Court Allows Tax Deductions via Revised Returns, Even Without Initial Audit Reports

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Case Name:

Commissioner of Income Tax Vs Jagish Ram Krishan Chand (High Court of Himachal Pradesh)

ITR No. 15 of 1995

Date: 28th November 2007

Key Takeaways:

1. Taxpayers can claim benefits under sections 80HH (of Income Tax Act, 1961) and 80J (of Income Tax Act, 1961) filing revised returns, even if not claimed initially.

2. Audit reports don't need to be filed with the original return; they can be submitted later during assessment.

3. The court's decision aligns with previous rulings from other High Courts, reinforcing this interpretation of tax law.

Issue:

1. Can an assessee claim benefits under sections 80HH (of Income Tax Act, 1961) and 80J (of Income Tax Act, 1961) through a revised return if not claimed in the original return?

2. Is it necessary to file an audit report along with the original return to claim these deductions?

Facts:

- The case concerns assessment years 1979-80 and 1980-81.

- For 1979-80, the assessee filed a return, and assessment was completed under Section 144 (of Income Tax Act, 1961) on 25.3.1982. 

- The assessee then applied under Section 146 (of Income Tax Act, 1961) to recall the assessment order, which was allowed.

- A revised return was filed on 19.3.1983 for the 1979-80 assessment year. 

- For 1980-81, the original return was filed on 18.8.1980, and assessment under Section 144 (of Income Tax Act, 1961) was completed on 24.3.1983.

- The assessee applied to reopen the 1980-81 assessment, which was allowed on 31.3.1983. 

Arguments:

The specific arguments of each party are not explicitly stated in the provided text. However, we can infer:

Commissioner of Income Tax (Revenue):

- Argued that benefits under sections 80HH (of Income Tax Act, 1961) and 80J (of Income Tax Act, 1961) cannot be claimed if not included in the original return.

- Contended that audit reports must be filed with the original return to claim deductions.

Assessee (Jagish Ram Krishan Chand):

- Claimed the right to file revised returns and claim benefits under sections 80HH (of Income Tax Act, 1961) and 80J (of Income Tax Act, 1961).

- Argued that audit reports can be filed later during the assessment process.

Key Legal Precedents:

1. Commissioner of Income Tax v. Panama Chemical Works [2000] 245 ITR 684 (MP):

Filing an audit report during assessment proceedings is substantial compliance. 

2. Commissioner of Income Tax v. Gupta Fabs [2005] 274 ITR 620 (P&H):

Filing an audit report with the return is not mandatory for granting relief. 

3. Commissioner of Income Tax v. Valli Cotton Traders P. Ltd. [2007] 288 ITR 400 (Mad):

Non-filing of an audit report with the return is not grounds for rejecting the assessee's claim if filed during assessment. 

Judgement:

The court ruled in favor of the assessee:

1. Benefits under sections 80HH (of Income Tax Act, 1961) and 80J (of Income Tax Act, 1961) can be claimed by filing a revised return, even if not claimed in the original return.

2. Filing an audit report with the return is not necessary; it can be submitted later during assessment.

3. The first question was answered in favor of the assessee and against the revenue.

4. The second question was deemed not applicable as the assessment was reopened before the revised returns were filed. 

FAQs:

Q1: Can I claim tax deductions that I forgot to include in my original return?

A1: Yes, you can file a revised return to claim deductions under sections 80HH (of Income Tax Act, 1961) and 80J (of Income Tax Act, 1961), even if you didn't claim them initially.

Q2: Do I need to submit my audit report with my original tax return?

A2: No, you can submit the audit report later during the assessment process. It's not mandatory to include it with your original return.

Q3: What is the time limit for filing a revised return?

A3: According to Section 139(5) (of Income Tax Act, 1961) (as it stood at the relevant time), you can file a revised return at any time before the assessment is made. 

Q4: How does this judgment affect taxpayers?

A4: This judgment provides more flexibility for taxpayers to claim deductions and submit audit reports, potentially allowing them to take advantage of benefits they might have missed in their original returns.

Q5: Is this ruling applicable across India?

A5: While this is a High Court judgment, it aligns with rulings from other High Courts, suggesting a consistent interpretation across different jurisdictions in India.

The following questions have been referred for opinion of this Court under Section 256 (of Income Tax Act, 1961):-

“1. Whether on facts and in the circumstances of the case, the ITAT was right in law in holding the view of the CIT(A) that the assessee is entitled to the benefits of sections 80HH and 80J when it was not claimed in the original return and where no audit report was enclosed?

2. Whether on facts and circumstances of the case, the ITAT was right in law in allowing the claim of the assessee which was made after completion of original assessment in the revised return?” As far as the first question is concerned, there is no longer any dispute with regard to the fact that an assessee can file a revised return and can claim the benefit under Section 80HH (of Income Tax Act, 1961) and 80J (of Income Tax Act, 1961), even if, the said benefits were not claimed in the original return.

By now it is well settled law that filing of the audit report is not necessary with the return itself. In case there is sufficient material before the Assessing Authority at the time of finalization of the return and the audit report has been filed, he can do so even if the audit report has been filed at a later stage.

The Madhya Pradesh High Court in Commissioner of Income Tax v. Panama Chemical Works [2000] 245 ITR 684, held that filing of the audit report even during the assessment proceedings amounted to substantial compliance with the statutory requirement of the Act. The Punjab and Haryana High Court in Commissioner of Income Tax v. Gupta Fabs [ 2005] 274 ITR 620 also held that the filing of the audit report along the return is not mandatory and not a condition precedent for grant of the relief. Similarly, the Madras High Court in Commissioner of Income Tax v. Valli Cotton Traders P.Ltd. [2007] 288 ITR 400, held that mere non-filing of the audit report along with return was not a ground to reject the claim of the assessee in case audit report had been placed on record during the assessment period.

Section 139(5) (of Income Tax Act, 1961) as it stood at the relevant time, reads as follows:-

“(5) If any person having furnished a return under sub-section (1) or sub-section (2) discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the assessment is made.”

A bare perusal of the aforesaid relevant provisions shows that any assessee who had furnished a return under sub-section (1) or sub- section(2), discovers any omission or any wrong statement, he can file a revised return at any time before the assessment was made. In this case, as the assessment had not been finalized, the assessee was well within his rights to file a revised return.

In view of the above position of law, question No.1 is answered in favour of the assessee and against the revenue.

As far as the second question is concerned, in our considered opinion, the same does not even arise for consideration in the present case.

It would be pertinent to mention that for the assessment year 1979- 80, a return was filed by the assessee and assessment was completed under Section 144 (of Income Tax Act, 1961) on 25.3.1982. Thereafter the assessee moved an applications under Section 146 (of Income Tax Act, 1961) as it then stood for recalling the assessment order passed under Section 144 (of Income Tax Act, 1961) on the ground that his counsel was out of station and could not appear on the said date. This application was allowed and the order dated 25.3.1982 was recalled.

In the meantime, the assessee filed a revised return on 19.3.1983. As far as the assessment year 1980-81 is concerned, the original return was filed on 18.8.1980. The assessment under Section 144 (of Income Tax Act, 1961) was completed on 24.3.1983 and the return was finalized on the said date. An application under Section 146 (of Income Tax Act, 1961) was moved on behalf of the assessee for re-opening the assessment and the assessment was re-opened vide order dated 31.3.1983. It is thus apparent that for both the assessment years though the order was first finalized on an application being filed by the assessee the orders of assessment were recalled and the returns were re-opened. Therefore, it is apparent that the returns had not been finalized when the revised returns were filed. Question No.2, therefore, does not arise at all and the order of reference is held to be invalid and the question is returned un-answered. In view of the above discussion, question No.1 is answered in favour of the assessee and against the revenue and question No.2 is not answered since the reference in this behalf is found to be totally misconceived. A copy of this judgment duly signed by the Registrar General of this Court be sent to the Tribunal.

( Deepak Gupta ), J.

November 28, 2007 ( V.K.Ahuja ), J.