Income Tax Appellate Tribunal - Pune
Nemco Enterprises vs Assistant Commissioner Of Income-Tax on 7 April, 1992
Equivalent citations: [1993]45ITD54(PUNE)
ORDER
T.V.K. Natarajachandran, Accountant Member
1. The assessee is a registered firm carrying on business in re-selling machinery, pumps, electric motors etc. It is said to be a small scale undertaking as defined in Section 80HHA of the Income-tax Act, 1961. According to an affidavit of Shri Shah Vijaykumar, son of Shri Rupchand Shah, the return of income for the assessment year 1989-90 was filed on 27-10-1989 but he forgot to enclose the audit report of M/s R.L. Rathl & Co. C.A. in Form No. 3AA for the purpose of claiming relief under Section 32AB of the Income-tax Act, 1961.
2. The Assessing Officer sent an intimation to the assessee under Section 143(1)(a) of the Income-tax Act, 1961 rejecting the claim under Section 32AB for the reason the assessee failed to comply with the provisions of Section 32AB(5) and also the Explanation below to Section 2 of Section 288 of the Income-tax Act, 1961.
3. The assessee filed an application under Section 154 dated 3-3-1990 to rectify the mistakes apparent from the record in the intimation sent under Section 143(1)(a) by duly enclosing the audit report in Form 3AA dated 16-9-1989.
4. The Assessing Officer by his order under Section 154 dated 13-12-1990 rejected the application because the assessee failed to furnish the audit report along with the return of income as required by Sub-section (5) of Section 32AB. He also observed that even the trading and profit and loss account and balance sheet filed along with the return did not indicate that these have been audited and examined with reference to the books of accounts.
5. The assessee filed a revision petition under Section 264 before the CIT, but the CIT declined to interfere with the intimation under Section 143(1)(a) sent by the Assessing Officer because in his view processing of a return will not fall within the terminology of an order and thereby will not come within the revisional powers of Section 264 of the Income-tax Act, 1961.
6. Earlier the assessee filed an appeal to the CIT (Appeals) against the order of the Assessing Officer under Section 154 dated 13-12-1990. The contention of the assessee before the CIT (Appeals) was that absence of audit report in Form No. 3AA along with the return of income would render the return itself defective requiring the assessing authority to issue a notice under Section 139(9) to cure this defect. As no notice was issued in this regard, the assessment order is bad in law. His further contention was that this was a fit case for application of principles of equity.
7. The CIT (Appeals) held that filing of audit report along with the return of income was mandatory and its filing after completion of assessment would not entitle the assessee to the benefit of relief under Section 32AB. For this proposition, he relied on the ratio of the Punjab & Haryana High Court in the case of CIT v. Jaideep Industries [1989J 180 ITR 81. Further the CIT (Appeals) observed that non-enclosure of audit report along with the return is not treated as defect under Section 139(9) and in view of the mandatory provision of Section 32AB(5) the principle of equity does not apply. Therefore, he upheld the order of the Assessing Officer under Section 154 and dismissed the appeal.
8. At the time of hearing, the learned counsel for the assessee filed a paper compilation and a copy of the order of the Tribunal. Jaipur Bench in the case of Rathi Gum Industries v. ITO [IT Appeal No. 695 (JP) of 1981 dated 16-7-1982]. In that case, the assessee claimed the benefit of Sections 80HH and 80J but did not file audited accounts along with the return of income but were filed during the course of assessment proceedings. The claim was rejected on the ground that the audited accounts were not filed along with the return and was confirmed by the AAC. On appeal, the Tribunal held that taking a technical view of the law would defeat the purpose of the law and if there is a lapse of technical nature, substantive right of the assessee should not be denied. Before the CIT in revision proceedings, the assessee sought to produce the audit report in Form No. 3AA dated 16-9-1989 but with no success. He has also enclosed a copy the extract of para 5.17 of Circular No. 549 dated 31-10-1989 wherein it has been provided that an adjustment made under the proviso to Section 143(1)(a) or additional income-tax charged under Section 143(1A) are appealable though not directly but through the provisions of Section 154. It is as per this guideline the assessee sought rectification before the Assessing Officer but in vain. Similar was the fate in appeal before the first appellate authority. Certain written submissions were also made on merits of the case before the Tribunal. In short, following submissions were made therein, namely, (1) it be held that the action of the assessing authority in acting under Section 143(1)(a) and making addition of Rs. 1,35,000 be held erroneous. Further the assessing authority may be directed to verify the claim and allow the same, if found admissible, (2) it be held that the Assessing Officer acted erroneously in rejecting the application for rectification disregarding the circular instructions contained in para 5.17 of the Circular No. 549 issued by the CBDT and (3) it be held that the return of income filed by the appellant was defective calling for a defect notice under Section 139(9) and affording an opportunity to cure the said defect. A copy of the affidavit by Shri Shah Vijaykumar, son of Shri Rupchand Shah working as a Tax consultant dated 15-2-1991 enclosing copy of the audit report in Form No. 3AA and statement of particulars relating to the claim of deduction under Section 32AB and the statement of total income for the assessment year 1989-90 is also filed.
9. The learned departmental representative, on the other hand, duly supported the findings and decisions of the authorities.
10. After due consideration, we are of the opinion that in the interest of justice the issue requires to be restored to the Assessing Officer for fresh disposal in accordance with law and after considering the evidence and submissions brought on record. Prima facie, the claim made by the assessee under Section 32AB was rejected only on the technical reason that the audit report was not attached to the return of income filed. It is for this reason, prima facie, adjustment under Section 143(1)(a) was made denying the relief claimed by the assessee.
11. The assessee's attempt to remedy the situation by enclosing the required audit report in Form No. 3AA dated 16-9-1989 filed along with the petition for rectification under Section 154 was rejected again for the same reason that there was failure in terms of Section 32AB(5), i.e., non-furnishing of audit report along with the return of income. The CIT (Appeals) upheld the action of the Assessing Officer by observing that it was mandatory requirement to be entitled to the relief under Section 32AB. The case law in the case of Jaideep Industries (supra) was sought to be distinguished by the learned counsel of the assessee on the facts of the case. The CIT (Appeals) also pointed out that non-furnishing of audit report would not come within the purview of Section 139(9) so as to treat it as a defective return. He also observed that principles of equity do not come into picture in view of the specific and clear provisions of Section 32AB(5) of the Income-tax Act, 1961.
12. In this connection, we would like to point out that Section 32AB(5) itself contemplates fulfilment of two conditions, namely, the accounts of the business or profession of the assessee for the previous year relevant for the assessment year for which the deduction is claimed should have been audited by an accountant as defined in Explanation below subSection (2) of Section 288 and the second condition is that the assessee should furnish along with the return of income report of such audit in the prescribed form duly signed and verified by such accountant. Inasmuch as an audit report dated 16-9-1989 is said to have been obtained and filed along with the petition for rectification and an affidavit has been filed staying that it was an omission on the part of the counsel to enclose it along with the return filed on 27-10-1989 the substantive merits of the case are required to be considered and the evidence sought to produce is also required to be appreciated to the entire satisfaction of the assessing authority. It is not correct to say that principles of equity do not apply to taxing case especially in view of the specific and clear provisions of Section 32AB(5). In this connection, the ratio of the Supreme Court in the case of CIT v. J.H. Gotta [1985] 156 ITR 323 is relevant to promote justice. The Supreme Court observed that though equity and taxation are often strangers, attempts should be made that these do not remain always so and if a construction results in equity rather than in injustice, then such construction would be preferred to the literal construction. The Supreme Court in the case of Sarbj Aggarwal v. CIT [1985] 156 ITR 497 observed that Courts should, whenever possible, unless prevented by the express language of any Section or compelling circumstances of any particular case, make a benevolent and Justice-oriented inference. As stated earlier, it has to be verified whether the books of accounts were duly audited or not. The crux of the problem is income returned should be in accordance with the audit report. In other words, the income returned should bo correct and complete supported by the audit report. The authorities have been persuaded and carried away by the fact that audit report has not been furnished along with the return of income. It is necessary to verify whether the income returned is as per the audit carried out or not. If it is so. the furnishing of audit report even if it is delayed for a reasonable cause could be considered on merits and still the claim of deduction under Section 32AB should be decided on appreciation of the reasonable cause shown for the delay or omission to enclose along with the return of income. An affidavit has been filed in this regard by the counsel of the assessee. Such admission on the part of the counsel has been held to be reasonable cause by the Courts. In similar circumstances, the Tribunal Jaipur Bench in the case of Rathl Gum Industries (supra) allowed the relief under Sections 80HH and 80J on substantial grounds rather than on technical grounds even though there was a delay in filing the audit report of the Chartered Accountant along with the return of income. In the written submissions filed by the assessee, three-fold directions were sought. Now the affidavit of Shri Shah Vijaykumar dated 15-2-1991 is also filed explaining the circumstances under which the audit report could not be attached along with the return of income which was not available before the authorities. Section 154 proceedings is also part of assessment proceedings and continuation of assessment proceedings. If prima facie adjustments could be carried out under Section 143(1)(a), they are required to be set right if objected to by the assessee when application under Section 154 is filed. Even the merits of the contention have to be considered under Section 154 because that will be an order appealable as laid down by the Circular of the Board No. 549 dated 31-10-1989. Any order which gives rise to appeal should be a speaking order furnishing reasons and appreciating evidence for drawing conclusions one way or the other. Since this was not done under Section 154 order and the CIT also has not properly appreciated and the case law relied upon by him could also be distinguished on facts, there is mis-carriage of justice. In the facts and circumstances of the case, therefore, the matter is restored to the file of the Assessing Officer by setting aside the order of the CIT (Appeals). It is open to the Assessing Officer to appreciate the evidence and the reasons offered by the assessee for the delay in filing the audit report and also verify and satisfy himself about the fact that the books of accounts have been audited and the income returned is also as per the audit report and pass fresh order in accordance with law after giving the assessee reasonable opportunity of being heard,in this regard.
13. In result, the appeal is allowed for statistical purposes.