ACIT Vs Future Software Private Limited (ITAT Chennai)

ITAT Chennai held that Form 56F not signed by an accountant, as referred in section 10A(5) of the Income Tax Act, is defective and hence deduction under section 10A of the Income Tax Act not admissible. Accordingly, appeal of revenue allowed.

Facts- The present appeal is preferred by the Appellant-Revenue. The only issue emanates for our consideration is to whether the ld. CIT(A) was justified in allowing deduction under section 10A of the Income Tax Act, 1961 ignoring the defective Form 56F in the facts and circumstances of the case.

Conclusion- CIT(A) held the said Form 56F is valid as far as it was signed by “Deloitte Haskins and Sells”, which is a multi-national Chartered Accountant firm. But, we find no such evidence brought on record for our examination in order to decide whether “Deloitte Haskins and Sells” is falling under the definition of “Accountant” as provided in Explanation below to sub-section (2) to section 288 of the Act. In such circumstances, the order of the ld. CIT(A) is not justified in holding that the assessee is entitled to claim deduction under section 10A of the Act.

Held that the assessee could not provide any material supporting the order of the ld. CIT(A) showing that “Deloitte Haskins and Sells” is an “Accountant” as referred in sub-section 5 of section 10A of the Act. Thus, we hold the view of the Assessing Officer is correct in holding the Form 56F is defective and the assessee is not entitled for deduction under section 10A of the Act. Therefore, the order of the ld. CIT(A) is not justified and is set aside. Thus, the grounds raised by the Revenue are allowed.

FULL TEXT OF THE ORDER OF ITAT CHENNAI

This appeal filed by the Revenue is directed against the order dated 11.08.2023 passed by the ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre [NFAC], Delhi for the assessment year 2006-07.

2. When the appeal was taken up for hearing on 28.11.2024, we find no representation on behalf of the respondent-assessee nor filed any application seeking Further, we find from the docket that there was no appearance on behalf of the assessee in all the dates of hearing  i.e.,  10.06.2024,  15.07.2024,  13.08.2024,  19.09.2024  and 17.10.2024. Further, on perusal of the record, we find that the notice issued on 26.06.2024 returned unserved with an endorsement “no such person addressee return to sender”. Therefore, the Respondent- assessee called absent and set exparte, therefore, we proceed to decide the appeal on merits after hearing the ld. DR basing on the material available on record.

3. We find that the appeal was filed with a delay of 111 days. The Appellant-Revenue filed an affidavit for condonation of delay stating the reasons. Upon hearing the ld. DR and on an examination of the said affidavit, we find the reasons stated by the Revenue are bonafide, which really prevented the Revenue in filing the appeal in time. Thus, the delay is condoned.

4. The Appellant-Revenue raised 5 grounds of appeal amongst which the only issue emanates for our consideration is to whether the ld. CIT(A) was justified in allowing deduction under section 10A of the Income Tax Act, 1961 [“Act” in short] ignoring the defective Form 56F in the facts and circumstances of the case.

5. Brief facts leading to the issue are that the assessee is a company engaged in the business of production and export of computer software. The assessee filed its original return of income on 27.11.2006 admitting an income of ₹.4,92,26,222/- after claiming deduction of ₹.14,20,86,630/- under section 10A of the Act. The said return was processed under section 143(1) of the Act vide order dated 20.02.2008. The said assessment was reopened for the reason discussed in para 2 of the assessment order. The Assessing Officer on perusal of Form 56F dated 27.11.2006 observed that there was no mention of date of initial registration in FTZ/EPZ/SEZ. Further, he found that there was no remark by Chartered Accountant in this regard. Accordingly he held that the said Form 56F is defective. Further, we note that when it was confronted to the AR of the assessee, fresh addendum to the report was filed vide letter dated 25.03.2013 mentioning the date of commencement and initial registration. According to the Assessing Officer, the date of commencement of initial registration stated to be January, 2000 and held the same also defective for not having certified by the Chartered Accountant as required by the Act. In view of the same, the deduction claimed under section 10A of the Act was rejected. The ld. CIT(A) observed that even though no signature of C.A., the same is signed by Deloitte Haskins  and  Sells,  which  is  a  multi-national  Chartered Accountant firm and held the Form 56F is valid. The ld. CIT(A) directed the Assessing officer to allow deduction under section 10A by holding that the Assessing Officer is quite erroneous in not allowing the benefits of section 10A of the Act merely because the prescribed audit report in Form 56F was defective and the same cannot be rejected on merely technical ground.

6. The ld. DR Shri Nilay Baran Som, CIT, filed summary of submissions in the present case. He vehemently argued thast the ld. CIT(A) was in error in concluding that non furnishing of Form 56F as mandated under the Act is only a technical requirement and the act of the assessee in not furnishing the report in effect defeat the requirement of law. He drew our attention to the order of this Tribunal in the case of Mr. Mahendra Kumar Damani v. ADIT in ITA Nos. 805 & 806/Chny/2022 dated 08.02.2023 and argued that the deduction under section 10A of the Act shall not be admissible unless, the assessee furnishes report in prescribed form duly certified by the Accountant in accordance with the provisions of the Act. Further, he submits that the Tribunal referred to the decision in the case of PCIT v. Wipro Ltd. [2022] 140 taxmann.com 223(SC) and upheld the order of the ld. CIT(A) in confirming the order of the Assessing Officer in denying deduction under section 10AA of the Act therein. The ld. DR prayed to set aside the order of the ld. CIT(A) and restore that of the Assessing Officer.

7. Heard the ld. DR and perused the material available on record. On careful reading of the decision of the Hon’ble Supreme Court in the case of PCIT v. Wipro Ltd. (supra), we note that the deduction sought therein with regard to section 10B of the While considering the issue involved therein, the Hon’ble Supreme Court held the time limit within which declaration is to be filed as provided under section 10B(8) of the Act is mandatory. Further, it was held that the assessee shall not be entitled to the benefit of section 10B(8) of the Act for non-compliance of twin conditions i.e., furnishing of declaration to the Assessing Officer in writing and the same must be furnished before the due date of filing of return of income under sub-section (1) of section 139 of the Act as provided under section 10B of the Act. In the present case, we find that the claim under section 10A of the Act was made and the Assessing Officer held the audit report in Form 56F is defective and denied the said deduction. The ld. CIT(A) observed that the order of the Assessing Officer is erroneous as the said deduction cannot be denied for mere technical ground.

8. Coming to the order of the Tribunal in the case of Mahendra Kumar Damani v. ADIT (supra), we note that the claim under section 10AA of the Act was made which was denied for not submitting Form 56F along with return of income filed under section 139(1) of the Act. On close reading of the said order, we note that admittedly, there was no Form 56F was filed along with the return of income under section 139(1) of the Act, but, however, filed on 01.03.2022. The Tribunal, by placing reliance on the decision of the Hon’ble Supreme Court in the case of PCIT v. Wipro Ltd. (supra) upheld the order of the ld. CIT(A) in denying deduction under section 10AA of the Act.

9. We note that the Hon’ble Supreme Court in the case of PCIT Wipro Ltd. (supra) held the filing of Form 56F is mandatory, which must be furnished before the due date of filing of return of income under section 139(1) of the Act with reference to the deduction under section 10B of the Act. We find that the provision under section 10B of the Act is a special provision in respect of newly established 100% export oriented undertaking. The Tribunal, in the case of Mahendra Kumar Damani v. ADIT (supra) with reference to the deduction under section 10AA of the Act, held the assessee is not entitled to claim deduction under section 10AA of the Act for not filing report of the Accountant in prescribed format along with return of income under section 139(1) of the Act duly certifying the deduction has been correctly claimed in accordance with the provisions. We note that the provision under section 10AA of the Act is a special provision in respect of newly established units under Special Economic Zone. The Tribunal, in order to arrive such conclusion, placed reliance in the case of PCIT v. Wipro Ltd. (supra).

10. Coming to the present case, the assessee claimed deduction with reference to the deduction under section 10A of the Act. We note that the provision under section 10A of the Act is also a special provision in respect of newly established undertakings in Free Trade Zone, etc. There is no dispute with regard to availability of deduction to the assessee under section 10A of the Act. However, we find, as discussed above, the said deduction was rejected only on the ground that there is no certification by Chartered Accountant as required under law. We find the Tribunal in the case of Mahendra Kumar Damani v. ADIT (supra) held that the provisions of sub-section (5) of section 10A of the Act shall apply in relation to deduction specified in section 10AA of the Act. In view of the same, the relevant provision of sub-section (5) to section 10A of the Act reads as under:

(5) The deduction under this section shall not be admissible for any assessment year beginning on or after 01.04.2001, unless the assessee furnishes in the prescribed form (along with return of income) the report of an accountant, as defined in the Explanation below sub-section (2) of section 288 before the specified date referred to in section 44AB, certifying that the deduction has been correctly claimed in accordance with the provisions of this section.

 11. We find sub-section (5) to section 10A of the Act is applicable to the present case since the relevant assessment year is 2006-07 [FY 2005- 06]. Further, it explains the deduction is not admissible unless the assessee furnish prescribed Form i.e., the report of an Accountant certifying correct claim before specified date i.e., due date as prescribed under section 139(1) of the Act. We find no dispute in this regard as the assessee filed report in Form 56F along with return of income under section 139(1) of the Act, i.e., within the due date prescribed therein. Therefore, the assessee fulfilled the twin conditions as held by the Hon’ble Supreme Court in the case of PCIT v. Wipro Ltd. (supra) i.e., furnishing the report in Form 56F in writing and filing the same along with return of income as per sub-section (5) to section 10A of the Act, but, the issue before us is whether the said report of an Accountant is valid or not? As discussed above, initially, the year of commencement of manufacture or production and the date of initial registration in FTZ/EPZ/SEZ were not furnished in Form 56F by the assessee. The Assessing Officer proposed to reject the said Form 56F, thereafter, a fresh addendum  to  the  report  was  furnished  by  the  assessee  on 25.03.2013 and the Assessing Officer observed the same was not signed by a Chartered Accountant as mandated by the provisions of the Act, i.e., sub-section (5) to section 10A of the Act, held the report signed as “Deloitte Haskins and Sells” is not a valid verification of report in Form 56F and treated as defective. The ld. CIT(A) held the said Form 56F is valid as far as it was signed by “Deloitte Haskins and Sells”, which is a multi-national Chartered Accountant firm. But, we find no such evidence brought on record for our examination in order to decide whether “Deloitte Haskins and Sells” is falling under the definition of “Accountant” as provided in Explanation below to sub-section (2) to section 288 of the Act. In such circumstances, the order of the ld. CIT(A) is not justified in holding that the assessee is entitled to claim deduction under section 10A of the Act.

12. We find the definition of an “Accountant” was explained in Explanation below to sub-section (2) to section 288 of the Act, wherein, it explains, the “Accountant” means “Chartered Accountant” as defined in clause (b) of sub-section (1) of section (2) of the Chartered Accountants Act, 1949 (38 of 1949) who holds a valid certificate of practice under sub- section (1) of section 6 of that We note that clause (b) of sub-section (1) of section 2 of the Chartered Accountants Act defines, “Chartered Accountant” means a person who is a Member of the Institution. Further, sub-section (1) of section 6 of that Act explains that no Member of the Institution shall be entitled to practice whether in India or elsewhere he has obtained from the Council a certificate of practice. Therefore, we find the “Accountant” as referred in sub-section (5) to section 10A of the Act, as the definition which provided in Explanation below to sub-section (2) to section 288 of the Act means a “Chartered Accountant”, who is a Member of the Institute of Chartered Accountants of India, shall hold certificate obtained from the Council for practice. As we discussed above, the ld. CIT(A) held that the “Deloitte Haskins and Sells”, which is stated to be a multi-national Chartered Accountant Firm can sign Form 56F. We find the Act envisages an “Accountant”, as referred in sub-section (5) to section 10A of the Act and the definition of which as provided in Explanation below to sub-section (2) of section 288 of the Act, should sign Form 56F, which was not done in this case as observed by the Assessing Officer. We find in order to certify the correct claim under the provisions of section 10A of the Act, an “Accountant” as referred in sub-section (5) to section 10A of the Act and the definition of which as provided in Explanation below to sub-section (2) of section 288 of the Act is required. It is amply clear that a Chartered Accountant falling under the definition to clause (b) of sub-section (1) of section 2 of the Chartered Accountants Act, 1949 is required to certify the correct claim under the provisions of section 10A of the Act. The assessee could not provide any material supporting the order of the ld. CIT(A) showing that “Deloitte Haskins and Sells” is an “Accountant” as referred in sub-section 5 of section 10A of the Act. Thus, we hold the view of the Assessing Officer is correct in holding the Form 56F is defective and the assessee is not entitled for deduction under section 10A of the Act. Therefore, the order of the ld. CIT(A) is not justified and is set aside. Thus, the grounds raised by the Revenue are allowed.

13. In the result, the appeal filed by the Revenue is allowed.

Order pronounced on 31^st December, 2024 at Chennai.