×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
These are the latest case laws decided by various Income Tax Appellate Tribunals (ITAT) of India on Income Tax which have been published recently. The case laws are open for discussion and we invite expert comments from our members on its applicability and effect on relevant issues.
12-06-2019, DIC Fine Chemicals, Section 10A(5), 139(1), Tribunal Kolkata
This appeal of the assessee arises out of the order of the Learned Commissioner of Income Tax (Appeals) -4, Kolkata for the AY2014-15 dated11.10.2018
2. The main grievance of the assessee is against the action of Ld. CIT(A)upholding the AO’s order of denying the benefit of deduction claimed u/s 10AA of the Act. Briefly stated facts of the case are that the appellant is a private limited company, engaged in the business of manufacture of specialty inks and allied products. The only manufacturing unit of the appellant is located at Dahej SEZ in Gujarat. Being located in notified SEZ, profits of the manufacturing unitis legally eligible for deduction u/s 10AA of the Act. For the AY 2014- 15 the appellant filed its return of income declaring a loss of Rs.7,96,40,878/- and therefore in the computation of income and the return of income, deduction u/s 10AA was reported to be NIL. Such loss was arrived at after Rs.24,50,70,020/-was charged to the P&L Account as revenue expenditure, on account of exchange fluctuation loss. In the course of assessment the appellant was called upon to furnish details of the exchange loss/gain. Vide letter dated 20.12.2017 the appellant however brought to the notice of the AO that exchange fluctuation loss to the extent of Rs.24,50,70,020/- pertained to FCCBs utilized for acquisition of capital assets which may not be allowable as expenditure in arriving at current year’s business income. The appellant accordingly furnished a revised computation of income disallowing the loss of Rs.24,50,70,020/- and claimed consequential depreciation on the enhanced cost of the capital assets. As a result, the original returned loss of Rs.7,96,40,878/- got revised to a positive business income of Rs.12,55,84,483/- against which deduction u/s 10AA of Rs.12,32,93,654/- was claimed by the appellant. Along with the revised computation of income, a report of the Chartered Accountant in Form 56F was furnished before the AO. Although the AO disallowed the exchange fluctuation loss of Rs.24,50,70,020/- while assessing the appellant’s business income but relying on the decision of the Hon’ble Supreme Court in the case of CIT vs Goetze India Ltd (284 ITR 323) the AO denied the benefit of corresponding deduction claimed u/s 10AA observing that such claim was not made in the return of income or in the revised return Th AO also denied the benefit of the capitalization of exchange fluctuation loss and consequent higher claim of depreciation on the same ground. Aggrieved the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT(A) noted that although the decision of the Hon’ble Supreme Court in the case of CIT vs Goetze India Ltd (284 ITR 323) prevented the AO from entertaining fresh claim in the assessment proceedings without revised return but relying on the decision of the Hon’ble Bombay High Court in the case of CIT Vs Pruthvi Brokers & Shareholders Pvt Ltd (252 CTR 151) the Ld. CIT(A) held that fresh claim can be raised before the appellate authority. The Ld. CIT(A) although entertained the appellant’s claim for adjudication but denied the same on two limbs viz., (a) the appellant did not file the audit report in Form 56F along with the return of income and therefore in terms of Section 10A(5) read with Section10AA(8), the claim was not tenable, and (b) the claim for deduction was not made in the return of income filed u/s 139(1) and therefore in terms of Section 80A(5), the claim was inadmissible. The Ld. CIT(A) further observed that the forex loss of Rs.24,50,70,020/- was not eligible for deduction u/s 10AA as it did not represent ‘profits & gains derived from export of article or thing’ and therefore even on merits the claim of deduction u/s 10AA was not tenable. Aggrieved by this order of the Ld. CIT(A), the assessee is now in appeal before us.
3. We have heard the rival submissions and perused the order of lower authorities. We find that facts of the case are undisputed and they are in narrow compass. In the first instance the lower authorities disallowed the appellant’s claim on the ground that accountant’s report in Form 56F was not filed along with the return of income and therefore the statutory requirements of Section 10A(5) read with Section 10AA(8) were not complied with. After considering the relevant provisions of Section 10A(5), we find that these are on the same lines as in the case of various other sections of the Act such as S. 80IA,80IB etc.which grant profit based deductions to the assessees. The Legislature has provided for grant of profit-based deductions subject to the condition that the assessees shall furnish audit reports in the forms prescribed in the IT Rules along with the returns of income. In that context the question arose as to whether the requirement of filing of the audit report along with the return of income was mandatory or directory being procedural requirement. In several decisions on which the reliance was placed by the Ld. AR before the lower authorities as also before us, it has been judicially held that filing of the audit report in support of the deduction claimed is mandatory but so however the same being procedural in nature it is sufficient for an assessee to file such audit report at any time till completion of assessment or even at the stage of appeal. There is a unanimity of view amongst various judicial authorities that even though filing of the audit report in support of the deduction is mandatory but filing such report along with the return of income is merely directory and therefore if an assessee files such report before the AO in the course of assessment then it is sufficient compliance with the requirement of law for claiming the profit linked deduction. In this regard we draw strength from the observations of the jurisdictional Hon’ble Calcutta High Court in the case of CIT Vs Berger Paints Ltd (254 ITR 503) wherein it was held as follows:
“In the instant case, the auditing of the assessee’s claim and accounts was not in dispute, but the assessee did not file on the same date along with his return of income of the report of such audit in the prescribed form as required above. Rule 5AB of the Income-tax Rules, 1962 prescribes that the auditor must support the assessee’s claim in Form No. 3AA as given in the said rules. The case of the revenue was that since this Form from the auditor was tendered by the assessee at a date much later than the filing of the return, the assessee lost its right of claiming the benefit.
The words ‘shall not be admissible’ occurring in sub-section (5) of section 32AB are directory and not mandatory in nature. No doubt, if the auditor’s report is not available at all, a claim for deduction cannot be made by the assessee but for achievement of this, it is not necessary to interpret the above phrase as mandatory with regard to the part of the existence of the auditor’s report and only directory with regard to the part containing the time of furnishing of the report. The existence of the auditor’s report is mandatory under sub-section (1)(ii) of section 32AB. Thus, the interpretation of the said phrase occurring in sub-section (5) as directory does not do away with the compulsory requirement of