Virgo Aluminum Ltd. Vs PCIT (ITAT Chandigarh)
ITAT Chandigarh held that invocation of revisionary jurisdiction under section 263 of the Income Tax Act without satisfying twin conditions i.e. that the order of the AO must be erroneous and prejudicial to the interest of revenue is unsustainable in law.
Facts-
The assessee is engaged in the manufacturing of aluminium rolled products, such as aluminium sheets. The assessee had e-filed its return of total income of Rs.11,21,66,380/-. Subsequently, the return of income was revised by the assessee claiming deduction u/s 80IC amounting to Rs.3,24,45,802/-.
PCIT on scrutinizing the assessment record, observed that AO had accepted the assessee’s claim of deduction u/s. 80IC without the audit report having been filed in time, and the claim of write off of Rs.1,66,70,246 without conducting any enquiries whatsoever. The order passed u/s. 143(3) of the Income Tax Act, therefore, appeared to be erroneous, and thus prejudicial to the interest to the revenue.
PCIT show caused the assessee as to why the assessment order under section 143(3) of the Act should not be cancelled by invoking the provisions of section 263 of the Act.
Being aggrieved by the said order, the assessee has preferred the present appeal.
Conclusion-
Held that we find that the Ld. PCIT was not justified in setting aside the assessment order in this case in exercise of revision jurisdiction u/s 263 of the Act. The twin conditions required for exercise of jurisdiction u/s 263 of the Act i.e. that the order of the AO must be erroneous and prejudicial to the interest of revenue, have not been satisfied in this case.
FULL TEXT OF THE ORDER OF ITAT CHANDIGARH
The present appeal has been preferred by the assessee against the order dated 21.03.2022 of the Pr. Commissioner of Income Tax, Panchkula [hereinafter referred to as ‘PCIT’] agitating against the exercise of revision jurisdiction by him u/s 263of the Income Tax Act( in short ‘the Act’).
2. The assessee in this appeal has taken following grounds of appeal:-
1. That the Id. Pr. CIT is wrong in passing order u/s 263 to set-aside the claim of bad debt by ignoring the fact that said claim was allowed by the Id. A.O. after making enquiries or verification as required by law and also covered by the Hon’ble SC judgment in the case of TRF Ltd. vs CIT, Ranchi, Civil appeal no. 5293 of 2003, so assessment order passed by Id. A.O. is neither erroneous nor prejudicial to the interest of revenue.
2. That the Id. Pr. CIT is wrong in passing order u/s 263 to set-aside the claim of deduction u/s 80IC by ignoring the fact that said deduction was allowed by the Id. A.O. after making enquiries or verification as required by law and also covered by the Hon’ble SC judgment in the case of CIT vs CM. Knitting Industries (P) Ltd.: 376 ITR 456, so assessment order passed by Id. A.O. is neither erroneous nor prejudicial to the interest of revenue.
3. The brief facts of the case are that assessee is a Limited Company and has been engaged in the manufacturing of aluminum rolled products, such as aluminum sheets. The assessee had e-filed its return of income on 26.10.2017, declaring total income of Rs. 11,21,66,380/-. Subsequently, the return of income was revised by the assessee on 07.09.2018, declaring income of Rs.7,97,20,580/- after claiming deduction u/s 80-IC amounting to Rs.3,24,45,802/-. The case was selected for scrutiny under CASS for the following reasons:-
“Large deductions claimed u/s 80IA/80IAB/80IA C/80IB/80IC/80IBA/ 80ID/80IE/10A/10AA in comparison to preceding year”.
4. The scrutiny assessment u/s 143(3) of the IT. Act, 1961 was completed on 27.12.2019 at an income of Rs.7,99,81,360/-by making an addition of Rs.2,60,781/- on account of disallowance of VAT receivable written off.
5. Thereafter, the Ld. PCIT on scrutinizing the assessment records, observed:
“A perusal of assessment records revealed that the assessing officer had accepted the assessee’s explanation regarding Large deductions claimed u/s80IA/80IAB/80IAC/80IB/80IC/80IBA/80ID/80IE/10A/10AA, in comparison to preceding year, even though the assessee had not furnished the requisite audit report in form 10CCB either at the time of filing of original ITR on 26.10.2017, or at the time of filing of revised ITR on 07.09.2018. It was further noted that the assessee had debited an amount of Rs. 1,66,70,246/- on account of amount written off in the case of one M/s Metalmine Enterprises Pvt. Ltd. The assessing officer had accepted the assessee’s claim of deduction u/s 80IC without the audit report having been filed in time, and the claim of write off of Rs. 1,66,70,246/- without conducting any enquires whatsoever. The order passed u/s 143(3) of the Income Tax Act, 1961, therefore, appeared to be erroneous, and thus prejudicial to the interest to the revenue.”
6. Thereafter, the Ld. PCIT show caused the assessee as to why the assessment order dated 27.12.2019 for the assessment year 2017-18 under section 143(3) of the Act should not be cancelled by invoking the provisions of section 263 of the Act. The Ld. PCIT in the impugned order has discussed the issues point wise and has also reproduced the reply to of the assessee to each of the issue, which is discussed in brief hereunder:
(i) The Ld. PCIT in respect of the issue of bad debts written off had observed that even after squaring off certain payments received from M/s Metalmine Enterprises against debit balance Rs. 1,67,99,67 in the year 2015, certain payments were made by the assessee to said party raising the debit balance to Rs. 1,66,70,246/-as on 31.03.2016 and then suddenly the said debit entry has been written off on 31.03.2017, for no apparent rhyme or reason.
In reply, the assessee submitted as under:
“In respect to the observation of your goodself that 3 payments were made by the assessee to the said party when the account of the party has been squared-off, it is submitted that it is not the case that after squaring-off the outstanding balance on 10.12.2015, the assessee had made 3 payments to the same party for creating debit balance of Rs. 1,66,70,246/- which is subsequently written-off in the next financial year. These three entries on dated 20.12.2015, 20.12.2015 and 14.01.2016 are debit entries due to reversal of above stated unrealized cheques and not due to payments made to party. Actually, these 3 entries are reversal entries. It is not a case, where payments were made to the party and which were subsequently written-off being irrecoverable. Here is a case, where debit balance became outstanding due to reversal of cheques which were earlier received by the assessee company against sales. Also, the cheque numbers in the receipt entry as well as payment entry are same with each other, thus evidencing our claim that these 3 entries are not fresh payments, but reversal of entries.
In respect to the observation of our goodself that amount of Rs. 1,676,70,246/-has been written-off without any reason, it is submitted that assessee company had written-off the outstanding debit balance amounting to Rs. 1,66,70,246/- on 31.03.2017 as the assessee company could not recover the outstanding balance from the said party. The outstanding amount relates to the sale made to the party in the earlier assessment year 2014-15 and said amount was not received by the assessee company till the relevant assessment year. Thus, considering the outstanding amount of Rs. 1,66,70,246/- to be irrecoverable, assessee company had written-off the amount in thn books of account. Since the outstanding balance which has been written-off reflates to the sales made by the assessee during the preceding assessment years which were taken into account in computing the income of those preceding years by including in turnover of those preceding years, so the amount n ritten-off is in compliance with the provisions of section 36.
(ii) The Ld. PCIT noted that the assessee had not responded to the queries raised by the Assessing Officer on the issue of bad debts written off and further that the Assessing Officer had also remained aloof to the failure of the assessee to explain the given entry of write off, and did not choose to conduct any worthwhile further enquiry.
The Assessee, in this respect, replied as under:
“In respect to the above observation of your goodself, it is submitted that assessee had duly submitted the detailed reply on the income tax portal on dated 25.12.2019 to the show cause notice issued by the Id. Assessing Officer dated 20.12.2019. The copy of said reply filed is attached herewith as per Annexure-1. From the said reply, it is clear that assessee had filed detailed reply along with documentary evidence to substantiate the claim of amount written-off u/s 36. The assessee had also filed sale register of preceding years along with the Profit and Loss account wherein sale entries pertaining to Metalmine Enterprises Pvt. Ltd. were duly highlighted. Further, it was also stated that as per Sec 41(4), if the bad debt amount is subsequently recovered then the amount will be chargeable to income tax as the income of the previous year in which it is recovered. During the course of assessment proceedings, the Id. Assessing Officer duly examined the documents and material produced by the assessee along with the documentary evidence (ledger accounts, Debtors List, Profit & Loss account, sale register etc.) and on being satisfied about the genuineness of the transaction, accepted the claim of amount written-off of amount of Rs.1,66,70,246/-. Thus, it is the not case that Id. A. O had not conducted enquiry in respect to the written-off amount of Rs.1,66,70,246/-.Since the Id. A.O. duly ascertained the validity of the assessee’s claim of write-off from the documentary evidences like ledger accounts, Profit and Loss account, sales register of preceding years, debtors list and by considering the applicable legal provisions. Hence, the assessment order is not erroneous and prejudicial to the interest of the revenue.”
(iii) The Ld. PCIT noted that there was a regular give and take between the assessee and M/s Metalmine Enterprises, and that there was a relationship of deep trust, based on which the assessee was regularly transferring such huge amounts to the given concern on a single day. That there was thus nothing on record to establish that the given amount qualified for deduction u/s 36(1)(vii) r.w.s. 36(2) of the Act.
In reply to this point, the assessee submitted as under:
“In respect to the above observation of your goodself, it is submitted that the assessee has not transferred any huge amounts to the given concern on a single day. The assessee has not made any fresh payment of Rs.1,66,70,246/- to M/s Metalmine during the AY 2017-18. These amounts were brought forward balances of preceding years. It is not a case where payments are written-off, but it is a case where old outstanding balance on account of sales are written-off. So, there is no error in the Assessment order passed by the Assessing Officer which is prejudicial to the interest of the revenue.
In regard to the observation of your goodself that ‘There is thus nothing on record to establish that the given amount qualified for deduction u/s 36(1)(vii) r.w.s. 36(2) of the Act’, it is submitted that during the course of assessment proceedings, the assessee company had duly uploaded detailed reply (supra) on the income tax portal on dated 25. 12.2019regardirg the eligibility of claim of bad debts(Annexure-l), so this is not the case that were is nothing on record to establish that given amount qualified for deduction u/s 36(1). Further, the amount written-off of Rs. 1,66,70,246/- was duly qualified for deduction u/s 36(1)(vii) r.w.s. 36(2) of the Act. The assessee company had made the sale to the said party during the AY 2013-14 and AY 2014-15, which were duly credited in the sale account of profit & loss. Since the assessee did not recover the amount of sales amount due, so the assesse company did not make further sale transactions to the said party. Further, as the said amount was not recovered from the party, so the assessee company had written-off the amount receivable from the party in the books of account and claimed as bad debts.
As per section 36(1)(vii) r.w.s. 36(2) of the act, there are two conditions which needs to be satisfied to claim deduction of bad debts which are as under:-
i) The bad debt should be written-off as irrecoverable in the books of account of the assesse for the previous year in which deduction is claimed.
ii) The debt should have been taken into account in computing the income of the previous year in which deduction is claimed or any earlier previous year
So, in the case of the assessee, sales were made to the Metalmine Enterprises Pvt. Ltd. in the preceding years which were taken into account in computing the income of those preceding years by including in turnover of those preceding years. Now, when the assessee company did not get any hope to recover the amount, so due to this reason, the recoverable amount is written-off in the books of account of the assessee company during the relevant year. Since the assessee company duly included the sale to the said party in the profit and loss account in the preceding years and recoverable amount was written off during the relevant year, thus satisfying the twin conditions of section 36(1)(vii) and so, it is an allowable expenditure u/s 36(1)(vii) of the Income Tax Act, 1961.
4. The Ld. PCIT further show caused the assessee to the effect that the said write off of Rs. 1,66,70,246/-has not even been reflected under the head “Bad debts” in Col 39 of the ITR-6. That the assessee had camouflaged the entry of this write-off to hood wink the authorities. That the AO failed to conduct the requisite enquiries and cross verification in respect of the given issue.
Assessee replied:
In regard to the above observation of your goodself, it is submitted that assessee company mistakenly omitted to fill the amount under bad debt column of ITR form, however, even otherwise, assessee company has given the due disclosure of the amount written-off of Rs. 1,66,70,246/-in the audited profit & loss account, so it is not the case that assessee company has concealed/hide any information or material fact from the department. Due to disclosure of amount written-off by the assessee company, the then Id. assessing officer has raised the query to Assessee Company to substantiate the claim of amount written-off and the assessee company had duly submitted all the information along with documentary evidences (i.e. ledger accounts of parties, sale register of the preceding years, list of debtors etc.). Thus, all the facts and materials were on record with the Id. Assessing Officer. Further, regarding the allowability of claim of bad debt u/s 36, it is submitted that there are 2 conditions to be satisfied as discussed (supra) in Para No. 3 of reply, which was fulfilled by the assessee and so, claim of assessee was allowed by Id. Assessing officer. Further, Hon’ble Supreme Court in the case of T.R.F. Limited vs CIT, Ranchi, Civil Appeal No. 5293 of 2003, wherein it was held that it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written-off as irrecoverable in the accounts of the assessee. Copy of judgment is enclosed as per Annexure-2. So, considering the above facts and circumstances of the case, it is requested to your goodself to kindly accept the claim of Bad debts, as the amounts has actually been written-off in the books of accounts and amount has been included in computing the income of the preceding years.
The Ld. PCIT, however did not get satisfied with the above replies of the assessee in respect of the queries raised by the Ld. PCIT in the show cause notice on the issue of bad debts written off. He accordingly rejected the contentions of the assessee, observing as under:
“ 5. The submissions of the assessee have been carefully considered with reference to the facts of the case from the relevant records, and are discussed in the subsequent paragraphs.
5.1 It was noted that the assessee had debited an amount of Rs. 1,66,70,246/- on account of amount written off in the case of one M/s Metalmine Enterprises Pvt. Ltd. account. It was pointed out in the notice u/s 263(1) that the assessee had not reflected the amount of Rs. 1,66,70,246/- written off in Col no. 39 of ITR-6 under the head “Bad debts”. In response, the assessee has submitted that it had “mistakenly omitted to fill the amount under bad debt column of ITR form, however, even otherwise, assessee company has given the due disclosure of the amount written-off of Rs. 1,66,70,246/- in the audited profit & loss account, so it is not the case that assessee company has concealed/hide any information or material fact from the department…….” The said reply of the assessee, however, is devoid of any strength, as the amount of bad debts written off was large, and, therefore, its omission from the specified column of bad debts in the ITR form was obviously with a view to escape attention and consequent selection for scrutiny assessment under CASS. The assessee’s argument that the amount was duly disclosed in the audited profit and loss account, in no way, condones its failure to make a true, and complete disclosure of the given amount in the IRT-6 in the column exclusively specified for this purpose. ITR-6 is a primary document which has the specific Column in which the assessee was required to make true and complete disclosure, so as to allow the Income Tax Department to make preliminary examination of various claims made by the assessee in its ITR and to identify the high risk and suspect transactions as per the risk assessment parameters laid down by the Department. Thus the assessee’s failure in the regard is prima-facie with a view to game the system.
5.2 The assessee has further submitted that the 2 conditions regarding the allowability of claim to bad debts u/s 36(i)(vii) are duly satisfied by the assessee. The assessee has placed reliance on the order of Hon’ble Sup’erne Court in the case of TRF Limited vs CIT, Ranchi, Civil Appeal No. 5293 of 200 i, and has stated that it is not necessary for the assessee to establish that the bad debt, in fact, had become irrecoverable. This submission of the assessee also does not carry any weight, as the assessing officer, as an investigator, was under an obligation to examine and investigate the veracity of the assessee’s claim of write off of Rs. 1,66,70,246/-. The assessing officer is not expected to accept any claim including claim of write off, made by the assessee, mutely and passively with his eyes closed. Such a passivity on the part of the assessing officers would give rise to Jungle Raj, leaving the assessees free to book any arbitrary and unsubstantiated claims in their books of accounts. It is amply evident from the assessee’s record that the assessing officer had not conducted any independent enquiry whatsoever to ascertain the genuineness of the assessee’s claim of write off of “bad debts”. It is noted that the assessing officer had raised a query in respect of the said write off in response to which the assessee had submitted as follows:-
“In regard to amount written off of Rs. 1,66,70,246/- for the party Metalmine Enterprises Pvt Ltd, it is submitted that assessee company made the sale in preceding years. But could not recover the amount from the parties and same was written off in the books of accounts and therefore, allowable as bad debts “
5.3 In response to the said submission of the assessee, the AO had responded as follows through another show cause notice dated 20.12.2019:-
“The reply furnished by you has been duly considered but not found satisfactorily because of the following reasons:-
.As regards amount written off of Rs. 1,66,70,246/- for the party Metalmine Enterprises Pvt Ltd, you have submitted that assessee company made the sale in preceding years. But could not recover the amount from the parties and same was written off in the books of accounts and therefore, allowable as bad debts. This plea is not acceptable because from the perusal of the ledger of the said company furnished by you, it is noticed that the said company made transaction during the F.Y. 2013-14, 2014-15, 2015-16 regularly then how it is possible the said company certainly do not made any transactions during the F.Y. 2016-17. Further, you have shown the amount of Rs.1,66,70,246/- as written off in the books of account without furnishing any reasonable reasons alongwith documentary evidence.”
5.4 The assessee has now submitted that it had responded to the said notice of the AO, through its reply uploaded on 25.12.2019. It is noted that this reply is not available on the assessment record. Without prejudice to this, however, a perusal of the said reply shows that the assessee had not given any specific information to establish the genuineness of its claim of the given write off. It simply states that the sales were made to the Metalmine Enterprises Pvt. Ltd. in the preceding years, which were taken into account in computing the income of those preceding years, and that the give transactions were duly recorded in the sales register and in the list of debtors in the preceding years. The assessee had further submitted that Metalmine Enterprises Pvt. Ltd. had not made the payments of sales amounts due, so the assessee company had not made further sales transactions with the said party. Further, as the said amount was not recovered from the party, so the assessee company had written off the amount in its books of account
Thus the given submission of the assessee in its written communication claimed to have been uploaded on 25.12.2019 during the course of assessment proceedings, was absolutely generic. No specific reasons were divulged by the assessee for the non-recovery of the given amount from Metalmine Enterprises Pvt Ltd. The AO thus accepted the given bald claim of the assessee at it face value without batting an eyelid.
5.5 It is noted that the AO did not conduct even the basic inquiries to ascertain the identity of the said Metalmine Enterprises, its PAN, its address, its bank account, its nature of business and its ITR status. No corresponding verification or enquiries were made by the AO from the said Metalmine Enterprises Pvt Ltd in order to ascertain that the claim of bad debts made by the assessee was correct. The AO made further omissions in dealing with the given issue as follows:-
(a) Copies of accounts of M/s Metalmine Enterprises Pvt. Ltd. for the F.Y. 20014-15, 2015-16 & 2016-17 reveal the following transactions:-
Ledger Account with M/s Metalmine Enterprises Pvt Ltd (01.04.2014 to 31.03.2015):
Ledger Account with M/s Metalmine Enterprises Pvt Ltd (01.04.2015 to 31.03.2016):
Ledger Account with M/s Metalmine Enterprises Pvt Ltd (01.04.2016 to 31.03.2017):
(b) It is obvious from the chronology of the transactions tabulated above that there was a live relationship between the assessee and M/s Metalmine Enterprises, as the assessee has shown a transfer entry of Rs. 1,11,32,895/- even on 14.10.2015 to the assessee despite the fact that the assessee now claims that the cheque of Rs. 56,66,776/- issued by Metalmine to the assessee was dishonored on 12.03.2015. It is because of this debit entry of Rs. 1,11,32,895/- that the assessee raised the so-called outstanding debt of Metalmine Enterprises from Rs. 56,66,776/- to Rs. 1,66,70,246/-. Still further, the assessee has also credited an amount of Rs. 1,29,425/- in the account of Metalmine on 25.11.2015. The AO, however, did not take any note of these transactions. Even during the present submissions, the assessee has not been able to explain the nature of this dr. entry of Rs. 1,11,32,895/- and credit entry of Rs. 1,29,425/- even though this issue was specifically raised in the notice u/s 263(1) supra
(d) The AO completely failed to raise any query if the assessee had any evidence to establish that it had made diligent efforts to recover the outstanding payments from Metalmine Enterprises Pvt Ltd, or had taken any legal recourse before writing off such a huge amount suddenly and so quickly. The assessee has not been able to submit the said details even during the course of proceedings u/s 263. Nor has the assessee been able to furnish any evidence to show if any efforts were made by the assessee to recover the said outstanding amount from Metalmine. A noting to this effect has been duly made in the noting sheet during the course of proceedings u/s 263 of the Act.
5.6 It is clear from the discussion above that there is nothing on record to establish that any worthwhile independent enquiries were conducted by the AO in respect of the given claim of Rs. 1,66,70,246/- for deduction u/s 36(1 )(vii) r.w.s. 36(2) of the Act. It was incumbent upon the AO to conduct the requisite enquiries to ascertain the genuineness of the assessee’s claim of the said write off. Thus the AO prima-facie failed to conduct even the basic inquiries and cross verification in respect of the given issue, what to talk of conducting any worthwhile enquiries.
6. Hon’ble Delhi High Court in Gee Vee E iterprises vs. Additional Commissioner of Income Tax, [1975] 39ITR 375 (Delhi), has observed as under:
“The reason is obvious. The position and function of the Income-tax officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may be accepted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word “erroneous” in section 263 emerges out of this context. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word “erroneous” in section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct.”
Honble Delhi High Court in Income Tax Officer versus DG Housing Projects Limited(2012) 343 ITR 329 (Delhi) has observed:
“The Assessing Officer is both an investigator and an adjudicator. If the Assessing Officer as an adjudicator decides a question or aspect and makes a wrong assessment which is unsustainable in law, it can be corrected by the Commissioner in exercise of revisionary power. As an investigator, it is incumbent upon the Assessing Officer to investigate the facts required to be examined and verified to compute the taxable income. If the Assessing Officer fails to conduct the said investigation, he commits an error and the word “erroneous” includes failure to make the enquiry. In such cases, the order becomes erroneous enquiry or verification has not been made and not because a wrong order has been passed on merits.”
The Hon’ble Delhi High court in Nagesh Knitwear Pvt. Ltd. (2012) 345 ITR 135 has held as under:-
“The Assessing officer is both an investigator and an adjudicator, if the assessing officer as an adjudicator decides a question or aspect and makes a wrong assessment which is unsustainable in law, it can be corrected by the Commissioner in exercise of revisionary power. As an investigator, it is incumbent upon the Assessing Officer to investigate the facts required to be examined and verified to compute the taxable income. If the assessing officer fails to conduct the said investigation, he commits an error and the word “erroneous” includes failure to make the inquiry. In such cases, the order becomes erroneous because inquiry or / verification has not been made and not because a wrong order has been passed on merits.”
7. The second issue raised in the notice u/s 263(1) of the Act was regarding the allowance of deduction u/s 80IC(2)(a)(ii) of the Act, for which, the the Ld. PCIT show caused the assesse as under:
“4. It is further noted that the assessee has claimed deduction u/s 80IC(2)(a)(ii) of the Act amounting to Rs.3,24,45,802/- for the first time for the year under consideration in the Revised return of income, which was filed on 07.09.2018. The requisite Audit Report in Form 10CCB was, however, filed on 11.09.2018. Thus, the audit report in Form 10CCB was neither furnished by the assessee at the time of filing of original ITR on 26.10.2017, nor at the time of filing of revised ITRon 07.09.2018 “
Assessee’s remarks:
“In respect to the observation of your goodself vide Para-4 of the notice, it is submitted that for the relevant assessment year, due date of filing the revised return of income was 31.03.2019. So, the revised return filed on 07.09.2018 was much earlier than the due date. Within 4 days of filing the revised ITR, the assessee company also filed audit report in Form 10CCB on 11.09.2018. So, the ITR as well as audit report, both were filed before the expiry of the due date for furnishing revised ITR. The intention of legislature is to file ITR and Audit report both before the due date. It does not matter whether the audit report is filed earlier than ITR or ITR is filed earlier than audit report. If both ITR and Audit import are filed before the due date, then it is a sufficient compliance to treat that both ITR and Audit Report are filed within the permissible time limit as prescribed by law.
The objective of law is to submit both ITR / Audit report on or before the due date. In the present case, it does not seem the intention of law that for claiming deduction u/s 80IC, ITR was required to be filed on 11.09.2018 (i.e. ITR & Audit report both on same date) and if ITR is filed in advance i.e. on 07.09.2018, then the assessee company is not eligible for deduction u/s 80IC.
Thus, deduction cannot be denied to the assessee on the ground that audit report was neither furnished along with original return nor at the time of revised return. Because, in the present case, ITR as well as Audit Report both are filed well in advance before the permissible time limit prescribed by law for filing of revised ITR. If both are filed within in time, then it does not matter if one of them is filed in advance vis-a-vis the other.
6. Observations of PCIT in the show cause notice:
“4.1 Since the assessee had not furnished the audit report in Form 10CCB alongwith the ITR, the claim of deduction u/s 80IC of the Act is not allowable in this case. However, the deduction of Rs.3,24,45,802/- as claimed by the assessee u/s 80IC of the act has been allowed by the AO, without paying adequate attention to the facts and relevant legal provisions. Thus the excess deduction of Rs.3,24,45,802/- has been wrongly allowed by the AO to the assessee. During the course of assessment proceedings, the assessee had placed reliance on the decision of Hon’ble Supreme Court in the case of “Commissioner of Income Tax Vs. G.M Knitting Industries (P) Ltd “. The AO accepted the said contention of the assessee without examining it at length. The case law cited by the assessee pertains to the claim of additional depreciation and late submission of Form 3AA, and therefore, does not apply to the facts of the case of the assessee, in view of the specific provisions of section 80-IC(7) r.w. section 80-IA(7) of the Act.”
Assessee’s remarks:
“In regard to the observation of your goodself that claim of deduction u/s 80IC is not allowable to the assessee as the assessee has not submitted the audit report along with the return of income, it is submitted that filing of the audit report in Form-10CCB along with the return of income is not mandatory. Even if the audit report is filed in requisite form before finalisation of the assessment proceedings, it would be in the compliance of the provisions of the Section 80-IC. Moreover, in the present case, the audit report has been filed within the permissible time limit as prescribed by the law.
Further, regarding the non- application of judgment of the Hon’ble Supreme Court in the case of “Commissioner of income Tax Vs G.M. Knitting Industries (P) Ltd.” it is submitted that in the said case law, two issues are decided in favour of assessee which are as under.-
Allowability of additional depreciation if form 3AA was not filed along with the return of income but same was filed during the assessment proceedings before final order of assessment was made.
Allowability of deduction u/s 80-IB if the Form 10CCB has not been field along with the return of income but before the final order of assessment was made.
Since both legal issues (i.e. along with the return of income) were identical, so Hon’ble SC dismissed the appeal of Revenue by one finding and passed a consolidated order CIT vs G.M. Knitting Industries (P) Ltd. & others vide Civil appeal No. 10782 of 2013 & 4048 of 2014. The Civil Appeal No. 4048 of 2014 (CIT Chennai vs M/s Aks Alloys (P) Ltd.) was tagged with the Civil Appeal No. 10782 of 2013 (CIT Maharashtra vs M/s G.M. Knitting Industries Pvt Ltd).Copy of SC judgment along with screen shot downloaded from the Hon’ble SC website is attached herewith as per Annexure-3 & 4 respectively. Further, copy of order of Hon’ble Madras High Court CIT Chennai vs M/s Aks Alloys (P Ltd is attached herewith as per Annexure-5,wherein issue was regarding the filing of audit report along with return of income for claim of deduction u/s 80IB.
Thus, it is clear from the above that Id. Assessing officer had rightly placed the reliance on the aforesaid Hon’ble Supreme Court judgment as the judgment of Hon’ble Supreme Court is squarely apply to the facts of the case of the assessee.
