1995 Supreme(Cal) 336

High Court Of Calcutta
Tarun Chatterjee
MURALI EXPORT HOUSE - Appellant
Versus
COMMISSIONER OF INCOME TAX - Respondent
Matter 1320  Of  1994
Decided On : 08/30/1995

The requirement of filing the special audit certificate along with the return of income under section 80HHC(4) is mandatory for claiming the deduction, but it is not a mandatory provision in the sense that it requires only substantial compliance. The assessing officer has the power to rectify defects in the return under sections 139(5) and (9) of the Act, including the power to direct the assessee to file the special audit certificate if it was not filed with the return. The stage of furnishing proof in support of a claim for deduction is reached when the proof is demanded by the assessing officer at a notice under section 143(2) of the Act.

Headnote:

INCOME TAX - DEDUCTION UNDER SECTION 80HHC OF THE INCOME TAX ACT, 1961 - SPECIAL AUDIT CERTIFICATE - REQUIREMENT OF FILING ALONG WITH THE RETURN OF INCOME - MANDATORY OR DIRECTORY - INTERPRETATION OF SECTION 80HHC(4) - POWER OF THE ASSESSING OFFICER TO RECTIFY DEFECTS IN THE RETURN - SCOPE OF SECTION 139(5) AND (9) OF THE ACT - STAGE OF FURNISHING PROOF IN SUPPORT OF CLAIM FOR DEDUCTION.

Fact of the Case:

The assessee, a registered firm, filed its return of income for the assessment year 1991-92 claiming 100% deduction under section 80HHC of the Income Tax Act, 1961 (the Act) for profits earned from export business. The return was accompanied by an audited profit and loss account, auditor's report, and a separate computation statement showing the claim for deduction under section 80HHC. However, the special audit certificate in Form 10CCAC, as required under section 80HHC(4), was not enclosed with the return due to an inadvertent mistake. The assessing officer disallowed the deduction on the ground that the special audit certificates were not filed with the return of income. The assessee's application for rectification was rejected by the assessing officer and the Commissioner of Income Tax (CIT).

Finding of the Court:

The court held that the requirement of filing the special audit certificate along with the return of income under section 80HHC(4) is mandatory for claiming the deduction, but it is not a mandatory provision in the sense that it requires only substantial compliance. The court interpreted that the assessee must be able to show to the income tax authority that the relevant accounts in respect of which deductions have been claimed under section 80HHC are certified by an accountant as defined in the Act before the assessment order is passed. The court further held that the assessing officer has the power to rectify defects in the return under sections 139(5) and (9) of the Act, including the power to direct the assessee to file the special audit certificate if it was not filed with the return. The court clarified that the stage of furnishing proof in support of a claim for deduction is reached when the proof is demanded by the assessing officer at a notice under section 143(2) of the Act.

Issues: 1. Whether the requirement of filing the special audit certificate along with the return of income under section 80HHC(4) is mandatory or directory? 2. Whether the assessing officer has the power to rectify defects in the return, including the power to direct the assessee to file the special audit certificate if it was not filed with the return? 3. At what stage should the special audit certificate be filed?

Ratio Decidendi: 1. The court interpreted section 80HHC(4) and held that the requirement of filing the special audit certificate along with the return of income is mandatory for claiming the deduction, but it is not a mandatory provision in the sense that it requires only substantial compliance. The court reasoned that the assessee must be able to show to the income tax authority that the relevant accounts in respect of which deductions have been claimed under section 80HHC are certified by an accountant as defined in the Act before the assessment order is passed. 2. The court held that the assessing officer has the power to rectify defects in the return under sections 139(5) and (9) of the Act, including the power to direct the assessee to file the special audit certificate if it was not filed with the return. The court interpreted that the defects mentioned in the explanations to section 139(9) of the Act are illustrated and not exhaustive, and the assessing officer retains the power to rectify defects in the exercise of his power under section 139(9). 3. The court clarified that the stage of furnishing proof in support of a claim for deduction is reached when the proof is demanded by the assessing officer at a notice under section 143(2) of the Act. The court held that the assessing officer cannot unilaterally make a disallowance by seeking to invoke the provisions of the first proviso to section 143(1)(a) of the Act without first issuing a notice under section 143(2).

Final Decision: The court allowed the writ petition, set aside the orders passed by the authorities below, and directed the assessing officer to give deduction of income under section 80HHC of the Act to the assessee if the special audit certificate has already been filed or if it is filed within two months from the date of communication of the order.