Income Tax Appellate Tribunal - Ahmedabad
Samir Diamond Mfg. (P) Ltd. vs Deputy Commissioner Of Income Tax on 27 January, 1998
Equivalent citations: (1998)61TTJ(AHD)413
ORDER
B.L. CHHIBBER, AM.:
These cross-appeals arise out of the order of the CIT(A), Surat. First we take up the assessee's appeal, i.e., ITA No. 772/Ahd/1993. The only grievance projected by the assessee is that the learned CIT(A) is not justified in confirming the action of the AO in allowing deduction under ss. 80HHA, 80HHC and 80-1 on profits of industrial undertaking after deducting deduction under s. 32AB instead of allowing these deductions before deducting deduction under s. 32AB as claimed in the return of income.
2. The assessee, private limited company, is engaged in cutting and polishing of rough diamonds. The assessee- company claimed deductions under ss. 80HHA and 80-1 without deducting the amount allowable under s. 32AB. The AO made prima facie adjustment under s. 143(1)(a) by allowing deduction under ss. 80HHA and 80~1 from profits of the industrial undertaking after deducting the amount allowable under s. 32AB. The assessee filed an application for rectification under s. 154 of the Act praying for deduction under ss. 80HHA and 80-1 without deducting the amount allowable under s. 32AB. The assessee submitted that deductions under ss. 80HHA and 80-1 are allowable on profits and gains from industrial undertaking and not on net income computed under the head business. It was also submitted that the word 'income' used in s. 80AB should be distinguished from taxable income computed under the business head. The AO did not accept the assessee's submission by placing reliance on s. 29 which provides that the income referred in s. 28 shall be computed in accordance with the provisions of ss. 30 to 44C of the Act. The AO also referred to the provision of s. 80AB stating that it provides that the deductions under Chapter VI-A are to be worked out in accordance with the provisions of the Act. The AO thus dismissed assessee's application for rectification vide order passed under s. 154, dt. 8th Aug., 1991. On appeal, against the order under s. 154, the learned CIT(A) confirmed the action of the AO vide his order dt. 27th Dec., 1997, by placing reliance on s. 29. On second appeal this Tribunal vide their order dt. 10th Sept., 1997 deleted the prima facie adjustment made by the AO holding that the p=a lacie adjustment cannot be made after the case is selected for scrutiny. However, on merits of the case, the Tribunal did not make any observation.
3. In the scrutiny assessment made under s. 143(3) which is subject-matter of this appeal before us, the AO allowed the deductions under ss. 80HHA and 80-1 without deducting deductions under s. 32AB on the basis of his earlier prima facie adjustment and assessee's failure in appeal before the CIT(A).
4. The assessee preferred an appeal before the CIT(A) and reiterated his earlier submissions made in the course of proceedings under s. 154 and also before the CIT(A) in the appeal against the order under s. 154. The learned CIT(A) accordingly dismissed assessee's appeal following his earlier order dt. 27th Dec., 1991, pertaining to appeal against order of AO passed under s. 154.
5. Rasesh Shah, the learned counsel for the assessee, submitted that deductions under ss. 80HHA, 80HHC and 80-1 are allowable on income from particular source and even applying s. 80AB, it does not appear to be legislative intent that the deduction is to be brought down to net income under a particular head of income. In support of his contention he placed reliance on the decision of Orissa High Court in the case of CIT vs. Tarun Udyog (1991) 99 CTR (Ori) 181 : (1991) 191 ITR 688 (Ori) and of Madras High Court in the case of CIT vs. K.S. Narayan (1986) 54 CTR (Mad) 235..(1986) 159 1TR 618 (Mad).
6. G.M. Brahmbhatt, the learned Departmental Representative strongly supported the orders of the authorities below.
7. We have considered the rival submissions and perused the facts on record. In our view, the word 'income' used in s. 80AB should be distinguished from the word 'taxable income' under business as computed as per provisions of s. 29. A plain reading of s. 80AB suggests that the various deductions mentioned in Part C of Chapter VI-A are allowable with reference to net income which is derived or received by the assessee and which is included in gross total income. If provisions of s. 80AB are not there, the assessee may claim deduction on gross profit instead of net profit. The deduction under s. 32AB is not an expenditure, but a specific deduction. In fact, deduction under s. 32AB is the deduction from total income itself as the section opens with the words "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". This also leads to the interpretation that the deduction under Chapter VI-A must be given before applying the provisions of s. 32AB. The case of the assessee stands squarely covered by the judgment of Orissa High Court in the case of CIT vs. Tarun Udyog (supra) and of Karnataka High Court in the case of CIT vs. HMT Ltd. (1992) 108 CTR (Kar) 215 : (1993) 199 1TR 235 (Kar) . There is also a direct decision of the Ahmedabad Bench of the Tribunal in the case of Asstt. CIT vs. Madhu Silk Textiles in appeal No. 1782/Ahd/1992 where it was held that the deductions under ss. 80HHA and 80-1 are allowable before allowing deduction under s. 32AB and the decision of the Cochin Bench of the Tribunal in the case of Hansons Malayalam vs. Dy. CIT (1995) 53 TTJ (Coch) 207 and case of Expo Machinery Ltd. vs. LAC (1989) 31 ITD 41 (Del). We accordingly direct the AO to allow deduction under ss. 80HHA and 80-1 before allowing deduction under s. 32AB. The appeal filed by the assessee is accordingly allowed.
8. Now we take up the Revenue's appeal, i.e., ITA No. 407/Ahd/1993. The only ground raised by the Revenue reads as under.
"On the facts and in the circumstances of the case and in law, the CIT(A), Surat, is not correct and justified in deciding that filing of unsigned audit report by the assessee was proper compliance of the requirements of ss. 32AB and 80HHC and allowing relief to the assessee on that finding when as per law, the filing of signed audited report is mandatory.
9. The assessee- company filed its return of income on 27th Dec., 1990, within the time prescribed under s. 139(1). In support of the claim of deduction under ss. 32AB and 801-IHQ the assessee furnished the second copy of typed auditor's report which was neither signed by the auditors nor dated. The original copy of audit report which was duly signed by the auditors and which was properly dated was kept with the assessee. In the meantime the AO processed the return of income and made certain prima facie adjustments vide intimation under s. 143(1)(a). This intimation was revised by passing an order under s. 154 on 8th Aug., 1991, by withdrawing deduction under s. 80HHC as according to the AO, the auditors' report filed under s. 8011HQ4) was unsigned and undated.
10. The assessee preferred an appeal before the CIT(A) against the above order under s. 154. However, without prejudice, the assessee also filed revised return of income on 27th Sept., 1991 attaching with it the auditors report as per ss. 32AB and 80HHC duly signed and dated. During the course of assessment proceedings, the assessee submitted that as the assessee had filed the return of income in time under s. 139(1) the return of income could be validly revised under s. 139(5). It was further submitted that as per new procedure of assessment the revised return of income could be filed even after receipt of intimation under s. 143(1)(a). In the meanwhile, the assessee's appeal before the CIT(A) against the order under s. 154 was also heard. The learned CIT(A) vide his order dt. 27th Dec., 1991, allowed the assessee's appeal by observing that the AO had not doubted the veracity of genuineness of copy of Chartered Accountant's report filed along with the return of income and that s. 801111CA does not lay down that only a signed copy of Chartered Accountant's report has to be enclosed with the return of income. However, the learned AO rejected the claim of deduction under ss. 80HHC and 32AB in the regular assessment framed under s. 143(3). According to the learned AO the assessee forfeited legal right to revise the return of income when assessment was completed under s. 143(1)(a) on 30th July, 1991 before filing the revised return of income. Relying upon the judgment of Hon'ble Punjab & Haryana High Court in the case of CIT vs. Jaydeep Industries (1989) 180 ITR 81 (PM) , the learned AO held that the report was required to be filed along with the return; otherwise deduction could not be allowed.
11. The assessee appealed to the CIT(A) who allowed the assessee's claim of deductions under ss. 80HHC and 32AB following his earlier order on s. 154 dt. 27th Dec., 1991.
12. The Revenue came up in appeal before the Tribunal against both the orders of the CIT(A) dt. 27th Dec., 1991 (against order under s. 154) and 27th Dec., 1992. In the appellate order (ITA No. 793/Ahd/92) relating to Revenue's appeal against the order of CIT(A), dt. 27th Dec., 1991, this Tribunal vide order dt. 17th April, 1997, held that on perusal of s. 80H11Q4), it is clear that it nowhere requires that audit report filed should be signed and accordingly it cannot be said that the requirement of sub-s. (4) was not complied when the assessee filed copy of said report along with the return of income. In the said order, the Tribunal also observed that if the report was defective in any way, being not signed, the AO would have got the defect removed as per provisions of sub-s. (9) of s. 139 but the AO could not disallow the claim made under the shelter of the said defect in the audit report.
13. Brahmbhatt, the learned Departmental Representative, strongly supported the order of the AO. He submitted that with the original return of income the assessee had appended the auditors report which was neither signed nor dated. According to him this was not at all a report in the eye of law, and accordingly the AO was justified in rejecting the claim of the assessee. He placed strong reliance on the judgment of Punjab & Haryana High Court in the case of CIT vs. Jaydeep Indusnies (supra).
14. Rasesh Shah, the learned counsel for the assessee strongly supported the two decisions of the CIT(A)-first the decision against order under s. 154 and second the decision now in appeal before us. He further submitted that deduction cannot be denied if the report in support of deduction is filed with the revised return of income. In support of his contention he relied upon the decision in Addl. CIT vs. Murlidhar Mathuraprasad 1978 CTR (AD) 410 : (1979) 118 1TR 392 (AD), 170 vs. K C.A. Ltd. (1987) 22 ITD 554 (Bom), Hinison Industries vs. ITO (1987) 23 ITD 365 and Sn~rang Tobacco Ltd. vs. Dy. CIT (1996) 55 M (Ahd) 619.
15. We. have considered the rival submissions and perused the facts on record. The contention of the AO that the revised return of income is invalid being filed after intimation under *s. 143(1)(a) is not correct because the revised return of income can be filed after processing of return of income under s. 143(1)(a) as per new procedure of assessment which is effective from 1st April, 1989. This is because, the intimation under s. 143(1)(a) cannot be regarded as assessment order. This fact is apparent from sub-s. (2) of s. 143 which opens with the words "where an assessee furnishes a revised return under sub-s. (5) of s. 139 after issue of an intimation". Moreover, as per ExpIn. To s. 143, intimation sent to the assessee under sub-s. (1) or sub-s. (113) shall be deemed to be an order for the purpose of s. 264. That means the intimation cannot be regarded as order of assessment except for the purpose of s. 264. Even if no cognizance is given to the revised return, there are so many decisions of High Courts and Tribunals to the effect that audit report can be filed in the course of assessment proceedings as the filing of audit report along with the return of income is not mandatory. In support, the following decisions of High Courts are quoted :
(1) CIT vs. Malayalam Plantations Ltd. 1976 CTR (Ker) 81 : (1976) 103 ITR 835 (Ker);
(2) Purshottamal l~Jshorilal vs. CIT 1978 CTR (Pat) 204 : (1978) 115 ITR 377 (Pat);
(3) CIT vs. Shii Balde* Maharaj Trust (1983) 36 CTR (All) 79: (1983) 142 ITR 584 (All);
(4) CIT vs. Western Rolling Mills (P) Ltd. (1985) 45 CTR (Bom) 169 : (1986) 156 ITR 54 (Bom);
(5) CIT vs. Hardeodas Agarwalla Trust (1992) 198 ITR 511 (Cal); and (6) CIT vs. Gujarat ITR 325 (Gul).
It is pertinent to note that in the case of CIT vs. Gujarat Oil & Allied Industzies (supra) the Hon'ble jurisdictional High Court has differed from the view taken by the Punjab & Haryana High Court in the case of Jaydeep IndusWes (supra) relied upon by the learned AO and the learned Departmental Representative.
16. In the light of above discussion we concur with the finding of the CIT(A) and decline to interfere. The appeal by the Revenue is accordingly dismissed.
17. In the result, the assessee's appeal is allowed and the appeal by the Revenue is dismissed.