COMMISSIONER vs. KHALELAN DEVI

HIGH COURT OF HIMACHAL PRADESH AT SHIMLA

ITA No. : 35 of 2006

Decided on: 13.10.2009

Commissioner of Income Tax, Shimla

……… Appellant.

Versus

Khalelan Devi

………Respondent.

Coram:

The Hon’ble Mr.Justice Deepak Gupta, Judge.

The Hon’ble Mr.Justice V.K. Ahuja, Judge.

Whether approved for reporting? Yes.

For the appellant: Ms.Vandana Kuthiala, Advocate.

For the respondent: Mr.M.M. Khanna, Senior Advocate,

with Mr.Goverdhan Sharma, Advocate.

Deepak Gupta, J. (Oral):

The short but interesting question which arises in this appeal is as follows: “Whether the Hon’ble Tribunal was right in law in holding that filing of the audit report in form No.10CCB during the assessment proceedings would satisfy the requirements of provisions of section 80IA(7) whereas as per provisions of that section it is mandatory that no deduction under sub-section (1) of section 80IA/80IB shall be allowed unless a report in prescribed form No.10CCB duly signed and verified by the Chartered Accountant is furnished alongwith the return of income?”

______________________________________________ 1.Whether reporters of Local papers may be allowed to see the judgment? Yes.

- 2 -

The admitted facts are that the assessee sought to claim benefit of Section 80IB of the Income Tax Act. As per the provisions of Section 80IB(7) the assessee was required to file a return duly audited by an accountant. Sub Clause (7) of Section 80IA reads as follows: “[The deduction] under sub section (1) from profits and gains derived from an [undertaking] shall not be admissible unless the counts of the [undertaking] 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, alongwith his return of income, the report of such audit in the prescribed form duly signed and verified by such accountant.”

It is contended by Ms.Vandana Kuthiala, Advocate, on behalf of the Revenue that the word “shall” has been used in this Clause and, therefore, the assessee is duty bound to have his accounts audited by an accountant and to file the audited accounts alongwith the return of his income. It is her contention that in case the accounts are not filed alongwith the return, they cannot be permitted to be filed at any later stage.

The facts of the present case are that alongwith the return, the assessee only filed the last page of the audited accounts, duly certified. When it was pointed out that the entire audited report had not been filed, the assessee, during the course of assessment proceedings, furnished the audited report also. The

- 3 - Assessing Officer held that this could not be permitted and since the audited report had not been filed alongwith the return, the assessee could not get the benefit of Section 80IB. The assessee then filed an appeal before the Commissioner of Income Tax (Appeals), who decided the matter in favour of the assessee. The appeal filed by the Revenue before the Income Tax Appellate Tribunal was also rejected as far as this question is concerned. Hence the present appeal.

Reliance on behalf of the Revenue is placed on a judgment of the Division Bench of the Punjab and Haryana High Court in Commissioner of Income-Tax versus Jaideep Industries, [1989] 180 I.T.R. 81, wherein while dealing with Section 80J(6A), the wording of which is similar to Sub Clause (7) hereinabove, the Division Bench held that there could be no escape from the conclusion that the requirement of the audit report being filed alongwith the return of income is mandatory and, therefore, the same could not be filed during the course of assessment proceedings.

It would be pertinent to mention that this view of the Punjab and Haryana High Court has been held to be not good law by a Full Bench of the said Court in Commissioner of Income-Tax versus Punjab Financial Corporation, [2002] 254 I.T.R. 6, wherein, after referring to other judgments of the Madhya Pradesh High Court and Gujarat High Court, the Full Bench held that the provisions of Section 32AB(5) are not mandatory and the Assessing

- 4 - Officer has the discretion to entertain the audit report even though it has not been filed with the return and give benefit of deduction to the assessee in terms of Section 31AB(1).

It would be pertinent to mention that the Gujarat High Court has taken the same view in Commissioner of Income-Tax versus Gujarat Oil and Allied Industries, [1993] 201 I.T.R. 325, and Zenith Processing Mills versus Commissioner of Income-Tax, [1996] 219 I.T.R. 721. The Madhya Pradesh High Court has also taken a similar view in Commissioner of Income-Tax versus A.N. Arunachalam, [1994] 208 I.T.R. 481, and Commissioner of Income-Tax versus Jayant Patel, [2001] 248 I.T.R. 199. The Bombay High Court has also taken the same view in Commissioner of Income-Tax versus Shivanand Electronics, [1994] 209 I.T.R. 63. The Karnataka High Court has also taken a similar view in Commissioner of Income-Tax and another versus Ace Multitaxes Systems Pvt.Ltd., [2009] 317 I.T.R. 207, and the Delhi High Court in Commissioner of Income-Tax versus Contimeters Electricals P.Ltd., [2009] 317 I.T.R. 249. Therefore, the view of all the High Courts cited before us is that the audit report can be filed even during the course of assessment proceedings.

We may add that in the present case the last page of the return had in fact been annexed with the return. It is not a case where the audit report has been prepared after the return had been filed. From the facts, it is clear that the audit report was already in existence

- 5 - and had been prepared before the filing of the return. Mere negligence on the part of the counsel or the party while filing the return without the audit report will not disentitle the said party to the benefit to which otherwise it is entitled. Consequently, the question is decided in favour of the assessee and against the Revenue.

The appeal stands disposed of accordingly.

(Deepak Gupta),

Judge.

October 13, 2009. (V.K. Ahuja), (TILAK)

Judge.