RNB INTERNATIONAL PVT. LTD.,NEW DELHI vs. DCIT, CIRCLE- 3, NEW DELHI

Brief facts of the case are that the assessee is a Pvt. Ltd company and has been engaged in the business of trading of wool and yarn, publication and research work. For the assessment year 2012-13, it has filed its return of income on 30/11/2012 declaring an income of Rs.42,96,600/-. During the year, the assessee to the tune of Rs. 8,43,23,793/- and net profit of Rs. 74,409/-. Assessee claimed exemption under section 10 AA of the Income Tax Act, 1961 (for short “the Act”) for Rs.57,02,774/-.

When the learned Assessing Officer sought to the justification to claim such exemption, the assessee furnished the audit report in form No. 56Fwhere in column No. 13 the assessee had shown the total export turnover of Rs. 1,05,76,018.48and claimed as profit Rs. 57,02,774/- under section 10AA of the Act. Learned Assessing Officer found that the assessee had not fulfil the conditions for claiming the exemption under section 10 AA of the Act and has not furnished any evidence of the full consideration in convertible foreign exchange being the brought to India within a period of 6 months from the end of the previous year and the particulars furnished under column 16 of the report in form No. 56F were said to have been not applicable. Learned Assessing Officer, therefore, recorded a finding that the assessee had not fulfilled the conditions required to be eligible for assumption under section 10AA of the Act and accordingly disallowed the said claim of exemption and added the sum of Rs.57,02,774/- to the income of the assessee.

Aggrieved by such an act of the learned Assessing Officer, assessee preferred appeal and in view of the findings of the learned Assessing Officer that the assessee did not fulfil the condition of bringing the full sale consideration in convertible foreign exchange to India, the assessee filed another form 56F making a claim that the assessee had brought the process of export activity in fully convertible foreign exchange within 6 months from the end of the relevant previous year. Assessee also contended that nowhere in the section 10AA of the Act it is prescribed that for availing the benefit of deduction under section 10AA of the Act, the process of the export activity should be brought to in India in convertible foreign exchange within 6 months from the end of the previous year; that they form No. 56F was initially introduced for claiming exemption under section 10 A of the Act and thereafter was made applicable to the provisions of section 10AA of the Act when such provision was inserted in the statute; and that there is a specific requirement under section 10A of the Act to bring the full process of the export activity in convertible foreign exchange to India within 6 months from the end of the relevant year, there is no such requirement under section 10AA of the Act.

Ld. CIT(A) observed that form 56F is applicable to the case under section 10AA of the Act and therefore the report of the prescribed auditor in form No. 56 has to be submitted by the claimant of the exemption and the said form number 56F has to be filled up as prescribed; and that once particular information is required to be disclosed in form number 56F and the same is not done under the powers of delegated legislation of the Central government and the assessee has not challenged the constitutional validity of the same, form number 56F has to be complied with in totality as per letter. Ld. CIT(A) further held that there is no provision in law which permits the auditor as prescribed under section 288 of the Act to submit a 2nd report on the same cause of action the tattoo with so much of delay as an afterthought and counterblast to the framing of assessment order and the concerned accountant is also not permitted in law to revise its finding to suit the convenience of the assessee. Ld. CIT(A) observed that the accountant submitting the statutory audit report is not acting for the benefit of the assessee, but in discharge of a statutory obligation and once report is a furnishing by an accountant in discharge of a statutory obligation, the said accountant cannot change the content of the same whatever be the consideration or inducement. Ld. CIT(A), therefore, refused to look into the revised auditor’s report and as a consequence thereof dismissed the appeal.

Aggrieved by such an act of the Ld. CIT(A), assessee is before us in this appeal stating that the Ld. CIT(A) failed to notice that the condition prescribed for section 10A of the Act is not applicable to section 10AA of the Act and therefore the auditor is justified in stating in form 56F that the details of column 16 are not applicable. Further, learned Assessing Officer also did not enquire as to the reason for non-applicable tea of the details mentioned in column 16 to the case of the assessee and without giving an opportunity to the assessee on this aspect, learned Assessing Officer disallowed the claim of the assessee for exemption claimed under section 10AA of the Act. Ld. AR submitted that though the condition of bringing the full consideration of the export activity within 6 months into India in convertible foreign exchange, is not available to the case under section 10AA of the Act, still the assessee had complied with the same and merely because the auditor mentioned that the details required in column No. 16 of form 56F are not applicable to the case of the assessee, it does not mean that assessee did not do so. In all fairness, the authorities below should have made enquiries on this aspect and without doing so the assessment is framed, and that is the reason why such an assessment is bad under law.

Per contra, Ld. DR submitted that all the conditions of section 10A of the Act are applicable to the cases under section 10 AA of the Act. He specifically submitted that, filing of revised auditor’s report is impermissible under law and more particularly such auditor report which is filed along with their return alone merits consideration in view of the provisions under section 10 A (5) of the Act which is made applicable to the provisions of section 10AA of the Act by subsection (8) thereof. According to him the very fact that both the sections, namely, sections 10A as well as 10AA of the Act stipulate the filing of the report in form number 56F clearly indicates that all the information required in form 56F has to be furnished along with the return of income.He, therefore, justified the action of the authorities below and submits that the order of the Ld. CIT(A) does not suffer any infirmity.

We have gone through the record in the light of the submissions made on either side. No doubt section 10 A (3) of the Act stipulate is that in order to make the section 10 A of the Act applicable, the sale proceeds of articles or things or computer software exported out of India are received in, are brought into, India by the assessee in convertible foreign exchange, within a period of 6 months from the end of the previous year or, within such further period as the competent authority may allow in this behalf. At the same time, subsection (5) thereof says that the deduction under section 10A of the act shall not be admissible for any assessment year beginning on or after the 1st day of April, 2001, unless the assessee furnishes the prescribed form, along with the return of income, the report of an accountant, as defined in explanation below subsection (2) of section 288 of the Act.

It is pertinent to note that while inserting section 10 AA of the Act it is specifically provided by way of subsection (80 thereof that the provisions of subsection is (5) and (6) of section 10 A shall apply to the articles or things or services referred to in subsection (1), reference to subsection (3) of section 10 A is conspicuously absent. When the legislature thought it fit to make certain conditions of section 10 A of the Act applicable to the provisions in section 10 AA of the Act, by specifically omitting certain other subsections, then the legislative intent is clear that the conditions prescribed under the subsections which are specifically omitted, shall not be made applicable to section 10AA of the Act. It is therefore clear that in the absence of reference to subsection (3) of section 10 A of the Act, in section 10AA of the Act, it is not open for the learned Assessing Officer to say that all the conditions prescribed under section 10A of the Act to avail the benefit thereunder should invariably be complied with to avail the benefit under section 10AA of the Act.

The case of Revenue is also that in the auditor’s report, in respect of the information under column 16 thereof, it was mentioned that furnishing of such information is not applicable to the case of the assessee.Such a statement, however, does not ipso facto mean that there is failure of the assessee in respect of compliance of the condition covered by such information. When it is stated that such information is irrelevant for the purposes of claiming benefit under section 10AA of the Act, and if the learned Assessing Officer was of the opinion that it was necessary, in all fairness, there should have been some enquiry as to why the auditor said that such information was irrelevant or not applicable, instead of saying that the conditions underlying such information are not complied with by the assessee.

There is no provision in the Act permitting the filing of a revised auditor’s report. The revised auditor’s report, in this case, however, is not relating to any substantive financials are operations of the assessee, but it is only clarificatory in nature to say that even otherwise the assessee complied with the conditions required under subsection (3) of section 10 A of the Act. When we keep in mind that the entire exercise of assessment is to determine the just and correct tax liability of the assessee, refusing to look into the relevant material, though submitted at a belated stage, in the absence of any mandatory provisions of law prohibiting such a course, would run contrary to the object of assessment proceedings. Unless prohibited or provided contrary, all the endeavour in the assessment proceedings should be to give a fair chance to the assessee to justify their claim for any benefit provided by law. Lest, the assessment proceedings would be perfunctory rendering it to be a mechanical exercise.

With this view of the matter, we are of the considered opinion that the provisions of section 10 A (3) of the Act cannot be made applicable to the case of the assessee, if the assessee is covered by the provisions of section 10AA of the Act and even otherwise, the learned Assessing Officer is free to verify whether the full consideration of the export activity is brought to India in convertible foreign exchange within 6 months or not.

With these observations, we set aside the impugned order and remand the issue to the file of the learned Assessing Officer to verify whether the assessee is otherwise entitled to claim the exemption under section 10AA of the Act, and if the learned Assessing Officer feels it necessary, he may call for any information required for that purpose.

In the result, appeal of the assessee is allowed for statistical purpose.