nature of the filing requirement. The Tribunal also dismissed the contention that judicial precedents relied upon by the assessee were outdated or inapplicable post electronic filing introduction.

The assessee's argument, supported by multiple judicial decisions, that the audit report filing is directory and can be done before assessment completion was accepted. The Tribunal also noted that procedural remedies under sections 143(1)(a) and 139(9) exist precisely to address such errors and should not be rendered redundant.

Conclusions:

The Tribunal concluded that the filing of the audit report in Form 10CCB is directory, not mandatory in a strict sense, and that the assessee's submission of the report before assessment completion satisfies the statutory requirement for claiming deduction under section 80IB. The denial of deduction on the ground of late filing was therefore set aside, and the appeal allowed.

Significant Holdings:

The Tribunal preserved the following crucial legal reasoning verbatim:

"After introduction of the electronic filing of the return of income as well as all other documents, there was no debate available that even if the audit report was filed before the assessment was made, same was acceptable and the deduction could not be denied to the taxpayer."

"The submission of Form 10CCB is directory and not mandatory, and compliance of the provisions will suffice, if the auditor's report in Form 10CCB, is filed before completion of assessment, in respect of deductions claimed under section 80IB."

"When a relief is sought for under Section 80IB of the Act, there is no obligation on the part of the assessee to file return accompanied by the audit report, thereby, holding that the same is not mandatory. Therefore, it is clear that before the assessment is completed if such report is filed, no fault could be found against the assessee."

"A mere procedural irregularity is not fatal to claim deduction under Section 80-IC of the Act."

The core principle established is that the filing of the audit report required for claiming deduction under section 80IB is directory, and the essential compliance is that the report must be filed before the completion of assessment. Procedural lapses in timing of filing should not defeat substantive tax benefits otherwise legitimately claimed.

Accordingly, the Tribunal allowed the appeal, directing the AO to grant the deduction under section 80IB as claimed by the assessee, reversing the orders of the AO and the first appellate authority.