THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE SAMUDRALA GOVINDARAJULU REFERRED CASE No.85 OF 1996 ORDER: (Per Hon’ble Sri Justice V.V.S.Rao) The Commissioner of Income-tax, Vijayawada got the present tax reference made by the Income Tax Appellate Tribunal, Hyderabad Bench-B. The question referred to this Court reads. Whether on the facts and circumstances of the case the Tribunal is correct in law in allowing the assessee’s claim under Section 80HHC of the I.T. Act, 1961, on the basis of the Auditor’s certiﬁcate in form 10CCA which was not ﬁled along with the return of income but ﬁled before the completion of the assessment? After perusing sub-sections (1) and (4) of Section 80HHC of the Income Tax Act, 1961 (the Act) and Rule 18BBA(3) and Form 10CCAC of the Income Tax Rules to which attention has been drawn, we reframe the question referred to as under. Whether on the facts and circumstances of the case the Tribunal is correct in law in allowing the assessee’s claim under Section 80HHC of the I.T. Act, 1961, on the basis of the Auditor’s certiﬁcate in form 10CCAC which was not ﬁled along with the return of income but ﬁled before the completion of the assessment? Background facts The short fact of the matter is as follows. The respondent (assessee) is carrying on tobacco business. For the assessment year 1991-92, they ﬁled return of income on 01.12.1991. Therein they claimed deduction of Rs.40,77,098/- under Section 80HHC. While assessing the return under Section 143(3), the Deputy Commissioner, Income Tax, Guntur in order dated 17.03.1994 rejected the claim on the ground that the assessee did not furnish certiﬁcate from the Chartered Accountant in the prescribed Form 10CCAC as per said provision along with return. Being aggrieved, the assessee went in appeal before the Commissioner of Income Tax (Appeals), Hyderabad. It was contended that the certiﬁcate of accountant was ﬁled on 27.08.1992 after service of intimation to the assessee before the completion of assessment and therefore, there was due compliance with the condition to claim deduction. The CIT (A) on textual interpretation of the relevant provision came to the following conclusion. In the absence of any judicial pronouncement on the issue and particularly keeping in view the unequivocal and categorical language of sub-section (4) of Section 80HHC, the claim of the appellant cannot be allowed by drawing upon analogies from judicial decisions delivered in the context of Charitable Trusts. If any relaxation on the rigours of sub-section (4) of Section 80HHC were intended by the Legislature, some other provision would have been incorporated in the Act and more precisely in Section 80HHC itself to that effect. I cannot also subscribe to the view that sub- section (4) of Section 80HHC is a mere procedural section and that it should not be construed as mandatory. … However, a look at sub-section (4) of Section 80HHC drives home the point that no such rectiﬁcation has been provided for in the said sub-section. For all the reasons stated above, I am of the view that if the assessees are allowed to rectify at will and at any stage of the proceedings a statutory lacuna or shortcoming through rectiﬁcatory measures not conceived by the statute itself, the very purpose of the statute would be defeated. Hence, I decline to interfere and sustain the disallowance of the deduction amounting to Rs.40,70,098/- claimed under Section 80HHC of the Act. In the appeal before the learned Tribunal, the assessee relied on CIT v Gujarat Oil and Allied Industries [1] , CIT v A.N.Arunachalam [2] and CIT v Shivanand Electronics[3] and submitted that ﬁling of the certiﬁcate of accountant for claiming deduction under Section 80HHC(1) along with return is not mandatory and is only directory and procedural. Having regard to the opinion of Bombay, Gujarat and Madras High Courts, the learned Tribunal held in favour of the assessee observing that the assessing oﬃcer must allow the claim after taking into consideration the certiﬁcate ﬁled by the assessee before the assessment is made. Aggrieved thereby, the Commissioner of Income Tax sought reference under Section 256(1) of the Act. Submissions of the counsel The Junior Standing Counsel for Revenue, M/s.Kiranmayee would submit that sub-section (4) of Section 80HHC is mandatory; the Certiﬁcate of Chartered Accountant must be ﬁled along with return of income to claim deduction under Section 80HHC(1) and that the Tribunal was in error in not considering the question having regard to the plain language of the provisions. The counsel for assessee Ms.Anjali Agarwal refutes the contentions and submits that the Chapter VI-A contains special provisions dealing with special deductions, and therefore, while construing the provisions therein, they should be interpreted in such a manner that full scope and eﬀect is given to the concessions provided by the legislature. If an assessee is eligible for deduction under Section 80HHC(1), mere non- production of certiﬁcate of accountant along with the return would not bar the claim; the provision is procedural and not mandatory and therefore, the assessee can ﬁle the certiﬁcate of accountant at any time prior to assessment. She placed reliance on Gujarat Oil, Arunachalam, Shivanand Electronics, CIT v Punjab Financial Corporation[4] , CIT v Berger Paints (India) Limited (No.2)[5], CIT v Shiva Rice and Dal Mills[6] and CIT v Web Commerce (India) P. Ltd [7] . She also placed reliance on a decision of this Court in CIT v Hemsons Industries [8]. Relevant Provisions of the Act Chapter IV-A of the Act deals with deductions which shall be allowed from the gross income of the assessee. These deductions speciﬁed in Sections 80C to 80U are grouped under four parts. Part C contains provisions for special deduction of proﬁts and gains from speciﬁed/newly established undertakings as well as proﬁts earned from speciﬁed projects and businesses. Such deduction, however, is subject to fulﬁlling the eligibility criteria or conditionalities stipulated in the main provision/ Section and ﬁling the certiﬁcate/audit report of chartered accountant. Section 80HHC allows deduction of the proﬁts subject to provisions thereof derived from industrial undertakings or business of the hotel, established in backward area. The beneﬁt under Section 80HHC(1) is however subject to furnishing of duly signed audit report of Chartered Accountant as defined in Explanation “below sub-section (2) of Section 288” by the assessee along with his return of income. Under Section 80HHC(1), 20% of the proﬁts and gains derived from a small scale industrial undertakings can be allowed to be deducted from the taxable income. This also requires furnishing of the audit report by the chartered accountant along with the return of income. Section 80HHB(1) permits an assessee being an Indian Company to claim deduction of proﬁts and gains in computation of total income at the rates speciﬁed therein, if such proﬁts are derived from execution of foreign projects. This is again subject to production of audited accounts along with return of income. Section 80HHBA(1) read with sub-section 2(i) thereof also require a copy of the audited accounts to be ﬁled along with the return of income to claim deduction from proﬁts and gains derived from execution of housing projects funded by World Bank. That takes us to the special deduction under Section 80HHC(1) and sub- section (4) which we quote hereunder. 80HHC(1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction to the extent of proﬁts, referred to in sub-section (1B) derived by the assessee from the export of such goods or merchandise: Provided that if the assessee, being a holder of an Export House Certiﬁcate or a Trading House Certiﬁcate (hereafter in this section referred to as an Export House or a Trading House, as the case may be) issues a certiﬁcate referred to in clause (b) of sub-section (4A), that in respect of the amount of the export turnover speciﬁed therein, the deduction under this sub-section is to be allowed to a supporting manufacturer, then the amount of deduction in the case of the assessee shall be reduced by such amount which bears to the total proﬁts derived by the assessee from the export of trading goods, the same proportion as the amount of export turnover speciﬁed in the said certiﬁcate bears to the total export turnover of the assessee in respect of such trading goods. (2) and (3) omitted as not relevant for this case. (4) The deduction under sub-section (1) shall not be admissible unless the assessee furnishes in the prescribed form, along with the return of income, the report of an accountant, as deﬁned in the Explanation below sub-section (2) of Section 288, certifying that the deduction has been correctly claimed in accordance with the provisions of this Section. Provided that in the case of an undertaking referred to in sub-section (4C), the assessee shall also furnish along with the return of income, a certiﬁcate from the undertaking in the special economic zone containing such particulars as may be prescribed, duly certiﬁed by the auditor auditing the accounts of the undertaking in the special economic zone under the provisions of this Act or under any other law for the time being in force. (emphasis supplied) A plain reading of sub-section (4) of Section 80HHC would show that unless the assessee furnishes the report of Chartered Accountant along with return of income, the deduction cannot be claimed. The question often arose whether it is mandatory for an assessee to ﬁle the report of Chartered Accountant along with return or is it suﬃcient to comply with the said condition before the completion of assessment of the income by the assessing oﬃcer. The question has considerable signiﬁcance for the reason that the special deduction under various circumstances as contemplated under Sections 80HHC, 80HHB, 80HHBA and 80HHD is made conditional and can be availed only when the report/certiﬁcate of the Chartered Accountant accompanies the return of the income. The Revenue would contend that giving plain meaning to the text of the provision, the assessee, who fails to comply with the condition of furnishing the certiﬁcate or report of the Chartered Accountant, same along with return of income, would not be entitled for the special deduction provided under the relevant provisions. The plain meaning would no doubt supports such a view. But, the preponderance of judicial opinion as noticed herein below would not support the view of the Revenue. The High Courts of Andhra Pradesh, Bombay, Calcutta, Delhi, Gujarat, Madras and Punjab & Haryana interpreting the provision which is similar to Section 80HHC(4) have held that furnishing of the report/certiﬁcate of the Chartered Accountant is mandatory to claim the special deduction provided by the Act, but the procedure of furnishing along with the return of income is directory and therefore, the assessee can produce certiﬁcate or report of the Chartered Accountant at any time before completion of the assessment. Precedents Gujarat Oil is a decision dealing with Section 80J(6A)[9] which provided for special deduction in respect of proﬁts and gains from newly established industrial undertakings or ships or hotel business in certain cases. The appellate Tribunal referred the question to the opinion of the High Court of Gujarat. The question was as to whether the Tribunal was right in law in coming to the conclusion that Section 80J(6A) merely requires that the audit report should be furnished so that it would be available at the time of assessment. Section 80J provided special deduction of 6% of capital employed from the total income of the assessee reduced by aggregate of the deductions if any admissible to the assessee under Section 80H and 80I. Sub-section (6A) thereof reads as under. (6A) Where the assessee is a person other than a company or a cooperative society, the deduction under sub-section (1) from proﬁts and gains derived from an industrial undertaking shall not be admissible unless the accounts of the industrial undertaking 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-section (2) of Section 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”. (emphasis supplied) The provision provided incentives to new establishment and the beneﬁt was made subject to production of audited accounts. The Revenue contended that the accounts should have got audited by the assessee prior to ﬁling of the return so as to claim the beneﬁt of Section 80J of the Act, and that the words ‘shall’ and ‘along with’ appearing in sub-section would have to be construed strictly as conveying a meaning to render the provision mandatory. The Division Bench of Gujarat High Court did not accept the plea, and held as under. In our view, the ﬁrst part of Section 80J is mandatory in nature but the second part thereof which is procedural in nature and requires the assessee to submit a report of the audit along with the returns merely directory in nature and it calls for only substantial compliance. The reasons are obvious. It is possible that at the time when the returns of income are ﬁled, by some mischance or negligence of the clerk or for any other reason, even though the audited report is available, it might not have been annexed to the return and on such mistake being found out, the report may be tendered on the next day or even a few days thereafter to the Income Tax Oﬃcer. If any literal compliance with the words “assessee furnishes report along with his return of income” is insisted upon, then, in such an unforeseen contingency, the assessee would be denied benefit of section 80J of the Act. Thus the provision which requires is furnishing of the audit report for claiming the beneﬁt of deduction was held to be mandatory in nature but the second part of the provision extracted herein above was held to be merely directory and calling for substantial compliance. If an assessee furnishes the audit report before the completion of assessment, it would be suﬃcient compliance with the provision. The decision of the Gujarat High Court referred to hereinabove was followed by Madras High Court in Arunachalam and Bombay High Court in Shivanand Electronics. Further, the Calcutta High Court followed Gujarat Oil. It was a case concerned with Section 32AB(5) and Section 80HHC(4), which also require furnishing of audit report for claiming the beneﬁt under the respective provisions. The Full Bench of Punjab & Haryana High Court in Punjab Financial Corporation while dealing with Section 32AB(5) followed Gujarat Oil and held it is not mandatory and assessing oﬃcer has a discretion to entertain audit report even though the same was not ﬁled along with return and give beneﬁt of the deduction to the assessee in terms of Section 32AB(1). A Division Bench of Punjab & Haryana High Court in Shiva Rice and Dal Mills construed Section 80HHA(4) in favour of assessee following Gujarat Oil and Punjab Financial Corporation. In Web Commerce, Delhi High Court while interpreting Section 80IA(7) also held that, the necessary audit report can be furnished before the assessment is completed. I n Hemsons Industries, a Division Bench of this Court was dealing with tax reference under Section 256(1) of the Act, involving inter alia the following question. Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justiﬁed in law in holding that the assessee’s activity of decortication of groundnuts was an industrial undertaking engaged in the manufacture or production activity and therefore entitled to beneﬁt under Section 80HH? Inter alia the question whether the beneﬁt under Section 80HHC could be denied to the assessee solely on the ground that the assessee did not ﬁle the audit report with the return, as per Section 80HH(5), also fell for consideration. The Division Bench held that the mere fact that the assessee failed to enclose the audit report along with return itself would not disentitle him to claim the beneﬁt that if the assessee ﬁles audit report before the assessment order is passed, he will be entitled to deduction. Thus, the jurisdictional High Court has already spoke on the issue. As many as six High Courts in India have taken the view following the decision in Gujarat Oil. While respectively agreeing with the reasoning of Gujarat Oil, we accordingly answer the Reference in the aﬃrmative in favour of the assessee and against the Revenue. The Reference stands disposed of accordingly without any order as to costs. _______________ (V.V.S.RAO, J) _____________________________________ (SAMUDRALA GOVINDARAJULU, J) 22.11.2011 PLN [1] (1993) 201 IT R 325 (Guj) [2] (1994) 208 IT R 481 (Mad) [3] (1994) 209 IT R 63 (Bom) [4] (2002) 254 IT R 6 (P&H) (FB) [5] (2002) 254 IT R 503 (Cal) [6] (2005) 273 IT R 265 (P&H) [7] (2009) 318 IT R 135 (Del) [8] (2001) 251 IT R 693 (AP) [9] Finance (No.2) Act, 1996 with effect from 01.04.1989 omitted Section 80J