TMI Blog2005 (8) TMI 100X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 referen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Bank during the previous year relevant to the assessment year 1988-89. The assessee's income consisted of profits and gains of his profession. The accounts of the assessee were audited on September 25, 1988, prior to the filing of the return. The return as noticed above was filed on February 2, 1989. However, the said audit report was not furnished along with the return but was furnished later on during the course of assessment proceedings. As the audit report has not been submitted along with the return, the assessee was disallowed the claim to deduction of Rs. 1,00,000 deposited in the Development Bank. 4. On appeal, the Commissioner of Income-tax (Appeals) relying on the decision in CIT v. Malayalam Plantations Ltd. [1976] 103 ITR 835 (Ker) which was rendered while considering like provisions under section 32A regarding deductions in respect of profits and gains from the business of tea and other decisions of the Tribunal, allowed the claim of the assessee for deduction under section 32AB in respect of deposits made in the Development Bank by holding that analogy of the cases under section 80J and section 33A of the Act of 1961 shows that filing of the audit report along w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or any association of persons or any body of individuals, the deduction under this section shall not be allowed in the computation of the income of any partner, or as the case may be, any member, of such firm, association of persons or body of individuals: Provided further that no such deduction shall be allowed in relation to the assessment year commencing on the 1st day of April, 1991, or any subsequent assessment year. (2) (3) (4) (5) The deduction under sub-section (1) shall not be admissible unless the accounts of the business or profession of the assessee for the previous year relevant to the assessment year 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: Provided that in a case where the assessee is required by or under any other law to get his accounts audited, it shall be sufficient compliance with the provisions of this sub-section if such assessee gets the accounts of such business or profession audited under such law and furnishes, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in [1991] 83 STC 234 (SC); AIR 1992 SC 152, 157. The contention was raised before the Supreme Court that a condition statutorily provided for availing of a benefit must be held substantive in all cases and non-compliance with the statutory condition must result in forfeiture of exemption. The court repelled this contention and explained: ...There is a fallacy in the emphasis of this argument. The consequence which Shri Narasimhamurthy suggests should flow from the non-compliance would, indeed, be the result if the condition was a substantive one and one fundamental to the policy underlying the exemption. Its stringency and mandatory nature must be justified by the purpose intended to be served. The mere fact that it is statutory does not matter one way or the other. There are conditions and conditions. Some may be substantive, mandatory and based on considerations of policy and some others may merely belong to the area of procedure. It will be erroneous to attach equal importance to the nonobservance of all conditions irrespective of the purposes they were intended to serve. 11. The court approved the following principle stated by Francis Bennion in his Statutory Interpretation : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must be audited. As a proof of fact that accounts have been audited before filing the return, the return is required to be submitted along with the auditor's certificate that all accounts have been audited. The requirement of submitting proof of the fact that accounts have been audited is for only one purpose, namely, to ensure that accounts have been audited before claim to deduction under section 32AB is laid before the Income-tax Officer for consideration. Therefore, the substance of the requirement is deposit of amount in the Development Bank and the accounts containing such entry to be audited. The mode of submitting proof of auditing of accounts falls in the realm of technical procedure which, if not filed along with the return, is always to be asked by the Tribunal to furnish before the claim to deduction is allowed. It is akin to completing some deficiency or removing a defect in an application that has been filed in incomplete state, it brooks an opportunity to cure the defects before it is dealt with adversely. 17. In the present case, it is not in dispute and apparent that accounts were audited before the return was submitted. In the return, a claim was made. But on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. A Division Bench decision of the Kerala High Court in CIT v. Malayalam Plantations Ltd. [1976] 103 ITR 835 concerns with the claim of the assessee to higher development allowance under section 33A of the Income-tax Act, 1961 which, inter alia, required the assessee, which was a plantation company owning tea, coffee estates, that in order to avail of the benefit of development allowance under section 33A, it was required to furnish a certificate from the Tea Board in Form No.5 and the statement of particulars in Form No. 5A to the Income-tax Officer along with his return of income for the previous year for which deduction has been claimed. 22. In the like circumstances, as arising before us, the Income-tax Tribunal, Cochin has referred the question whether on the facts and circumstances, the Tribunal was right in holding that in order to entitle to claim development allowance provided in section 33A of the Income-tax Act, 1961, it is not mandatory within the meaning of rule 8A(d) of the Income-tax Rules, 1962, that the assessee should furnish to the Income-tax Officer, the certificate from the Tea Board in the prescribed form along with the report of audit for the year in which a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner of Income-tax acting under section 263 of the Income-tax Act was of the opinion that in the absence of such auditor's report, allowance of deduction under section 80J was erroneous and prejudicial to the interests of the Revenue and, therefore, he required the Income-tax Officer to make additions by disallowing the claim of the assessee under section 80J. During the course of proceedings under section 263, the assessee produced the auditor's report about his audited accounts. The court addressing this controversy said that: ...It is of course true that this benefit will be subject to what is provided by sub-section (6A). When we turn to the first part of subsection (6A), we find that there is a mandate to the assessing authority that the deductions under sub-section (1) from profits and gains shall not be admissible unless the accounts for the previous year relevant to the assessment year for which the deduction is claimed have been audited by an accountant. That part of the provision obviously refers to the stage where the assessing authority sits down to apply its mind on the returned figures with a view to finding out whether the deductions contemplated by sub-sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reasons are obvious. It is possible that at the time when the returns of income are filed, by some mischance or negligence of the clerk or for any other reasons, even though the audited report is available, it might not have been annexed to the return and on such mistake being found out, the report may be tendered on the next day or even a few days thereafter to the Income-tax Officer. If any literal compliance with the words 'assessee furnishes report along with his return of income' is insisted upon, then, in such an unforeseen contingency, the assessee would be denied benefit of section 80J of the Act.... Hence, in our view, the Tribunal was right when it took the view that the second part of the provision regarding furnishing of the report of the auditor along with the return is not a mandatory provision and it requires substantial compliance in the sense that it should be made available to the Income-tax Officer before the assessment is framed and, by that time, if the assessee puts his house in order, the Income-tax Officer will be required to consider the case of the assessee for deductions under section 80J(1) of the Act on the merits. It has also to be kept in vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity 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 under section 263 although the assessee asked for an opportunity to produce the auditor's report to fulfil the requirements under section 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. 29. The court stated the principle as under: From a perusal of sub-section (6A), it is apparent that compliance with two things 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 must have been audited by an accountant and the second part is that the assessee must furnish along with his return of income the report of such audit in the prescribed form duly signed and verified by such accountant. It can be stated without fear of contradiction that the former is the requirement which furnishes substantial foundation for claiming allowance and the latter is the requirement ..... X X X X Extracts X X X X X X X X Extracts X X X X
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