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Pr. Commissioner of Income Tax Versus M/s Surya Merchants Ltd.

2016 (5) TMI 947 - ALLAHABAD HIGH COURT

Deduction under Section 80IB - denial of claim as audit report was not furnished with the return of income - Held that:- In the present case, the return of income under Section 153-A of the Act was filed on 8 April 2010 and the audit report was filed on 19 July 2011 before passing of the assessment order. The requirement, therefore, stood satisfied and the benefit of Section 80IB of the Act could not have been denied to the assessee merely for the reason that the audit report was not furnished w .....

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No infirmity in the view taken by the CIT Appeals and the Tribunal nor illegality any has been pointed out by learned Counsel for the appellant. If deductions under sub-section (3) of Section 40A of the Act is not allowed then the same would have adjusted to the profits of the undertaking as a result of which it will be entitled to seek deductions under Section 80IB of the Act.- Decided in favour of assessee. - Income Tax Appeal No. - 248 of 2015 - Dated:- 3-5-2016 - Hon'ble Dilip Gupta And .....

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ollows:- 1. Whether Hon'ble ITAT was justified in dismissing Revenue's appeal by observing that the assessee's claim of deduction under Section 80IP is allowable on undisclosed income that was declared in consequence of search. 2. Whether Hon'ble ITAT was justified in dismissing Revenue's appeal by observing that the assessee's claim of deduction under Section 80IB is allowable in respect of disallowance under Section 40A(3) made on undisclosed income that was declared in .....

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claim was allowed by the Assessing Officer by order dated 10 July 2007 under 143 (B) of the Act. However, a search was carried out on the premises of the Company on 6 February 2009 and certain incriminating documents were seized. The revenue found from the seized documents that there was an undisclosed income of ₹ 5,68,80,271/-. Accordingly, the Assessing Officer issued a notice under Section 153-A of the Act on 22 February 2010 pursuant to which the assessee furnished a return declaring i .....

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g Officer disallowed the claim as the assessee failed to satisfy the condition set out in sub-section (7) of Section 80IA of the Act since the audit report was not submitted with the return which was filed. The Assessing Officer also made a disallowance of ₹ 54,52,697/- on the ground that assessee had made cash payment of ₹ 2,72,63,485/- contrary to the provisions of Section 40A(3) of the Act. The assessee filed an appeal before the Commissioner of Income Tax (Appeal) Meerut CIT Appe .....

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t observed that since such amount would become the income of the eligible project, there was no reason why the assessee should be denied deduction under Section 80IB of the Act. The Assessing Officer was, therefore, directed to recompute the eligible deduction under Section 80IB of the Act. The revenue filed an appeal before the Tribunal. The Tribunal noted that it was an admitted position that the assessee was eligible to claim deduction under Section 80IB of the Act as the claimed deduction of .....

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e search. It, accordingly, did not agree with the finding recorded by the Assessing Officer that the claim cannot be allowed as the audit report was not furnished with the return. The Tribunal also found that it was an undisputed position that the audit report for the enhanced claim had been furnished during the course of the assessment proceedings together with the profit and loss account and balance sheet duly verified by the Accountant. In holding that the requirement of filing the audit repo .....

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ee to furnish the report of audit in the prescribed from duly signed and verified with return of income is a mandatory requirement and since in the present case admittedly the assessee did not furnish the audit report with the return of income, the CIT Appeal and the Tribunal committed an illegality in allowing the deductions claimed by the assessee under Section 80IB of the Act. It is his submission that the language of sub-section (7) of Section 80A is very clear and does not admit of any doub .....

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y requirement as has been repeatedly held by various High Courts across the country. His submission is that the assessee had furnished the audit report prior to the conclusion of the assessment proceedings initiated under Section 153 A of the Act and, therefore, the requirement of sub-section (7) of Section 80IA stood satisfied. Learned Senior Counsel also submitted that the CIT Appeals and the Tribunal committed no illegality in holding that even if the deduction claimed under Section 40A(3) of .....

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ns contained in sub-section (5) and sub-sections (7) to (12) of Section 80IA shall, so far as may be, applied to the eligible business under this section. The provision of Section 80IB(1) and sub-section (7) of Section 80IA of the Act are reproduced below :- "80IB(1) - Where the gross total income of an assessee includes any profits and gains derived from any business referred to in sub-sections (3) to (11), (11A) and (11B) (such business being hereinafter referred to as the eligible busine .....

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ar for which the deduction is claimed have been audited by an accountant, as defined in the Explanation below sub Section (2) of Section 288, and the assessee furnishes, along with his return of income, the report of such audit in the prescribed form duly signed and verified by such accountant." Sub-section (7) of Section 80IA provides that the deduction made from the profits and gains derived from undertaking shall not be admissible unless the accounts of the undertaking for the previous y .....

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the original return of income. The dispute is about the furnishing of the audit report with the return of income filed under Section 153 A of the Act by the assessee after the search was carried out. It is, however, not in dispute that the assessee had furnished the audit report during the assessment proceedings under Section 153 of the Act. The return under Section 153 A of the Act was filed by the assessee on 8 April 2010 while the audit report was filed during the course of the proceedings on .....

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equirement of sub-section (7) of Section 80IA of the Act has been held to be directory by various High Courts. The High Courts have decided this issue while examining the provisions of Section 80IB of the Act as also the provisions of Section 80J(6A) and Section 184 of the Act. The decisions directly dealing with the provisions of Section 80IB shall be discussed first. The Karnataka High Court in Commissioner of Income Tax and Another v. ACE Multitaxes Systems Private Limited [2009] 317 ITR 207 .....

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cast any obligation on the assessee to furnish the audit report with the return of income. The Delhi High Court in Commissioner of Income Tax v. Contimeters Electricals Private Limited [2009] 317 ITR 249 (Del) also in conclusion with the requirement of sub-section (7) of Section 80IA of the Act, examined decisions of various High Courts and observed that the filing of audit report with the return of income is not a mandatory requirement but a directory requirement and that the requirement would .....

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section (7) of Section 184 of the Act requiring the firm to furnish with its return of income, a declaration in the prescribed form and verified in the prescribed manner was a mandatory requirement or a directory requirement. Section 184 of the Act deals with registration as also with registration having effect for subsequent years. Sub-section (7) of Section 184 provides that where the registration is granted to any firm for any assessment year, it shall have effect for every subsequent year an .....

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bsequent year, in case there has been no change in the constitution of the firm or in the shares of its partners. The other requirements are merely to evidence this fact. The requirement that the firm shall furnish a declaration in Form No. 12 is merely to prove the facts in a particular way. The requirement that the declaration shall be filed along with the return of income is not of the substance or the essence. It is a procedural requirement. The legislative intent appears to be that while de .....

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rly, the requirement that the declaration should be filed along with the return of income is directory, because the ITO is enabled to assess the firm provided, the return is filed up to the time he makes the assessment." This decision has been followed by the Gujrat High Court in Commissioner of Income Tax v. Gujarat Oil and Allied Industries [1993] 201 ITR 325 (Guj), while interpreting the provisions of Section 80J-6(A) of the Act, which is as follows:- "80J-6(A) - Where the assessee .....

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such audit in the prescribed form duly signed and verified by such accountant." Similar views have been expressed by the Gujrat High Court in Zenith Processing Mills v. Commissioner of Income Tax [1996] 219 ITR 721 (Guj), the Madras High Court in Commissioner of Income Tax v. A.N. Arunachalam [1994] 208 ITR 481 (Mad), the Bombay High Court in Commissioner of Income Tax v. Shivanand Electronics [1994] 209 ITR 63 (Bom) and the Punjab and Haryana High Court in Commissioner of Income Tax v. Mah .....

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the accountant to be filed with the return of the income would stand satisfied if it is submitted before the assessment order is passed. The aforesaid decisions leave no manner of doubt that the requirement of sub-section (7) of Section 80IA of the Act, which is made applicable to section 80IB of the Act in view of the provisions of sub-section (13) of Section 80IB of the Act, that the audit report should be furnished along with the return of income is a directory requirement and would stand sat .....

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ds to be remembered that the audit report had been submitted earlier by the assessee with the return of income submitted on 18 January 2006 for the assessment year 2005-06 and only the additional benefit of ₹ 18,45,552/- under section 80IB was subsequently claimed in the return filed on 8 April 2010 as the income had increased. The next submission of the learned counsel for the appellant is that the CIT Appeals committed an illegality in reversing the finding of Assessment Officer that the .....

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