TMI Blog2019 (6) TMI 780X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO. Once this fact is not in dispute then following the ratio laid down in the foregoing judicial precedents, it is to be held that the deduction u/s 10AA could not be denied for non-filing of the audit report in Form 56F along with the return of income.The first material objection of the lower authorities denying the claim of deduction u/s 10AA therefore fails. Applicability of provisions of Section 80A(5) - We find that the disallowance, made in the appellant s case, was in terms of Section 37(1) and therefore as per the Circular No. 37/2016, the amount disallowed was required to be taken into consideration for determining the profits qualifying for deduction u/s 10AA. For the reasons set out in the foregoing therefore, we are of the considered view that there was no contravention of Section 80A(5) because there was no failure on the assessee s part to claim deduction permissible u/s 10AA while filing it s return. On the contrary we are of the view that having regard to the peculiar facts of the appellant s case, the assessee could not have legally claimed any deduction u/s 10AA in the return of income filed electronically. It is only account of disallowance of the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax (Appeals) -4, Kolkata for the AY2014-15 dated11.10.2018 2. The main grievance of the assessee is against the action of Ld. CIT(A)upholding the AO s order of denying the benefit of deduction claimed u/s 10AA of the Act. Briefly stated facts of the case are that the appellant is a private limited company, engaged in the business of manufacture of specialty inks and allied products. The only manufacturing unit of the appellant is located at Dahej SEZ in Gujarat. Being located in notified SEZ, profits of the manufacturing unitis legally eligible for deduction u/s 10AA of the Act. For the AY 2014- 15 the appellant filed its return of income declaring a loss of ₹ 7,96,40,878/- and therefore in the computation of income and the return of income, deduction u/s 10AA was reported to be NIL. Such loss was arrived at after ₹ 24,50,70,020/-was charged to the P L Account as revenue expenditure, on account of exchange fluctuation loss. In the course of assessment the appellant was called upon to furnish details of the exchange loss/gain. Vide letter dated 20.12.2017 the appellant however brought to the notice of the AO that exchange fluctuation loss to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent profits gains derived from export of article or thing and therefore even on merits the claim of deduction u/s 10AA was not tenable. Aggrieved by this order of the Ld. CIT(A), the assessee is now in appeal before us. 3. We have heard the rival submissions and perused the order of lower authorities. We find that facts of the case are undisputed and they are in narrow compass. In the first instance the lower authorities disallowed the appellant s claim on the ground that accountant s report in Form 56F was not filed along with the return of income and therefore the statutory requirements of Section 10A(5) read with Section 10AA(8) were not complied with. After considering the relevant provisions of Section 10A(5), we find that these are on the same lines as in the case of various other sections of the Act such as S. 80IA,80IB etc. which grant profit based deductions to the assessees. The Legislature has provided for grant of profit-based deductions subject to the condition that the assessees shall furnish audit reports in the forms prescribed in the IT Rules along with the returns of income. In that context the question arose as to whether the requirement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rring in sub-section (5) as directory does not do away with the compulsory requirement of producing the auditor s report for assessment and deduction. In considering the language of section 139 and specially the part of it appearing in sub-section (9) and the Explanation thereto, the following points emerge as relevant and important. In the Explanation to section 139(9), unless the conditions specified therein are fulfilled, the return of income is to be regarded as defective . In section 139(9) itself, when the defect is not rectified by the assessee even after giving of time, the assessee s return shall be treated as invalid and it will be as if the assessee had filed no return at all. Therefore, even in the case of the return itself, the documents and papers which should accompany it, do not cause it utter and complete failure from the very inception, even if those are not annexed with the return. A chance is always given to the assessee to put the matter right before the assessment. Sub-section (5) of section 32AB should not be interpreted in a manner even more stringent than the requirement of the filing of the return itself. Furthermor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 80-IA(7) in the case of CIT v. Contimeters Electricals (P.) Ltd. [IT Appeal No. 1366 of 2008, decided on 2-12-2008] and held that as long as the audit report is filed before the framing of the assessment, the provisions of section 80-IA(7) would be complied with inasmuch as the same are directory and not mandatory. A similar view would have to be taken in the present case also inasmuch as the provisions are the same. Consequently, we do not find any fault with the conclusions arrived at by the Tribunal. No substantial question of law arises for our consideration. The appeal is dismissed. 6. We may also gainfully refer to the judgment of the Hon ble Gujarat High Court in the case of Pr.CIT Vs Gandhinagar Telerads (TA No. 58 of 2016) dated 01.02.2016 wherein the High Court observed as follows: 2. Issue pertains to deduction under section 10A of the Income Tax Act ( the Act for short) claimed by the assessee. However, before the Assessing Officer though the assessee had filed its audit return in form No.3CB and 3CD as required under section 44AB of the Act, but had not filed audit report in Form No.56F as required under section 10A read with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction u/s 10AA therefore fails. 8. The second material objection of the Ld. CIT(A) upholding the AO s order denying the benefit of Section 10AA was his reliance on the provisions of Section 80A(5) of the Act. Before we deal with this issue, it is relevant to set out the relevant provision of Section 80A(5) which read as follows: Where the assessee fails to make a claim in his return of income for any deduction under section 10A or section 10AA or section 10B or section 10BA or under any provision of this Chapter under the heading C.-Deductions in respect of certain incomes , no deduction shall be allowed to him thereunder. 9. The provisions of sub-section (5) were inserted in the Act by the Finance Act (No.2) of 2009 with retrospective effect from 01.04.2003. The Explanatory Notes to the provisions of the Finance Act (No.2) of 2009 were issued by the CBDT through Circular No. 5/2010 dated 03.06.2010. Para 25 of the said Circular explained the legislative rationale for amending Section 80A and the relevant Para 25 reads as follows: 25.1 The profit linked deductions in Chapter VI-A are prone to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n if the figure reported under the head Profits Gains of Business was a loss. It was also brought to our notice that there was no field elsewhere in the ITR-6 wherein the assessee could report that it operated an SEZ unit eligible for deduction u/s 10AA at Dahej, Gujarat. In this factual background the Ld. AR submitted that it was not a case where the assessee had failed to make a claim of deduction u/s 10AA while filing the return of income within the time prescribed in S 139(1). He submitted that since the returned income was a loss, there was no possibility for the assessee to legally raise or make claim of deduction u/s 10AA in the return filed u/s 139(1) and therefore no failure as contemplated in law could be attributed to the assessee so as to invoke the rigors of Section 80A(5) of the Act. 11. When we consider the foregoing submissions in the backdrop of Circular No. 5/2010 explaining the rationale for which Section 80A(5) was enacted; we note that on the facts of the appellant s case there was no failure to claim the deduction as contemplated by the said provision. The term failure envisages a deliberate act or conscious decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L A/c in conformity with AS-11 and claimed deduction therefor in arriving at relevant year s business income. However on being advised that such loss may not be considered to be revenue in nature; the appellant had voluntarily filed a revised computation of income before the AO without claiming the forex loss of ₹ 24,50,70,020/-.We note that both the lower authorities concurrently held that the forex loss of ₹ 24,50,70,020/- was not permissible as deduction. We therefore find that only because of such disallowance that the appellant s returned loss of ₹ 7,93,24,382/- stood converted in positive business income for the relevant year. But for the disallowance made in the course of assessment the appellant did not report any positive business income. We therefore find merit in the Ld. AR s submission that it was not a case where the assessee at the time of filing return was entitled to make a claim for deduction u/s 10AA and yet failed to make the same. In our considered opinion, it was a case where on account of the disallowance made by the AO, the loss returned by the assessee stood converted into positive sum and made the appellant eligible to claim deduction u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10AA in the return of income filed electronically. It is only account of disallowance of the forex loss under Section 37(1) that the returned loss stood converted into positive business income for the relevant year and as a consequence, the assessee became eligible to claim deduction. We also note that the AO per se did not dispute or object to the assessee s claim on merits but it was rejected only on technical grounds. We are of the considered view that there is no estoppel in law and an assessee cannot be denied a rightful deduction to which it is eligible unless there is specific bar in law from claiming such deduction. On the peculiar facts of the present case we find that statutory bar provided in Section 80A(5) did not operate as there was no failure on the assessee s part to claim deduction u/s 10AA of the Act but it was a case where the deduction became claimable only as a result of disallowance proposed in the assessment. Accordingly the second objection raised by the Ld. CIT(A) in support of rejection of claim u/s 10AA also fails. 15. Apart from the above two objections, even on merits the Ld. CIT(A) held that the deduction u/s 10AA w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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