Commissioner of Income Tax vs Escapade Resorts (P.) Ltd.

C.N. Ramachandran Nair, J.—Connected appeals are filed by the revenue challenging the order of the Tribunal confirming orders issued by the CIT (Appeals) cancelling the rectification order issued by the Assessing Officer u/s 154 of the Income Tax Act whereunder the deduction originally allowed in the assessment u/s 80HHD was recalled for the reason that accountant''s certificate under Sub-section (6) of Section 80HHD is defective and is not inconformity with the said Sub-section. We have heard senior counsel Sri P.K.R. Menon, appearing for the revenue and senior counsel Sri Sarangan, along with Sri Vinod Chandran, appearing for the Respondent-Assessee.

The assessments involved are for the years 1995-96 and 1996-97. Even though original Income Tax returns filed whereunder the Assessee claimed deduction u/s 80HHD were not supported by accountant''s certificate in terms of Sub-section (6) of Section 80HHD, the accountant''s certificate later filed by the Assessee was accepted by the Assessing Officer. However, without noticing that accountant''s certificate produced was not inconformity with the provisions of the Act, the Assessing Officer allowed the claim. Later the Assessing Officer rectified the assessment order denying deduction claimed u/s 80HHD for the reason that accountant''s certificate furnished under Sub-section (6) was not sufficient to prove the claim in terms of Section 80HHD of the Act.

Before us, senior counsel appearing for the Appellant contended that the claim allowed by the Assessing Officer by accepting the defective certificate originally filed is a real mistake and therefore, the assessment was rightly rectified in proceedings u/s 154 of the Act. On the other hand, senior counsel for the Assessee produced before us a notice issued by the Assessing Officer on 3-12-1998 for the assessment year 1996-97 proposing to make disallowance of the claim based on the accountant''s certificate originally produced and contended that only after considering the accountant''s certificate, the claim was originally allowed, and therefore, according to Assessee there is no mistake apparent on the face of the order warranting rectification u/s 154. It is conceded that for the assessment year 1995-96, the Assessing Officer did not issue any notice but allowed the claim based on the accountant''s certificate filed wherein the auditor has stated as follows:

In computing the profits derived from services rendered to Foreign Tourists as per Section 80HHD(3), the figures of earnings in Foreign Exchange as reported by the Management to the Tourism Department, Government of India, had been taken as the earnings in Foreign Exchange. We could not verify the correctness of the figures reported.

We notice that Sub-section (6) of Section 80HHD makes it clear that accountant''s certificate should be furnished under Sub-section (6) for considering the claim. When Sub-section (6) specifically states that claim should be made by the Assessee strictly in accordance with it, Assessee should furnish accountant''s certificate in terms of the provisions of the Act. We are unable to accept the finding of the Tribunal and that of the first appellate authority that there is no mistake apparent on the face of the record because admittedly the accountant''s certificate furnished after filing of the return, based on which claim was originally allowed, was not in accordance with Sub-section (6) of Section 80HHD of the Act. In the original order it is seen that the Officer has not considered the ingredients of Sub-section (6) of Section 80HHD and the correctness and completeness of the accountant''s certificate filed in Form No. 10CCAD with reference to requirements of Sub-section (6). We are of the view that accountant''s certificate furnished without the ingredients of Sub-section (6) cannot be the basis for allowing the claim and since the Officer allowed the claim based on such report, assessment orders have become mistaken orders which could be rectified u/s 154. However, the Assessee has claimed in the rectification proceedings that the Assessee has furnished fresh accountant''s certificate which according to the Assessee is inconformity with the provisions of the Act. However, the Assessing Officer rejected the claim stating that accountant''s certificate originally filed was incorrect, or incomplete or defective. We are of the view that once the accountant''s certificate filed belatedly was accepted by the Officer, mistake in the certificate could have been corrected by filing a revised accountant''s certificate. The Assessee has a specific case that the rectified orders issued without considering fresh certificate obtained and produced from the accountant in Form No. 10CCAD are not tenable. The Assessee''s case is that revised certificate from the accountant is in accordance with the provisions of the Act. In this case admittedly, the Assessing Officer accepted the original certificate obtained and filed from the accountant with the explanation offered by the Assessee for the delay. Therefore, when the Assessing Officer proposed to disallow the claim based on the accountant''s certificate originally accepted, Assessing Officer was bound to give an opportunity to get the deficiency in the accountant''s certificate corrected or made up by the Assessee. We find denial of such an opportunity to the Assessee is unfair and illegal.

We therefore, allow the appeals by setting aside the orders of the Tribunal and that of the first appellate authority and remand the case to the Assessing Officer for considering the claim with reference to the fresh certificate produced by the Assessee. It is also open to the Assessing Officer to verify the records and accounts, if the same is required for the purpose of considering the claim.