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Facts
The assessee, an Association of Persons (AOP), engaged in operating and maintaining a Special Economic Zone (SEZ), claimed a deduction under Section 80IAB of the Income Tax Act, 1961, resulting in 'nil' income for A.Y 2020-21. The return was processed by CPC under Section 143(1) and the deduction was disallowed due to delayed filing of the audit report in Form 10CCB. The case was selected for scrutiny assessment under Section 143(3), and the Assessing Officer disallowed the deduction on the same ground.
Held
The Tribunal held that the intimation order under Section 143(1)(a) merges with the scrutiny assessment order under Section 143(3) and thus has no independent existence. Furthermore, the Tribunal ruled that filing the audit report in Form 10CCB before the completion of assessment is sufficient for claiming deduction under Section 80IAB, even if filed belatedly, citing various High Court and Supreme Court judgments. Therefore, disallowance based on delayed filing of the audit report is not justified.
Key Issues
Whether the disallowance of deduction under Section 80IAB due to belated filing of the audit report is justified, considering that the intimation order merges with the scrutiny assessment order and the audit report was filed before the assessment was completed.
Sections Cited
80IAB, 143(1), 143(3), 139(1), 154, 68, 10B, 250(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Hyderabad ‘ DB-B ‘ Bench, Hyderabad
Before: Shri Vijay Pal Rao, Vice-Shri Manjunatha, G.
Per Vijay Pal Rao, Vice President
These two appeals by the assessee are directed against the two separate orders, both dated, 22/11/2024 of the learned CIT (A)-NFAC Delhi, for the A.Ys 2020-21 & 2021-22 respectively.
For the A.Y 2020-21, the assessee has raised the following grounds of appeal:
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The assessee is an Association of Persons (AOP) and in the business of operation and maintenance of Special Economic Zone (SEZ). The assessee filed its return of income for the year under consideration on 09/12/2020 declaring ‘nil’ income after claiming deduction u/s 80IAB of the Act. The return of income was processed by the CPC u/s 143(1) of the I.T. Act, 1961 on 26/12/2021 whereby the claim of deduction u/s 80IAB was disallowed. Thereafter, the case of the assessee was selected for scrutiny to verify the deduction claimed u/s 80IAB and the Assessing Officer has passed the scrutiny assessment on 27/09/2022 whereby the claim of deduction u/s 80IAB was Page 4 of 16 disallowed on the ground of delay in filing the tax audit report in Form 10CCB.
The assessee challenged the action of the Assessing Officer before the learned CIT (A) but could not succeed. The learned CIT (A) was of the view that, the deduction u/s 80IAB was disallowed by the CPC while processing the return of income and therefore, the assessee was required to file a separate appeal to challenge the order passed u/s 143(1)(a) of the I.T. Act, 1961.
Before the Tribunal, the learned AR of the assessee has submitted that, once the case of the assessee was selected for scrutiny and the Assessing Officer has passed the scrutiny assessment u/s 143(3) of the Act, then the order of the CPC u/s 143(1) merges with the assessment order and, therefore, no separate appeal is required to be filed by the assessee, once the assessee has challenged the scrutiny assessment order passed by the Assessing Officer. In support of his contention, he has relied upon the judgment of the Hon'ble Allahabad High Court in the case of Khandelwal Rubber Products (P) Ltd vs. CIT reported in (2024) 162 Taxmann.com 897. The learned AR has further submitted that even otherwise, the Assessing Officer has taken up this issue of claim of deduction u/s 80IAB and decided the same which passing the scrutiny assessment. Thus, the learned AR has submitted that the action of the Assessing Officer as well as the learned CIT (A) is highly arbitrary and unjustified when the assessee has filed the audit report in Form 10CCB on Page 5 of 16 31/03/2022 before the scrutiny assessment order is passed on 27/09/2022. In support of his contention, he has relied upon the judgement of the Hon'ble Madras High Court in the case of CIT vs. AKS Alloy (P) Ltd reported in 18 Taxmann.com 25 which has been affirmed by the Hon'ble Supreme Court in 376 ITR 456 in case of CIT vs. G.M Knitting Industries (P) Ltd (2016) 71 Taxmann.com 35 (S.C). Thus, the learned AR has contended that the Hon'ble High Court has held that even though necessary certificate in Form 10CCB along with the return of income has not been filed, the same was filed before the final order of the assessment, the assessee was entitled to claim deduction u/s 80IB of the I.T. Act, 1961. The learned AR has also relied upon the decision of the Delhi Benches of the Tribunal in case of South India Club vs. Income Tax Officer reported in 163 Taxmann.com 479.
5. On the other hand, the learned DR has submitted that the learned CIT (A) has considered and decided this issue on merits also for the A.Y 2021-22 and followed the judgment of the Hon'ble Supreme Court in case of Pr. CIT vs. Wipro Ltd (446 ITR 1). The Hon'ble Supreme Court in the case of Pr. CIT vs. Wipro Ltd (Supra) has held that the filing of declaration as well as the same must be furnished before the due date of filing of the return of income u/s 139(1) of the Act are mandatory conditions and not directory. Thus, the learned DR has submitted that in view of the judgment of the Hon'ble Supreme Court in the case of Pr. CIT vs. Wipro Ltd, the assessee is not entitled for deduction u/s 80IAB of the I.T. Act, 1961 when the audit report in form 10CCB was not Page 6 of 16 filed on or before the due date of filing the return u/s 139(1) of the Act. She has relied upon the impugned order of the learned CIT (A) for the A.Y 2021-22.
We have considered the rival submissions as well as the relevant material available on record. As regards the issue of not challenging the order/intimation issued by the CPC u/s 143(1)(a) of the Act is concerned, it is pertinent to note that once the case of the assessee was taken up for scrutiny assessment and the order u/s 143(3) r.w.s. 144B of the I.T. Act, 1961 was passed by the Assessing Officer, then the intimation issued by the CPC u/s 143(1)(a) stands merged with the scrutiny assessment order passed by the Assessing Officer and should have no independent existence so long scrutiny assessment order is in existence. The Hon'ble Allahabad High Court in case of Khandelwal Rubber Products (P) Ltd vs. CIT (Supra) has an occasion to deal with this issue and held in para 21 to 23 as under: “21. On general principle, it is fundamental to the scheme of the Act, that there may only arise one assessment order for one assessment year in the case of any assessee. Once that assessment order came to be passed under Section 143(3) of the Act, it is the only that assessment order that may be enforced against the assessee. The intimation issued under Section 143(1) (a) of the Act, prior in time, lost its effect and stood subsumed in the subsequent scrutiny assessment order. Therefore, it could never be looked at independently for the purpose of imposition of demand of additional tax. 22. The decision in the case of Biland Ram Hargan Dass v. CIT [1987] Taxman 423/[1988] 171 ITR 390 (Allahabad) (35) is of no help to the revenue inasmuch as that was a case involving penalty under Section 271(1)(c) of the Act. That penalty being impossible for concealment of income
Page 7 of 16 consequent to scrutiny assessment order under Section 143(3) of the Act, it has no application to the present facts involving demand of additional tax on simple processing of income. As noted above, processing of a return under Section 143(1)(a) of the Act is not an assessment order. 23. In view of the above discussion, the questions raised in the present appeal are answered, accordingly, i.e. favour of the assessee and against the revenue.”
Thus, it is clear that the Hon'ble High Court has held that intimation issued u/s 143(1)(a) would lose its effect and stands subsumed in the subsequent scrutiny assessment order and therefore, it could never be looked at independently for the purpose of raising of demand of tax. A similar view has been taken by the Delhi Benches of the Tribunal in case of South India Club vs. Income Tax Officer (Supra) in Para 12 as under:
“12. Further we observe that the statutory notice u/s 143(2) was issued on 22.09.2019. Further notices u/s 142(1) were issued in order to proceed with the regular assessment. Accordingly, the assessment u/s 143(3) was completed. When regular assessment was completed and the relevant intimation issued u/s 143(1) will automatically merges with the assessment passed u/s 143(3). Therefore, it loses its relevance once the regular assessment is processed and it is only an intimation towards the accuracy of the information submitted by the assessee. In the given case, the assessee has claimed deduction u/s 11 and failed to file the form 10B along with the ROI. Based on the above observation, the claim of the assessee was denied by the AO in sec.143(1) proceedings. Therefore, there is no denial of fact that AO can make the above disallowance, however, the validity of the intimation issued u/s 143(1) is limited to mere intimation of correctness and accuracy of the income declared in ROI and its accuracy based on the information submitted along with the ROI. It does not carry the legitimacy of an assessment. When the assessment was processed under regular assessment then it loses its individuality and merges with the regular assessment. We are in agreement with the findings of Learned CIT(A) that the intimation u/s 143(1)
Page 8 of 16 merges with the order passed u/s 143(3) of the Act and the appeal against the above intimation becomes infructuous. In our view, he should have stopped with the above findings and should not have proceeded to decide the issue on merits, because it is brought to his knowledge that the assessee has filed appeal against the regular assessment order. Therefore, he has travelled beyond the mandate. The issue of allowability of section 11 is already considered in the regular assessment and that issue is already in appeal before FAA. Therefore, reviewing the same is uncalled for.”
8. Accordingly, in view of the above cited judgement of the Hon'ble Allahabad High Court as well as the decision of the Delhi Benches of the Tribunal, we hold that the processing of the return of income by the CPC u/s 143(1)(a) of the Act got merged into scrutiny assessment order passed by the Assessing Officer and therefore, the appeal filed by the assessee against the scrutiny assessment ought to have been decided by the learned CIT (A) on the merits of the issue raised by the assessee.
8.1 On the merits of the allowability of the claim of deduction u/s 80IAB of the I.T. Act, 1961, the Assessing Officer has disallowed the claim only on the ground that the audit report in Form 10CCB has not been filed by the assessee on or before the due date of filing the return of income u/s 139(1) of the Act but the same was filed belatedly on 27/07/2022. It is pertinent to note that once the audit report was filed by the assessee before the assessment order was passed on 27/09/2022, then the claim of deduction cannot be denied merely because of delay in filing the audit report in Form 10CCB. The Hon'ble Madras High Court
Page 9 of 16 in the case of CIT vs. AKS Alloy (P) Ltd (Supra) has considered an identical issue in para 5 to 12 as under: “5. In so far as it relates to the substantial question of law (1) is concerned, namely, whether the filing of audit report in Form 10CCB is mandatory, it is well settled by a number of judicial precedents that before the assessment is completed, the declaration could be filed. In fact, the said issue came to be decided by the Karnataka High Court in the case in CIT v. ACE Multitaxes Systems (P.) LTD. [2009] 317 ITR 207 (Kar.), wherein it was held that when a relief is sought for under Section 80IB of the Act, there is no obligation on the part of the assessee to file return accompanied by the audit report, thereby, holding that the same is not mandatory. Therefore, it is clear that before the assessment is completed if such report is filed, no fault could be found against the assessee. That was also the view of the Delhi High Court in the case in CIT v. Contimeters Electricals (P.) Ltd. [2009] 317 ITR 249/ 178 Taxman 422 (Delhi), wherein the Delhi High Court, by following the judgements of the Madras High Court in CIT v. A.N. Arunachalam [1994] 208 ITR 481 / 75 Taxman 529 and in CIT v. Jayant Patel [2001] 248 ITR 199/ 117 Taxman 707 (Mad.) held that the filing of audit report along with the return was not mandatory but directory and that if the audit report was filed at any time before the framing of the assessment, the requirement of the provisions of the Act should be held to have been met.
6. That is also the consistent view of the other High Courts, including the High Court of Bombay in CIT v. Shivanand Electronics [1994] 209 ITR 63 / 75 Taxman 93 (Bom.), apart from Gujarat High Court in Zenith Processing Mills v. CIT [1996] 219 ITR 721 (Guj.) and Punjab and Haryana High Court in CIT v. Mahalaxmi Rice Factory [2007] 294 ITR 631/ 163 Taxman 565 (Punj. & Har).
7. The Calcutta High Court in the case in the CIT v. Berger Paints (India) Ltd. [2002] 254 ITR 503/[2003] 126 Taxman 435 (Cal.) has also concurred with the said view which was followed by the Tribunal in this case.
Mr. T. Ravikumar, the learned counsel for the appellant is not able to produce any other judgement contrary to the above said views consistently taken.
In the light of the above, by virtue of hierarchy of judgements which are against the Revenue, the substantial question of law (1) would not arise at all for consideration.
In so far as the substantial question of law (2) is concerned, it relates to the deletion of addition of Rs. 1,20,00,000/- made under Section 68 of the Act by the assessing officer as unexplained share application money, and the issue has been covered by the judgement of the Madras High Court in the case in CIT v. Gobi Textiles Ltd. [2007] 294 ITR 663/[2008] 170 Taxman 142 (Mad.) holding against the Revenue.
In such view of the matter, the substantial question of law (2) also does not merit consideration. 12. In fact, to arrive at such conclusion, the Madras High Court has relied on the judgement of the Delhi High Court in CIT v. Stellar Investment Ltd. [1991] 192 ITR 287/ 59 Taxman 568 (Delhi), which judgement has been confirmed by the Honourable Apex Court and the same was reported in CIT v. Steller Investment Ltd. [2001] 115 Taxman 99 / 251 ITR 263 (SC).”
8.2 The Hon'ble High Court has held that, if such report is filed before the assessment is completed, then the requirement of provisions of the Act has been got met. The Hon'ble High Court has referred to a series of judgments of the various High Courts on this issue and also taken into consideration the fact that the judgment of the Hon'ble Delhi High Court in case of CIT vs. Settler Investment Ltd has been confirmed by the Hon'ble Supreme Court in CIT vs. Settler Investment Ltd (251 ITR 263). We further note that the said judgment of the Hon'ble Madras High Court in case of CIT vs. AKS Alloy (P) Ltd has been affirmed by the Hon'ble Supreme Court reported in 71 Taxmann.com 35 along with in the case of CIT vs. G.M Knitting Industries (P) Ltd. As regards the judgment of the Hon'ble Supreme Court in case of Pr. CIT vs.
Page 11 of 16 Wipro Ltd (Supra) is concerned, the issue in the said case was regarding the allowability of the claim of deduction u/s 10B and particularly, the condition specified u/s 10B(8) of the I.T. Act, 1961, whereas the decision of the Hon'ble Madras High Court as well as Hon'ble Supreme Court in case of CIT vs. AKS Alloy (P) Ltd have been rendered in respect of claim of deduction u/s 80IB denied for belated filing of the audit report in Form 10CCB. Thus, the judgment of the Hon'ble Supreme Court affirming the judgment of Hon'ble Madras High Court in case of CIT vs. AKS Alloy (P) Ltd is directly on the point and hence, is a binding precedent on this issue. Even otherwise in the case of CIT vs. Wipro Ltd (Supra), the Hon'ble Supreme Court has distinguished the judgment in case of G.M Knitting Industries (P) Ltd and that does not amount to overruling the same. Accordingly, having regard to the fact that the audit report in Form 10CCB was filed much before the assessment order was passed and was duly available with the Assessing Officer at the time of passing the assessment order, then the deduction u/s 80IAB cannot be denied merely because it was not filed at the time of filing the return of income u/s 139(1) of the I.T. Act, 1961.
9.1 For the A.Y, 2021-22, the assessee has raised the following grounds of appeal:
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10. It is clear from the grounds of appeal that identical issue has been raised by the assessee for the A.Y 2021-22 as raised for the A.Y 2020-21.The only difference is that the assessee filed the audit report in Form 10CCB even before the processing of the return by the CPC as well as the case taken up for scrutiny assessment by the Assessing Officer. Thus, when the report was filed even before processing of the return u/s 143(1) of the Act as well as before the case was taken for scrutiny assessment u/s 143(3) of the Act, then the disallowance made by the Assessing Officer and confirmed by the learned CIT (A) is not justified and sustainable in law. In view of our findings on this issue for the A.Y 2020-21, the claim of the assessee is allowed. Accordingly, we set aside the orders of the authorities below qua this issue for Page 15 of 16 disallowance of claim of deduction u/s 80IAB of the Act and allow the claim of the assessee.