Commissioner Of Income Tax, Delhi ... vs Contimeters Electricals Privat ...
2008 Latest Caselaw 2120 Del

*               THE HIGH COURT OF DELHI AT NEW DELHI

%                              Judgment delivered on : 02.12.2008

+                        ITA No.1366/2008


COMMISSIONER OF INCOME TAX,                                   ..... Appellant
DELHI (CENTRAL) - I

                                   versus


CONTIMETERS ELECTRICALS PVT. LTD.                             ...Respondent

Advocates who appeared in this case:

For the Appellant           :      Mr. R.D. Jolly
For the Respondent          :      None

CORAM :-

HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE RAJIV SHAKDHER

1.     Whether the Reporters of local papers may
       be allowed to see the judgment ?          Yes
2.     To be referred to Reporters or not ?      Yes
3.     Whether the judgment should be reported
       in the Digest ?                           Yes

BADAR DURREZ AHMED, J (ORAL)

This appeal by the revenue under Section 260A of the Income Tax

Act, 1961 arises from the order dated 18.01.2008 passed by the Income

Tax Appellate Tribunal in ITA No. 1870(Del)2007 relating to the

assessment year 2003-04. The revenue is aggrieved by the fact that the

Tribunal held that the order passed by the Commissioner of Income Tax

under Section 263 of the said Act was without jurisdiction.

The Commissioner of Income Tax had issued a notice under

Section 263 of the said Act, in which it was stated that the assessee was

not entitled to the deduction under Section 80-IA as the assessee did not

fulfill the condition laid down in Section 80IA(7). Section 80IA(7) reads

as under:-

"The deduction under sub-section (1) from profits and gains derived from an undertaking shall not be admissible unless the accounts of the 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."

According to the Commissioner of Income Tax since no audit

report, duly verified and signed in the prescribed Form no. 10CCB under

Rule 18BBB had been furnished along with the return, the condition for

claiming deduction had not been satisfied and, therefore, the action of the

Assessing Officer in allowing rebate under Section 80-IA was erroneous

and prejudicial to the interest of the revenue.

After issuance of the notice the Commissioner of Income Tax

passed the order dated 29.03.2007 whereby he held that that he was fully

satisfied that the assessment which had been completed by the Assessing

Officer was prejudicial to the interest of the revenue and that it was

erroneous in as much as the assessee had not satisfied the conditions laid

down under Section 80-IA and consequently the deduction under that

section for the sum of Rs 14,27,351/- had been wrongly allowed. The

CIT(A), therefore, cancelled the assessment which had been earlier

framed and directed the Assessing Officer to complete the assessment as

per law, in terms of the directions given in the said order.

Being aggrieved by the said order, the assessee preferred an appeal

before the Tribunal which was allowed by the Tribunal by virtue of the

impugned order. The Tribunal took the view that the provisions of

section 80-IA(7) with regard to filing of the audit report along with the

return were not mandatory and were merely directory. In coming to such

conclusion, the Tribunal referred to the decision of the Gujarat High

Court in CIT v. Gujarat Oil & Allied Industries, 201 ITR 325 (Guj). In

that decision the provisions of Section 80J(6A) were considered. The

wording of Section 80J(6A) is similar to that of section 80-IA(7) which is

in issue in the present appeal. The Gujarat High Court took the view that

the word „shall‟ which occurs in section 80J(6A) be read as „may‟ and

that the requirement of filing of an audit report along with the return was

only to be taken as directory in nature. The Gujarat High Court took the

view that in case the audit report is submitted at any time before the

framing of the assessment, there would be substantial compliance with

the provisions of Section 80J(6A).

The Tribunal also relied on the decision of the Madras High Court

in CIT v. A.N. Arunachalam, 208 ITR 481 (Mad), which, again, while

considering the provisions of Section 80J(6A), took the same view as that

of the Gujarat High Court.

We notice that there are other decisions of other Courts taking the

same view. The decisions being, CIT v. Shivanand Electricals (1994)

209 ITR 63 (Bombay); Zenith Processing Mills v. CIT (1996) 219 ITR

721 (Guj.); CIT v. Jayant Patel (2001) 248 ITR 199 (Mad) and CIT v.

Mahalaxmi Rice Factory (2007) 294 ITR 631 (P&H).

In view of this long line on decisions of various High Courts in

considering the provisions of Section 80J(6A) which are similar to the

provisions of Section 80-IA(7), we feel that the Tribunal has arrived at

the correct conclusion that the requirement of filing the audit report along

with the return is not mandatory but directory and that if the audit report

is filed at any time before the framing of the assessment, the requirement

of section 80-IA(7) would be met.

Mr R.D. Jolly, appearing on behalf of the Revenue drew our

attention to another issue which was sought to be raised before the

Tribunal by the revenue. The contention is that the deduction under

Section 80-IA was not available because it was not of the specified

nature. He referred to the order passed by the Commissioner, Income

Tax and submitted that the said Commissioner held that the assessee did

not fulfill the conditions mentioned in Section 80-IA to claim the

deduction and that supplying of meters to electricity board/companies

could not be considered as power generation, transmition or specification,

renovation and moderanisation to existing distribution lines.

Consequently, the learned counsel submitted that the Commissioner

Income Tax had rightly held that the assessment was prejudicial to the

interest of Revenue and it was also erroneous as the assessee did not

fulfill the conditions laid down in section 80-IA. With regard to this

contention, as noted in the impugned order, the representative of the

assessee had submitted that w.e.f. 1.4.2000 the eligibility of the assessee

was under Section 80-IB. It was also contended that the report of the

chartered accountant in Form 10CCB also indicated the section as 80-IB

and that according to section 80-IB the assessee was eligible for

deduction. It was, therefore, contended that the mention of a wrong

section in itself did not give rise to the jurisdiction under Section 263. It

was also contended on behalf of the assessee before the Tribunal that the

show cause notice issued by the Commissioner of Income Tax did not

raise this issue nor was the assessee confronted with this aspect of the

matter, that is, that it did not fulfill the requirement of section 80-IA. It

was also contended that had the assessee been confronted with this issue

it could have explained the position before the Commissioner of Income

Tax that the claim had been rightly made by the assessee under Section

80-IB.

The Tribunal considered the rival contentions and referred to the

Supreme Court‟s decision in the case of Commissioner of Customs v.

Toyo Engineering India Limited (2006) 7 SCC 592 wherein the Supreme

Court noted that the department cannot travel beyond the show cause

notice. The Tribunal was of the view that the ground that the assessee

had not fulfilled the conditions laid down under Section 80-IA did not

form part of the show cause notice. The Tribunal accepted the argument

of the assessee that the Commissioner of Income Tax did not even call for

any explanation on this issue and, therefore, the assessee did not have any

opportunity to meet this ground. The Tribunal was of the view that it

would be against the principles of natural justice that a person who has

not been confronted with any ground be saddled with the liability thereof.

Consequently the Tribunal held that as the said issue did not form part of

the show cause notice and the assessee was not even confronted with it,

even before the CIT, it cannot form the basis for revision of the

assessment order under Section 263.

On this aspect of the matter also, we are satisfied with the findings

and the approach taken by the Income Tax Appellate Tribunal. No

substantial question of law arises for our consideration.

The appeal is dismissed.

BADAR DURREZ AHMED, J

RAJIV SHAKDHER, J December 02, 2008 kk