Income Tax Appellate Tribunal - Ahmedabad
Zest Aromas Pvt. Ltd.,, Baroda vs Assessee on 2 January, 2012
-1-
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "B"
BEFORE SHRI D K TYAGI - JM
& SHRI A MOHAN ALANKAMONY - AM
ITA no.1247/Ahd/2011
(Assessment Year:-2006-07)
Zest Aromas Pvt. Ltd., V/s The Commissioner of
203, Akash Ganga, Near Income-tax-II, Aayakar
Vanijya Bhavan, Race Bhavan, Race Course
Course Circle, Vadodara- Circle, Baroda
390007
PAN: AAACZ 0601 M
[Appellant] [Respondent]
Assessee by :- Shri Tushar P Hemani, AR
Revenue by:- Shri Alok Johri, CIT - DR
Date of Hearing:- 02-01-2012
Date of Pronouncement:- 06-01-2012
ORDER
PER D K TYAGI (JM):- This is assessee's appeal against an order of learned Commissioner of Income-tax ['learned CIT'] passed u/s 263 of the Income-tax Act, 1961 [hereinafter referred to as the 'Act'].
2 The brief facts of the case are that the assessee filed return of income declaring total income of Rs.1,73,52,646/- after claiming deduction u/s 80IB of the Act. Assessment was finalized u/s 143(3) determining the total income at Rs.1,75,94,778/- after granting deduction of Rs.1,19,98,303/-. Subsequently, the learned CIT called for the record of the assessee and noticed that the assessment framed by the AO was 2 erroneous in so far as it was prejudicial to the interests of Revenue. The following show cause notice was issued as to why the order passed by the AO u/s 143(3) not be cancelled:-
"On perusal of the case records, it is noticed that the assessee was required to file the audit report in form No.10 CCB for claiming deduction u/s 80IB of the Act as per requirement of section 80IA)7) r.w.s. 80IB(13) and Rule 18BBB. However, the audit report has not been filed by the assessee either with the return or during the assessment stage. As the assessee company failed to file the audit report even during the assessment proceedings, it would not be entitled to claim deduction u/s 80IB. The irregular claim of deduction u/s 80IB has resulted in underassessment of Rs.1,19,98,303/- with short levy of tax of Rs.40,48,629/-."
3 During the course of proceedings u/s 263, the following written submissions were filed before the learned CIT:-
"(i) At the outset the revision of the order clearly lacks jurisdiction not only from the point of view of law but also from the point of view of facts available on records. So far as from the point of law is concerned, we submit that sub rule (3) of Rule 12 of the Income Tax Rules, 1962, as inserted by the Income-tax (Seventh Amendment) Rules, 2006 w.e.f. 24.07.2006 reads as under.
"[(3) The return of income or the return of fringe benefits to be furnished in Form No. 1 or Form No. 2 or Form No. 3 or Form No. 3B shall not be accompanied by a statement showing the computation of the tax payable on the basis of the return, or proof of the tax, if any, claimed to have been deducted at source of the advance tax or tax on self-assessment, if any, claimed to have been paid or any document or copy of any account or Form or report of audit required to be attached with the return of income or the return of fringe benefits under any of the provisions of the Income-tax Act, 1961.]".
The said amendment under the Income Tax Rules, 1962 clearly spells out, by using the words "shall not", not to file any report of audit with the return of income as required under various provisions of the Income Tax Act, 1961 including section 80IB of the Act. We further 3 submit that the said report was duly obtained by us before filing return of income, the copy of which is attached herewith as per Annexure -1. The only reason for not submitting the said report along with return of income was in view of the said amendments under the Income Tax Rules, 1962. Needless to mention here that from the said assessment year, the filing of income tax return through electronic mode was made compulsory in case of corporate assessee and in view thereof the requirements of furnishing computation of total income, proof of tax paid challans, report of audit etc. were done away.
(ii) Now coming to the facts available on records, we submit that the claim of deduction was well and truly verified by the Assessing officer ("Id. AO" in short) during the course of assessment proceedings. After proper verification he allowed the claim of deduction of your assessee after deducting scrap sales from the profit eligible for deduction u/s 80IB of the Act in case of Unit No. I & II. We further submit that the Id. AO has never asked for such report during the course of assessment proceedings. For your honour's reference, we are enclosing herewith copy of notices / letters issued by the Id. AO from time to time during the course of assessment proceedings as per Annexure - 2. The details which he has asked vide point no. 4 and 5 of his letter dated 12.11.08 relating to deduction claimed u/s 80IB of the Act is reproduced hereunder:
"4. You have shown insurance income of Rs.10,00,773/- and scrap sales of Rs.61,1121-and claimed deduction u/s 80IB at 30%. Please show cause why 30% thereon should not be disallowed as the same is found to be included in the profit eligible for deduction u/s 80IB of the Act.
5. Please furnish details of working of profit claimed as eligible for deduction u/s 80IB of the Act. Please state whether separate books of accounts for each unit has been maintained or not and basis on which you have distributed head office expenses on units."
The reply to above points were submitted vide our letter dated 19.11.2008. After proper verification and applying his mind, the Id. AO has allowed the claim of deduction of your assessee. We further submit that when we have already obtained such audit report well before filing of return of income, there was no point in not submitting the same during the course of assessment proceedings, if the same has 4 been asked by the Id. AO. We further submit that since the Id. AO has allowed the claim of deduction after applying his mind and forming his view, why assesses should be penalized.
We further submit that the requirement for filing audit report as envisaged under section 80IA (7) r.w.s. 80IB (13) of the Act is with the return of income. There is no requirement under the provisions of the Act to file such report during the course of assessment proceedings. Since the said requirement of filing of audit report along with return of income is done away vide amendment in sub rule (3) of Rule 12 of the Income Tax Rules, 1962, as stated above, there is no incumbent upon the assesses to file such audit report.
(iii) We further submit that the power ofsuo moto revision under sub-s. (1) 263 is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision under this sub-section, viz., (i) the order is erroneous; (ii) by virtue of the order being erroneous prejudice has been caused to the interest of revenue. Here one may say that there was procedural lapse on the part of Id. AO but such procedural lapse, by itself, does not make the order erroneous when he has fully & properly applied his mind before allowing the claim of deduction. It has, therefore, to be considered firstly as to when an order can be said to be erroneous. Here the order itself is not erroneous then how can it be prejudicial to the interest of revenue? It is because the ITO has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion as held by the Hon'ble Bombay High Court in case of CIT v. Gabrial India Ltd. 203 ITR 108 (Bom).
(iv) Further, the Hon'ble Apex Court in case of CIT v. Max India Ltd. 295 ITR 282 (SC) held that every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interest of revenue. For example, when the ITO adopted one of the courses permissible in law and it has resulted in loss of revenue, it cannot be treated as an erroneous order prejudicial to the interest of revenue, unless the view take, by the ITO is unsustainable in law. We further rely upon the decision given by Hon 'ble ITAT, Ahmedabad (the Jurisdictional Authority) in case of Kothari Oil Products Vs. Income Tax Officer (1985) 23 TTJ 546 wherein the Hon'ble ITAT has 5 stated that assessment when made under section 143(3) r.w.s. 144B, same cannot be revised by the Commissioner u/s 263 of the Act where all necessary details directed by Commissioner to be verified were considered by the ITO.
WITHOUT PREJUDICE TO ABOVE WE SUBMIT AS UNDER:
(v) Even if the audit report is not filed along with the return of income but it is made available to the Assessing Officer before completion of assessment, the benefit under section 80-IA or 80-IB cannot be denied - CIT v. Trehan Enterprises [2000] 108 Taxman 189 (J&K), CIT v. Panama Chemical Works [2000] 245ITR 684 (MP), Amber Sales Mfg. Corpn. v. ITO [1984] 19 TTJ (Chd.) 177, Mahalaxmi Rice Factory v. ITO [1983] 5 ITD 238 (Chd.), Gujarat Oil & Allied Industries v. ITO [1982] 2 ITD 454 (Ahd.). Applying the same analogy, since we are submitting herewith the report of an audit in the prescribed form vide Annexure - I before your honour, we are, in any way, complying with the requirements of filing of report during revisionary proceedings. We, therefore, request your honour to kindly consider the same and not to disallow our claim of deduction u/s 80IB of the Act.
In view of the above submissions, we request your honour not to set aside the/ assessment order passed by the Id. AO in this regard for which we shall remain ever grateful to your honour. If your honour intends to take any contrary view in the matter then we request your Honour to justify your action to set aside the order of Id. AO after r providing us the reasonable opportunity of being heard."
4 After taking into consideration the submissions of the assessee, the learned CIT cancelled the order passed by the AO by observing as under:-
"5. The thrust of the assessee's contention is that the audit report was subsequently obtained, but was not filed since it was not asked for by the assessing officer. This argument of the assessee is not acceptable. Even if the A.O. did not call for such report during the assessment proceedings, the assessee was duty bound to file such report not only alongwith the return of income but at least during the course of assessment proceedings. However, the assessee failed to do 6 so. The intention behind the provision for furnishing of the audit report alongwith the return is that this would provide a check and verification of the correctness of the claim. Non-furnishing of the report was thus contrary to the legislative intention as well as clear provisions of law. Accordingly, it is held that the assessment order u/s 143(3) dated 22.12.2008 passed by the ACIT, Circle 4, Baroda was erroneous and prejudicial to the interest of the revenue. The said order is cancelled and the A.O is directed to make a fresh assessment along the lines indicated above."
5 Aggrieved by this order of the learned CIT, now the assessee is in appeal before us. At the time of hearing, the learned counsel of the assessee reiterated the submissions made before the learned CIT and further submitted that the assessment year 2006-07 was the first assessment year for the corporate assessee to file return of income in electronic mode and the corporate assessees were not required to annex any document like audit report, balance-sheet, P&L Account, challans, TDS Certificate, etc., along with the return of income as per Sub-rule (3) of Rule 2 of Income Tax Rules which was inserted by the Income-tax (Seventh Amendment) Rules, 2006 w.e.f. 24-07-2006. He further submitted that paras 5 and 6 of CBDT Circular No.9 of 2006, dated 10-10-2006 provided that the corporate assessee was not required to attach audit report along with the return of income filed in electronic mode. Sections 139 C and 139 D were inserted by the Finance Act, 2007, with retrospective effect from 01-06-2006 which provided that the CBDT has a power to declare that audit report is not required to be filed along with the return of income filed electronically, however, the same was required to be filed before the AO on his demand. He further pointed out that during the course of assessment proceedings, the AO never asked 7 the assessee to furnish the audit report and, therefore, the same was not furnished though the assessee was in possession of the audit report and the same was filed before the learned CIT in reply to his show cause notice vide Annexure-1. The learned counsel of the assessee also submitted that during the assessment proceedings, the AO carried out detailed inquiries in respect of claim made u/s 80IB of the Act by issuing a show cause notice dated 12-11-2008 and after due verification of claim, passed the assessment order after reducing the scrap sales from the eligible profits for deduction u/s 80IB of the Act, which shows that the AO applied his mind while passing the assessment order partly allowing the claim made by the assessee u/s 80IB of the Act. Placing reliance on the decisions of the Hon'ble Delhi High Court in the cases of (i) CIT vs. Sunbeam Auto Ltd. [332 ITR 167; (ii) CIT vs. Vikas Polymers [194 Taxmann 436; and (iii) CIT vs. Anil Kumar Sharma [335 ITR 83], the learned counsel of the assessee submitted that if there was any inquiry, even inadequate, that would not by itself, give occasion to the CIT to pass order u/s 263 of the Act merely because he has different opinion in the matter. It was only in cases of lack of inquiry that such course of action would be open. Placing reliance on the decision of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT [243 ITR 83], the learned counsel of the assessee submitted that the learned CIT has to be satisfied with the twin conditions that the order of the AO sought to be revised, was erroneous in so far as it was prejudicial to the interests of Revenue. If one of them is absent, the order of the 8 AO cannot be subject matter of revision by the learned CIT u/s 263 of the Act.
6 Coming to not filing of audit report in support of its claim u/s 80IB of the Act, the learned counsel of the assessee relied on the decision of the Hon'ble Gujarat High Court in the case of Zenith Processors [219 ITR 721], wherein the audit report filed during the course of 263 proceedings was held to be valid and in the case of Mayur Foundations [274 ITR 562] it was held that even the proceedings before the ITAT were continuation of assessment proceedings and, therefore, even if the audit report was filed at a later stage, would not disentitle the assessee from claiming the benefit of deduction. Reliance was also placed on the decision of the ITAT Ahmedabad Bench-D in the case of Hanuman Filaments Pvt. Ltd. vs. DCIT [ITA No.188/Ahd/2010, order dated 31-20-2011], wherein it was held that mere non- filing of audit report along with the return of income will not deprive the right of the assessee to claim deduction eligible under the scheme of the Act. The learned counsel of the assessee also relied on the decision of the Hon'ble Allahabad High Court in the case of Amit Vegetables Ltd. vs. CIT [158 Taxman 36] and the decision of Hon'ble Uttrakhand High Court in the case of CIT vs. Clough Engineering Ltd. [300 ITR 435], wherein it was held that assessment order cannot be treated as erroneous on the ground that the assessee had not filed audit report along with the return of income. Concluding his arguments, the learned counsel of the assessee submitted that the order passed by the learned CIT u/s 263 of the Act be quashed.
97 The learned DR, on the other hand, relied on the order of the learned CIT and submitted that since the claim of the assessee u/s 80IB of the Act was allowed by the AO in the absence of audit report which was required u/s 80IA(7) read with section 80IB(13), the learned CIT was justified in invoking the provisions of section 263 in this case. He, therefore, prayed that the order passed by the learned CIT may kindly be upheld.
8 Heard both the parties and perused the record and we find that there is no dispute about the fact that the assessee filed its return of income in electronic mode without enclosing the audit report as per Sub-rule (3) of Rule 12 of the Income Tax Rules which was inserted by the Income-tax (Seventh Amendment) Rules, 2006, with effect from 24-07-2006 and reads as under:-
"(3) The return of income or the return of fringe benefits to be furnished in Form No.1 or Form No.2 of Form No.3B shall not be accompanied by a statement showing the computation of tax payable on the basis of the return, or proof of the tax, if any, claimed to have been paid or any document or copy of any account or Form or report of audit required to be attached with the return of income or the return of fringe benefits under any of the provisions of the Income-tax Act, 1961."
9 It is clear from the above that with the return of income filed electronically, the audit report was not required to be filed.
Section 139D reads as under:-
139D. The Board may make rules providing for -
(a) the class or classes of persons who shall be required to fu rnish the return in electronic form;
10(b) the form and the manner in which the return in electronic form may be furnished;
(c) the documents, statements, receipts, certificates or audited reports which may not be furnished along with the return in electronic form but shall be produced before the Assessing Officer on demand;
(d) the computer resource or the electronic record to which the return in electronic form may be transmitted.] 10 It is clear from the above that the audit report was to be filed by the assessee in case it is demanded by the AO during the assessment proceedings. In this case, there is no evidence to show that the AO demanded the audit report before deciding the issue of allowability of deduction u/s 80IB of the Act. As per the requirements of section 80IA(7) read with section 80IB(13) and Rule 18BBB, no deduction u/s 80IB will be admissible unless the audit report of the Undertaking for the previous year relevant to the assessment year for which the deduction is claimed, have been audited by an Accountant and the report of such audit in prescribed form duly signed and verified by such Accountant is furnished. Since in this case, deduction u/s 80IB has been allowed by the AO admittedly without such report, we have no hesitation in holding that the learned CIT was justified in holding the order of the AO as erroneous in so far as it was prejudicial to the interests of Revenue. Therefore, invocation of provisions of section 263 of the Act by the learned CIT, canceling the assessment order and directing the AO to make a fresh assessment is hereby upheld.
1111 Before we depart, it is made clear that since the audit report has been filed by the assessee before the learned CIT during 263 proceedings and has also been filed before us, we are of the view that the AO while framing the fresh assessment, will examine the admissibility of the claim of deduction u/s 80IB taking into consideration the audit report filed before the learned CIT. This view of ours get support from the decision of the Hon'ble Gujarat High Court in the case of Zenith Processors (219 ITR 721), wherein the audit report filed during the course of 263 proceedings was held to be valid.
12 In the result, the appeal filed by the assessee is partly allowed.
Order pronounced in the court today on 06-01-2012 Sd/- Sd/-
(A MOHAN ALANKAMONY) (D K TYAGI)
ACCOUNTANT MEMBER JUDICI AL MEMBER
Date : 06-01-2012
Copy of the order forwarded to:
1. Zest Aromas Pvt. Ltd., 203, Akash Ganga, Near Vanijya Bhavan, Race Course Circle, Vadodara-390007
2. The Commissioner of Income-tax-II, Aayakar Bhavan, Race Course Circle, Baroda
3. CIT concerned
4. CIT(A) 12
5. DR, ITAT, Ahmedabad Bench-B, Ahmedabad
6. Guard File BY ORDER Deputy Registrar Assistant Registrar ITAT, AHMEDABAD