1. This is an. appeal filed by the assessee against the order of the AAC, Bombay.
2. The assessee is a registered firm and the appeal relates to the assessment year 1977-78. The ITO did not entertain the assessee's claim of deduction under Sections 80HH and 80J of the Income-tax Act, 1961 ('the Act') on the ground that the auditors' report in the prescribed forms under Rules 18B and 18C of the Income-tax Rules, 1962, had not been furnished. The AAC agreed with the ITO on this issue and dismissed the assessee's appeal. The assessee has, therefore, come up in the present appeal before us.
3. The assessee's learned Counsel, Shri Masand, submitted to us that this was the first year of assessment, the accounts were audited on 6-7-1977, when the return was filed on 8-8-1977 and, therefore, the non-submission of the auditors report in the prescribed form under Rules 18B and 18C was a mere technical default, which should not deprive the assessee of the substantive claim of deduction under Sections 80HH and 80J. Our attention was invited to two orders of the Tribunal in the cases of Rathi Gum Industries v. ITO  14 TTJ 655 and Gujarat Oil & Allied Industries v. ITO  14 TTJ 552 where the Tribunal held that if the auditors' report in the prescribed form under Rule 18B or 18C was not furnished along with the return but was furnished subsequently, before the assessment was completed, the claim of deduction under Section 80HH and/or Section 80J should not be denied on this ground alone. According to Shri Masand, since the accounts were duly audited, the non-filing of the prescribed auditors' report under Rules 18B and 18C was a mere technical formality and the default was a mere technical default, which should not stand in the way of the assessee getting the deduction as laid down under sections 80HH and 80J.4. On the other hand, the learned departmental representative, Shri Vohra submitted, that where the assessee is a person other than a company or a co-operative society, Sub-section (5) of Section 80HH and Sub-section (6A) of Section 80J lay down that the deduction under these sections will not be admissible unless the accounts have been audited by an accountant and the assessee furnishes along with his return of income the report of such audit in the prescribed form duly signed and verified by the accountant. Proceeding further, he submitted that this was not an idle formality and if the assessee wants to claim the deduction, which was a concession, it was very necessary that the conditions laid down for the grant of concession should be strictly complied with by the assessee. It was also pointed out by him that in both the cases, which were referred to by the assessee's learned Counsel, the auditors' report in the prescribed form had been submitted before the completion of the assessment unlike in the present case where it was not submitted at all before the completion of the assessment and also before the AAC. He, therefore, submitted that the assessee's claim of deduction under Sections 80HH and 80J in the absence of the auditors' report as prescribed by Rules 18B and 18C was rightly not entertained by the revenue authorities.
5. The assessee's learned Counsel, Shri Masand, in reply submitted that if the auditors' report in the prescribed form, by oversight, was not filed before the ITO in the course of the assessment proceedings, the ITO could have asked for the report in the course of the assessment proceedings or else, in the alternative, the assessment can be set aside so that the report of the auditors in the prescribed form is filed and the assessee's claim of deduction under Sections 80HH and 80J is considered on merits.
6. We have carefully considered the rival submissions. If the assessee forgot to file the report of the auditors in the prescribed form under Rules 18B and 18C before the assessment was completed, he could have filed it at least before the AAC, which too was not done and when a query was put to the assessee's learned Counsel, Shri Masand, why this was not done, he simply submitted that there was no point in submitting it before the AAC. This, in our view, is not a satisfactory explanation at all. In both the cases referred to by the assessee's learned Counsel, Shri Masand, the auditors' report in the prescribed forms under Rules 18B and 18C were furnished before the assessments were completed and it was in these circumstances that the Tribunal held that much should not be made of the assessee's default of not filing these reports along with the return but subsequently in the course of the assessment proceedings. In the present case, however, the auditors' report in the prescribed form had not been filed at all not only before the completion of the assessment but even before the AAC. The orders of the Tribunal, relied upon by the assessee's learned Counsel, Shri Masand. therefore, will not be applicable to the facts of the present case. In the case of Indian Overseas Bank Ltd. v. CIT  77 ITR 512 (SC), the assessee, which was a banking company, transferred an amount from the profit and loss account to the reserve fund, which was sufficient to meet the requirements of both Section 17 of the Banking Companies Act, 1949 as well as the proviso (b) to Section 10(2)(v/6) of the Indian Income-tax Act, 1922 and on this basis it was claimed that since the transfer to the reserve was sufficient to meet both the requirements, the technical lapse of not creating a reserve by transfer from the profit and loss account to the development rebate reserve should not stand in the way of the assessee-banking company not being entitled to development rebate. The Hon'ble Supreme Court, however, laid down that what was prescribed as a condition for the grant of the development rebate was not an idle formality and if this condition was not met, the assessee was not entitled to the claim of deduction of development rebate. Viewed in this context both Sub-section (5) of Section 80HH and Sub-section (6A) of Section 80J have prescribed two conditions for the grant of deduction under these sections, firstly, that the accounts are audited and secondly, that the auditor furnishes the report in the prescribed form, which the assessee will file along with the return of total income. The prescription of the second condition that the auditors should furnish a report in the prescribed form as laid down under Rules 18B and 18C is in addition to the accounts being audited and cannot be said to be an idle formality. If this condition was not met either along with the return or at least till the assessment was made, the assessee cannot claim that the deductions under Section 80HH and under Section 80J, which are of the nature of concession should be allowed. The claims of deduction under Sections 80HH and 80J, in the absence of auditors' report as required under Rules 18B and 18C, therefore, were rightly not entertained by the revenue authorities.