TMI Blog2015 (4) TMI 1323X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee had not filed Audit Report before the A)O.But,the report was made available to the CIT and for disallowing the claim allowed in the earlier years he should have pin pointed the reasons for refusing it as to how same was different from the reports of earlier years. An issue deliberated upon by the FAA,partially or fully,is out of preview of proceedings to be initiated u/s.263 of the Act.In our opinion,the order of the CIT fails on touchstone of the merger doctrine and therefore is not valid.We hold that the assessees are required to file audit reports,but filing it before the CIT would not disentitle it from claiming the deduction.The purpose behind filing the report is that no fictitious claim is made and the activities of the assessees are certified by a professional. Deductions, including 80IB of the Act are considered to be benevolent provisions - Considering the purpose behind the legislation the Hon ble Courts have held that if the report is submitted at the time of active consideration of the claim it has to be taken as sufficient compliance of the provisions of the Act. - Decided in favour of assessee. - ITA No.2173/Mum/2009 - - - Dated:- 10-4-2015 - S/Sh. I P Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed that examination of records revealed that the assessee did not furnish the Audit Report in prescribed form no.10CCB duly signed and verified by an Accountant as defined in explanation per sub-section (2) of section 288 of the Act,which was mandatory requirement as prescribed by section 80IB(13) 80IA(7) of the Act.Assessing Officer(AO) completed the assessment u/s.143(3) of the Act,on 10. 10.2007,at total income of ₹ 3,80,42,930/-after allowing deduction u/s. 80IB at ₹ 1, 20,89,435/- (a sum of Rs, 29,49,162/- had been disallowed out of the total claim of ₹ 1, 50,38,960/-).The assessee did not furnish the Audit Report in prescribed form no. 10CCB either along with the return or before the completion of the assessment proceedings. In view of the above facts,a notice u/s.263 of the Act,dated 23.12.2008 was issued to the assessee.Vide the said notice,the assessee was given an opportunity of being heard to explain as to why necessary order including an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment should not be passed.Vide its written submission,dated 21.01.2009,the assessee contended that the Audi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pertained to the filing of Audit Report before the completion of the assessment,that the Report was not filed before the completion of assessment,that those case laws were irrelevant.He again relied upon the case of Malabar Industrial Co.Ltd.(supra).He also made a reference to the matter of Sechenectady Beck India Ltd.(272ITR-AT-103)of Mumbai ITAT.He held that in the case under consideration the mandatory requirements of section 80IB(13)/80IA(7)of the Act had not been fulfilled,that as per section80IA(7)deduction u/s.80IA(7)/80IB(13)would not be admissible unless the two mandatory requirements were fulfiled, that the assessment order passed by the AO in absence of the Audit Report in prescribed form no. 10CCB was erroneous as well as prejudicial to the interest of Revenue,as there was incorrect application of law which satisfied the requirement of the order being erroneous as well as prejudicial to the interest of Revenue.He analysed the judgments relied upon by the assessee and held that same were not applicable to the facts of the case.Finally,invo - king the provisions of section 263 of the Act,he directed the AO to withdraw the deduction. 3.Before us,Authorised Representati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the view that the revisional jurisdiction available to a CIT u/s.263 of the Act is essentially circumscribed by the determinant that the order of the AO is erroneous,so much so that it is prejudicial to the interests of the Revenue.This statutory enjoinment carves out an extremely constricted ambit of such discretionary jurisdiction. The word considers applied in the statutory provision involved, signifies a genuine satisfaction of that authority that the order of the AO is erroneous and that the interests of the Revenue are prejudiced thereby.Any exercise of the revisional jurisdiction, bereft of such satisfaction or finding that the order of the AO is erroneous and that it is prejudicial to the interests of the Revenue and that too,based on tangible materials on record, is impermissible rendering the resultant order void. 'Erroneous assessment' refers to an assessment that deviates from the law and is,therefore, invalid,and is a defect that is jurisdictional in its nature.An order cannot be termed as erroneous unless it is not in accordance with law.This section does not visualise a case of substitution of judgment of the CIT for that of an officer,who passed the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isentitle the assessee from availing deduction of chapter VIA of the Act was decided by the Hon ble Gujarat High Court in the case of Zenith Processing Mills(supra). Facts of the case were that while framing the assessment for the AY.1976-77 of the assesseefirm,the AO allowed the claim for deduction u/s. 80J of the Act,in respect of profit and loss arising from its newly established undertaking.With effect from 01.04.1976, sub-section (6A) was inserted in section 80J, vide the Finance Act, 1975, which required the assessee to file audited report of an accountant,as defined by the explanation below sub section 2 of the section 288 of the Act,along with the return of income.The CI, exercising his powers u/s.263,considered the allowance of deduction under section 80J, inter alia, along with the allowance of initial depreciation in so far as it is against the interests of the Revenue and issued notice to the assessee. While the assessee did not contest the notice under section 263 with respect to initial depreciation the assessee contested the withdrawal of relief under section 80J. According to the CIT, subsection (6A) of section 80J laid down the mandatory requirement that before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 80J(6A) to the extent it requires furnishing of the auditor's report in the prescribed form along with the return is directory in nature and not mandatory. Coming to the first question, we are of the opinion that as the provision of furnishing of the report in the prescribed form is held to be directory, the assessee can be permitted to produce such report at a later stage when the question for disallowance arises during the course of the proceedings in a given case,it will depend upon the facts and circumstances of each case and, therefore, the assessee may be permitted to produce such report, if it has not been produced earlier(emphasis supplied).The learned advocate for the Revenue vehemently contended on the basis of the observations made in Gujarat Oil and Allied Industries' case [1993] 201 ITR 325 (Guj) that the requirement of furnishing of auditors' report in the prescribed form has to be complied with before the assessment is completed and the assessee cannot claim deduction under section 80J by producing the report later on(emphasis supplied).We are unable to sustain his contention. In Gujarat Oil and Allied Industries' case [1993] 201 ITR 325 (Guj), t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee's return having a claim of deduction under section 80J may be accepted by the Income tax Officer without holding an inquiry, though it may not have been accompanied with proof of accounts being audited in the manner prescribed. The question of furnishing proof of such audited accounts in the prescribed form at a later stage arises only when the matter is being actively considered for disallowance by the concerned authority. If the assessee does not offer to furnish proof even at the stage when it is pointed out to him that requirements of law are not fulfilled to sustain the claim made by him and he fails to fulfil the requirements of law at that stage, it can be said that the assessee had failed to rectify the defect at the earliest opportunity offered to him. 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 of this opportunity will include opportunity to erase procedural defect, if any, which is directory in nature. If we examine the matter from that point of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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