Furnishing of audit report is directory and not mandatory

The issue in hand relates to allowability of enhanced claim of deduction of Rs.18,43,552/- u/s 80IB of the Act. It is an admitted position that the assessee is eligible for claim of reduction u/s 80IB of the Act, in as much as deduction claimed of Rs.41,83,813/- stand allowed during the original assessment and the impugned assessment too.

However in the return filed in response to notice u/s 153A of the Act, the said claim has been enhanced by Rs,18,43,552/- on account of additional income declared in the return. It is also a matter of record and an undisputed position that the said additional income relates to the eligible projects of Avant Grade, Vaishali as is evident from the inspector’s report maintained in the assessment order in Page 6 at Para 10. In such circumstances the AO turned down the claim on the ground that the audit report had not been furnished in respect of the enhanced claim of reduction u/s 80IB (13) read with section 80IA(7) of the Act at the time of furnishing of original return u/s 139(1) of the Act. In our opinion, the said reason of the AO is devoid of any merit for the reason that the income in respect of which enhanced deduction has been claimed has only been declared for the first time in the return furnished in response to notice u/s 153A of the Act. Thus the finding of the AO that in the absence of audit report, the enhanced claim is not maintainable over looks this factual position. It is undisputed that audit report for the enhanced claim had been furnished during the impugned 153A assessment proceedings along with Profit and Loss account and Balance sheet duly certified by the Accountant. No adverse observations have been made vis-à-vis the said audit report/ financial statement. Also the Hon’ble Delhi High Court in the case of Contimeters Electrical Pvt. Ltd 317 ITR 249 (Del) has held that furnishing of audit report is directory and not mandatory. The relevant finding of the Hon’ble Court is as under:-

“that the Tribunal had arrived at the correct conclusion that the requirement of 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 section 80-IA(7) would be met.”

Similar view has been expressed by the jurisdictional High Court in the case of ACIT Vs. Murlidhara Prasad 118 ITR 393 (All) where it was held that filing of declaration before assessment is sufficient. Furthermore, the statutory position for claim of deduction is linked to the profits of the eligible profit. In other words, when the profits of the eligible project have increased then the consequential statutory impact will be on the amount of deduction u/s 80IB. so when the profits increase, the deduction/ incentive envisaged u/s 80IB increases. On one hand when the revenue has accepted the increase in profit though surfaced due to the search, the impact of the said increase in profit has to be also on the deduction allowable under Section 80IB of the Act, more particularly when the mandate on AO u/s 153A is to compute the total income of assessee. In the light of the aforesaid distinguishable facts, the ratio of Jai Steel cited (supra) by the revenue is of no help to the department. In that case, the deduction claimed by the assessee was not in the original return at all and it was made for the first time u/s 153A, which is not the case in hand. It may reemphasized that the assessee’s claim was not a new claim but it was only an enhanced claim which is statutorily linked to the eligible profits which get enhanced as result of search. Therefore we do not find any legal infirmity on the finding of the ld CIT(A) and so confirm the same. We also concur with the conclusion of the ld CIT(A) in Page 11, page 3.18 wherein it is observed that if the disallowance u/s 40A(3) is directly relatable to the profit of the eligible projects, then the deduction u/s 80IB be accordingly recomputed, subject to verification of the records including the seized records. In the result the grounds raised by the revenue for Assessment Year 2005-06 stands dismissed.