COMMISSIONER OF INCOME-TAX Vs. GUPTA FABS

JUDGEMENT

(1.) ON an application filed by the Commissioner of Income -tax (Appeals), Rohtak, the Income -tax Appellate Tribunal, Delhi Bench 'B', New Delhi (for short, 'the Tribunal'), has referred the following question of law for the opinion of this court : 'Whether, on the facts and in the circumstances of the case, the Income -tax Appellate Tribunal was justified to direct the Assessing Officer to allow deduction under Section 80HHC of the Income -tax Act, 1961, to the assessee when the mandatory condition of filing of audit report along with the return of income, for the purpose of deduction under Section 80HHC was not satisfied, and when the jurisdictional High Court decision in the case of CIT v. Jaideep Industries [1989] 180 ITR 81 was available which was contrary to the view taken ?'

(2.) THE assessee is an exporter. During the year 1997 -98, it received incentives and duty draw -backs amounting to Rs. 3,24,083 on exports. In the return filed for the assessment year 1998 -99, the assessee claimed exemption to the extent of Rs. 2,08,802 in lieu of incentives and duty draw -backs received in the previous financial year and showed the assessable income as nil. In the computation of total income attached with the return of income a note was also put to the effect that though the assessee is eligible for deduction under Section 80HHC, the same is not being claimed as the total income has been reduced to nil. The Assessing Officer rejected the assessee's claim for deduction in terms of Section 80HHC of the Income -tax Act, 1961 (for short, 'the Act'), on the ground that it had not filed audit report in Form No. 10CCAB with the return. The Commissioner of Income -tax (Appeals), Kamal (for short, 'the CIT(A)'), confirmed the Order of the Assessing Officer and dismissed the appeal filed by the assessee. On further appeal, the Tribunal granted relief to the assessee by making the following observations : 'As regards the alternative ground, the only reason for disallowance of the assessee's claim under Section 80HHC is that no audit report as required under that Section was filed by the assessee. The other conditions which are required to be fulfilled to claim deduction under Section 80HHC are not in dispute. It is difficult for us to agree with the contentions of the Department. The Department desires that the assessee should have done a thing which it bona fidely believed was not required to be done. It cannot be disputed that whether cash incentives were taxable or not was indeed a debatable issue and many judicial pronouncements were in favour of the assessee. In view of this judicial scenario regarding the taxability of cash incentives, the assessee was justified in claiming such receipts as exempt. As a result of such claim, the assessee's income was reduced to nil which disentitled it to claim deduction under Section 80HHC and hence for bona fide reasons the audit report was not filed. This fact is also evident from the note appearing in the computation of income. No sooner the income turned into a positive figure on the ground of inclusive of cash incentives, the assessee filed the mandatory audit report and claimed deduction under Section 80HHC. In the case reported in CIT v. Shivanand Electronics : [1994]209ITR63(Bom) , it has been held that if audit report is filed before the completion of assessment, it would not be fatal to the claim of the assessee. Of course this relaxation cannot be claimed as a matter of right by the assessee, except only in genuine and bona fide cases. In the case before us, there is no reason to doubt the bona fides of the assessee in claiming the deduction and hence the reason for not allowing the claim, is not justifiable. We, therefore, direct that the assessee be given deduction under Section 80HHC.'

(3.) AT the hearing, Shri Rajesh Bindal fairly stated that the decision of the Division Bench in CIT v. Jaideep Industries [1989] 180 ITR 81 has been overruled by the Full Bench in CIT v. Punjab Financial Corporation .