Audit Report filed at the later stage of the proceedings is not sufficient to claim benefit of Deduction u/s 80HHC: Rajasthan HC [Read Judgment]

In a recent decision, the Rajasthan High Court held that the audit report filed by the assessee in a later stage of proceedings are not sufficient to avail the benefit of section 80HHC of the Income Tax Act, 1961.

The assessee, an individual earns his income from Firm and export business, claimed the benefit of section 80HHC of the Income Tax Act. The Assessing Officer completed assessment by rejecting the claim on ground that the assessee failed to submit the certificate of a Chartered Accountant, which is a mandatory requirement for claiming deduction under Section 80HHC. The assessee claimed that he has fulfilled all the statutory requirements by submitting the certificate of the Chartered Accountant. It was further contended that the audit report filed before the appellate authorities at the later stage of the proceedings can be treated as sufficient for allowing the exemption.

Though the Commissioner of Income Tax (Appeals)sustained the assessment order by dismissing the appeal, the Tribunal accepted the contentions of the assessee by allowing the exemption. Being aggrieved the Revenue challenged the order of the ITAT before the High Court.

While analyzing the provisions of section 80HHC of the Income Tax Act, the division bench of the Rajasthan High Court observed that “The provision clearly envisages that an assessee who is engaged in the business of export out of India of any goods or merchandise and the amount is received in convertible foreign exchange in India within the time prescribed, an assessee becomes entitled to a deduction to the extent of profits derived by the assessee from the export of such goods or merchandise. To claim such deduction, sub-clause (4) of Section 80HHC mandates that report of a Chartered Accountant who has audited the accounts, duly signed and verified, is required to be furnished in the prescribed form along with the return of income as defined in the Explanation to sub-section (2) of Section 288 who certifies that deduction has been claimed in accordance with the provisions of law. Therefore, twin conditions are necessary: (i) the assessee should be an exporter and convertible foreign exchange is required to be received in the given time in India, and (ii) to claim such deduction, report of a Chartered Accountant is mandatory.”

Based on the various judicial pronouncements, the Court found that “While the foremost requirement is that the assessee has to be an exporter and the return ofincome is to be supported by an audit report. The latter is the requirement of furnishing substantive foundation for claiming such allowance and it is the requirement of furnishing proof that the foundation for claiming such deduction has been laid. While compliance of audit report under sub-clause (4) to claim deduction is mandatory with the return is concerned, being the requirement in the realm of procedure for furnishing evidence in support of the claim in the given facts and circumstances, if furnished during the assessment proceedings or even at the appellate stage, Courts have held that the claim cannot ordinarily be denied.”

“Even the learned counsel for the assessee isunable to place such audit report for our perusal claiming deduction under Section 80HHC. We further enquired from the learned counsel for the assessee as to the dates of the two audit reports, but he was unable to provide such dates to infer prima facie conclusion and the indisputed fact remains that there is an audit report claiming deduction of Rs.6,00,410/-and there is no audit report claiming deduction of  Rs.1,07,33,971/.”

While rejecting the findings of the Tribunal, the division bench comprising of Justice Ajay Rastogi and Justice J K Ranka held that “the Tribunal simply observes that an audit report specifies the amount of rebate allowable at Rs.6,00,410/- on the basis of the amount received in the country in convertible foreign exchange, but the Tribunal is also silent about any audit report in reference to Rs.1,07,33,971/- and simply observes that the said claim of Rs.1,07,33,971/- was claimed as per computation of total income while filing the return of income and merely because the claim was made in the computation of total income, in our view such a finding is wholly perverse and not sustainable. We disapprovethe manner in which the claim has been allowed by the Tribunal on the basis of computation of total income alone and in not even uttering a word about the audit report to claim deduction for an amount of Rs.1,07,33,971/-. Merely because claim is allowable as per computation of income, is no reason to allow when sub-clause (4) of Section 80HHC mandates filing of an audit report in support for claiming deduction.”

Read the full text of the Judgment below.