Income Tax Appellate Tribunal - Indore
M. P. Rajya Van Vikas Nigam vs Deputy Commissioner Of Income Tax on 2 August, 1996
Equivalent citations: [1997]60ITD39(INDORE)
ORDER
Satish Chandra, A.M.
1. The appeal by the assessee has been instituted against the order dt. 12th June, 1991, of the CIT(A), Bhopal, pertaining to asst. yr. 1988-89.
2. The assessee is a Government company. It claimed deduction of Rs. 10,72,812 under s. 32AB, which was negatived by the AO on the ground that neither accounts were audited by the auditors as required under s. 44AB nor reports of the auditors appointed by the C&AG were furnished. Moreover, statutory requirement, i.e., auditors' report in Form No. 3AA under r. 5AB of the IT Rules was also not enclosed along with the return. On appeal, the CIT(A) upheld the AO's action. This has brought the assessee before us in appeal.
3. The ground of appeal taken by the assessee reads thus :
"That the learned CIT(A) ought to have allowed deduction under s. 32AB."
4. Subsequently, the assessee sought to raise the following additional ground, vide petition dt. 6th Jan., 1996 :
"That on the facts and the circumstances of the case, the assessee ought to be allowed deduction under s. 32AB even though the prescribed reports have been furnished for the first time after the order of CIT(A) under appeal."
5. During the course of hearing before us, Shri Khabia, the learned counsel for the assessee, withdrew the above additional ground. Withdrawal of additional ground was not objected to by the Revenue. After hearing both the sides, we permitted withdrawal of the above additional ground and, accordingly, the same is dismissed as withdrawn. We now proceed to decide the ground of appeal originally taken, which has already been extracted above.
6. Inviting our attention to sub-s. (1) of s. 32AB, Shri Khabia, the learned counsel for the assessee, submitted that an assessee is entitled to deduction of an amount upto 20% of the profits of 'eligible business' or 'profession', if the said amount is either deposited with the Development Bank within the period upto six months from the end of the previous year or before furnishing the return, whichever is earlier, or is utilised during the previous year for the purpose of new ship, new aircraft or new machinery or plant. Shri Khabia also drew our attention to sub-s. (5) of s. 32AB, which provides that deduction under sub-s. (1) shall not be admissible unless the accounts have been audited and the assessee furnishes along with his return of income the audit report in Form No. 3AA. He pointed out that there is a proviso below the main sub-s. (5), according to which, where the assessee is required by or under any other law to get his accounts audited, the requirement of sub-s. (5) would be met, if such assessee gets the accounts audited under such law and furnishes audit report as also a further report in Form No. 3AA. Shri Khabia submitted that the assessee being a Government company, the auditors are appointed by the C&AG and, therefore, under the proviso to sub-s. (5) in the case of the assessee, the audit report is not required to be furnished along with the return of income as in the case of the assessees covered by the main sub-s. (5). Shri Khabia pointed out that the statutory audit report was furnished in the case of the assessee on 31st March, 1994, and a further report in Form No. 3AA was furnished on 28th May, 1994. He submitted that the audited accounts and report in the prescribed Form No. 3AA were submitted before the AO on 4th July, 1994. He invited our attention to the assessee's petition dt. 20th Nov., 1995, seeking permission to furnish additional evidence, being report in Form No. 3AA and 12th Annual Reports and Accounts, 1986-87, on the ground that the above documents were received by the assessee after the assessment order passed on 29th Jan., 1991, and the appellate order of the CIT(A), dt. 12th June, 1991. We have admitted the above additional evidence after hearing both the parties, as the statutory audit report was given by the auditors to the assessee on 31st March, 1994, and the assessee could obtain the report in Form No. 3AA only after the assessment and disposal of first appeal by the CIT(A).
7. Shri Khabya further submitted that the assessee had filed the above documents before the AO on 4th July, 1994, during the course of reassessment proceedings started by issue of notice dt. 27th July, 1992, under s. 148 of the Act. He pleaded that during the reassessment proceedings also, the assessee had made claim of deduction again under s. 32AB, which was also negatived by the AO. On appeal, the CIT(A) also rejected the assessee's claim in his appellate order in IT-703/94-95, dt. 7th Sept., 1995. Shri Khabya argued that the basic condition for claim of deduction as prescribed under sub-s. (1) of s. 32AB have been satisfied by the assessee-company inasmuch as the assessee deposited a sum of Rs. 10,00,000 with IDBI on 30th Dec., 1987, in investment deposit account bearing No. 0000005 and filed copy of receipt No. 00029 with original return filed on 30th June, 1988. He pointed out that the above deposit was made within the prescribed time-limit, i.e., within six months from the end of the previous year. The previous year of the assessee, relevant to the assessment year under consideration, ended on 30th June, 1987. He further submitted that the assessee utilised a further sum of Rs. 1,51,200 during the previous year for purchase of new plant and machinery. Inviting our attention to statement of particulars relating to the claim for deduction under s. 32AB, which formed part of the audit report in Form No. 3AA under r. 5AB, he submitted that the profits of the eligible business of the assessee has been computed at Rs. 1,10,16,191. Twenty percent thereof would work out to Rs. 22,03,238. According to Shri Khabya, the lower of the two amounts, namely, Rs. 11,51,200 (Rs. 10,00,000 + 1,51,200) would qualify for deduction under s. 32AB. He further submitted that sub-s. (5) of s. 32AB is a machinery provision imbibed in the section, but sub-s. (5) has to be so read that the statutory provision contained in sub-s. (1) of s. 32AB is made workable. He further argued that proviso to sub-s. (5) comes to the rescue of the assessee inasmuch as the assessee being a Government company and the appointment of the auditors is done by C&AG the assessee is not required to furnish the audit report along with the return, which is the requirement in the main sub-s. (5). Relying on the decision of Madhya Pradesh High Court in the case of Bharat Heavy Electricals Ltd. vs. CST reported in (1988) 21 Vikraya Kar Nirnaya 59, Shri Khabya argued that the appellate proceeding are continuation of the assessment proceedings. In support of the proposition that filing of the audit report is merely procedural and not mandatory requirement, he referred to the following cases :
(i) Ambar Electric Conductors Pvt. Ltd. vs. Dy. CIT (1992) 43 ITD 313 (Mad);
(ii) Nemco Enterprises vs. Asstt. CIT (1993) 46 TTJ (Pune) 110 : (1993) 45 ITD 54 (Pune)
(iii) D. K. Jain vs. Dy. CIT (1994) 48 TTJ (Del) 675 : (1994) 49 ITD 269 (Del) and
(iv) Minar Manufacturers vs. Asstt. CIT (1993) 46 TTJ (Ind) 448.
8. The submissions of Shri Khabya were assailed by Shri Brijesh Gupta, the learned Departmental Representative. He argued that under proviso to sub-s. (5) of s. 32AB unlimited time limit has not been provided for furnishing the audit report and report in Form No. 3AA. According to him, the above documents must be furnished, in any case before the completion of the assessment. According to him, the above documents were not furnished before the completion of the original assessment proceedings nor even before the decision by the CIT(A) in appeal against the original assessment order. He further argued that the argument of Shri Khabya that the assessee's claim could be considered in reassessment proceedings is without any substance and merits. In his counter arguments, Shri Khabya submitted that there was no undue delay on the part of the assessee, as the assessee submitted before the AO the audit report as also the report in Form No. 3AA soon after receipts thereof by the assessee.
9. We have considered the rival submissions, perused the orders of the lower authorities as also the material placed before us. It is not in dispute that the assessee is a Government company. For the asst. yr. 1988-89, presently under consideration, it's previous year ended on 30th June, 1987. The assessee's claim of deduction under s. 32AB has been rejected on the sole ground that the audit report and the report in the prescribed Form No. 3AA had not been furnished along with the return. In order to appreciate the controversy involved in the case, we think it necessary to extract the relevant provisions :
"32AB(1). Subject to the other provisions of this section, where an assessee whose total income includes income chargeable to tax under the head "profits and gains of business or profession", has, out of such income -
(a) deposited any amount in any account (hereafter in this section referred to as deposit account) maintained by him with the Development Bank before the expiry of six months from the end of the previous year or before furnishing the return of his income, whichever is earlier; or
(b) utilised any amount during the previous year for the purchase of any new ship, new aircraft, new machinery or plant, without depositing any amount in the deposit account under cl. (a), in accordance with, and for the purpose specified in, a scheme (hereafter in this section referred to as the scheme) to be framed by the Central Government, or if the assessee is carrying on the business of growing and manufacturing tea in India, to be approved in this behalf by the Tea Board, the assessee shall be allowed a deduction (such deduction being allowed before the loss, if any, brought forward from earlier years is set off under s. 72) of -
(i) a sum equal to the amount, or the aggregate of the amounts, so deposited and any amount so utilised; or
(ii) a sum equal to twenty per cent of the profits of business or profession as computed in the accounts of the assessee audited in accordance with sub-s. (5), whichever is less :
xxxx xxxx xxxx (5) The deduction under sub-s. (1) shall not be admissible unless the accounts of the business or profession of the assessee for the previous year relevant to the assessment year for which the deduction is claimed have been audited by an accountant as defined in the Explanation below sub-s. (2) of s. 288 and the assessee furnishes, along with his return of income, the report of such audit in the prescribed form duly signed and verified by such accountant :
Provided that in a case where the assessee is required by or under any other law to get his accounts audited, it shall be sufficient compliance with the provisions of this sub-section if such assessee gets the accounts of such business or profession audited under such law and furnishes the report of the audit as required under such other law and a further report in the form prescribed under this sub-section."
10. It is obvious from the above provisions that the assessee would be entitled to a deduction of an amount upto 20% of the profits of 'eligible business or profession' if the said amount is deposited with the Development Bank within the period of six months from the end of the previous year or before furnishing the return whichever is earlier or is utilised during the previous year for purchase of any new ship, new aircraft or new machinery or plant. It is not in dispute that the assessee had deposited an amount of Rs. 10,00,000 in investment deposit account with the Development Bank on 30th Dec., 1987, which is within six months from the end of the previous year relevant to the asst. yr. 1988-89 presently under consideration. It is also not in dispute that the assessee had utilised an amount of Rs. 1,51,200 for purchase of new plant and machinery. Thus, the total of the deposit with Development Bank and the amount utilised for purchase of new plant and machinery worked out to Rs. 11,51,200. The assessee had claimed that the amount of Rs. 11,51,200 qualified for deduction under s. 32AB, as it was less than 20% of eligible profits worked out as per the audit report. As stated earlier, the above claim was negatived by the Revenue authorities because the assessees had not furnished audit report along with its return of income. The stand of the assessee is that its case falls squarely within the ambit of the proviso to sub-s. (5) because the assessee is required to get its accounts audited under the provisions of the Companies Act and since the assessee is a Government company, the auditors are appointed by the C&AG of India. We have looked into the relevant provisions of the Companies Act, 1956.
The relevant provisions read, thus :
"619. (1) In the case of a Government company, the following provisions shall apply, notwithstanding anything contained in ss. 224 to 233.
(2) The auditor of a Government company shall be appointed or reappointed by the Central Government on the advice of the C & AG of India."
It is, thus, clear that in the case of Government company, the auditor is appointed by the Central Government on the advice of the C&AG. If that be so the appointment of auditor is not within the control of the assessee-company. It was under the relevant provisions of the Companies Act, 1956, that the assessee was required to get its accounts audited. It is stipulated in the proviso to sub-s. (5) that in such cases, it shall be sufficient compliance of sub-s. (5) if the assessee gets the accounts audited under such law (in this case under the Companies Act of 1956) and furnishes the said audit report and further report in the prescribed Form No. 3AA for claiming deduction under s. 32AB. The requirement of filing the said audit report and report in the prescribed proforma in Form No. 3AA along with the return of income is conspicuous by its absence in the proviso to sub-s. (5). It appears that it is not the intention of the legislature that in the case covered under the proviso to sub-s. (5) the audit report and the report in Form No. 3AA should necessarily be filed along with the return of income. The intention of the legislature is clearly expressed by the language employed in the proviso.
11. We also find considerable force in the arguments advance by Shri Khabya that the appellate proceedings are continuation of the assessment proceedings. In the case of Bharat Heavy Electricals Ltd. vs. CST (supra), their Lordships of Madhya Pradesh High Court held that the word 'assessment proceedings' includes all stage(s) of assessment including any appellate or revisional authority before whom the question of assessment is pending. The question of proper meaning of 'assessment proceedings' came up for discussion before their Lordships of the Gujarat High Court in the case of CWT vs. Kasturbhai Mayabhai (1987) 164 ITR 107 (Guj), wherein their Lordships relied on the judgment in the case of Chatturam vs. CIT (1947) 15 ITR 302 (FC) in which the Federal Court held that the appeals to the AAC were an integral part of the machinery of assessment. Their Lordships of the Gujarat High Court have also held that it is now well settled that if an assessee does not choose to appeal, the order of assessment becomes final. But once the appeal is preferred by the assessee, the assessment is opened up and the AAC can examine all aspects of the assessment not only those which are complained of by the assessee but also those in regard to which the assessee is satisfied and has not preferred an appeal. Similar view has been expressed by Punjab & Haryana High Court in the case of CIT vs. Export India Corpn. Pvt. Ltd. (1996) 219 ITR 461 (P&H). It is, therefore, clear that the original assessment order can be modified, varied or substituted at the appellate stage(s). As such, even if the assessee has filed the audit report and the report in Form No. 3AA at the second appellate stage before the Tribunal, as these documents were not available to the assessee before the original assessment was completed and/or before the decision by the first appellate authority, the claim of the assessee for deduction under s. 32AB should be entertained, as the process of assessment begins but does not end with the assessment order made by the AO, which is a subject-matter of appeal and on the decision(s) of the appeal the original order merges in the appellate order(s).
12. For the reasons aforesaid, we hold that rejection of the assessee's claim of deduction under s. 32AB is not justified. We, accordingly, set aside the orders of the Revenue authorities and direct the AO to consider the assessee's claim provided he is satisfied that the conditions prescribed under sub-s. (1) of s. 32AB are fulfilled.
13. In the result, the appeal is allowed.