JUDGMENT
ASHOK BHAN, J. :
At the instance of the Revenue, Income-tax Appellate Tribunal, Amritsar (hereinafter referred to as the Tribunal) after drawing up a statement of the case, has referred the following question of law to this Court for its opinion :
“Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the order of the AAC in regard to filing of the audit report in terms of the provisions of s. 12A(b) and in directing the AAC to allow the assessee to submit the said audit report to him at the appellate stage ?”
2. For the asst. yr. 1977-78, assessee which is a charitable trust claimed that its income was exempt from payment of income-tax under ss. 11 and 12 of the IT Act, 1961 (hereinafter referred to as the Act), being income of the public charitable trust. Assessee had been allowed the benefit of exemption in respect of its income in the past years regularly, however, for the asst. yr. 1977-78 which is in issue, it was found by the ITO that its income was not liable to be treated exempt under s. 11 of the Act, it was further held by the ITO that the assessee was not entitled to the exemption as it had failed to furnish the auditors report which was required to be done mandatorily under s. 12A(b) of the Act.
3. Assessee carried an appeal before the AAC who after hearing the counsel for the assessee was satisfied that the first objection of the ITO did not have any merit. Appellate authority found substance in the second objection taken by the ITO. According to him, the provisions contained in s. 12A(b) made it mandatory for the assessee to furnish auditors report duly signed and verified by the Chartered Accountant with the return of income. Failure to furnish the auditors report disentitles the assessee to claim the exemption under ss. 11 and 12 of the Act. Assessees request to take the report of the auditor during the pendency of the appeal on record was rejected by the appellate authority on the ground that the submission of auditors report along with the furnishing of return was mandatory. Since the assessee had failed to furnish the report along with the return before the ITO, the appellate authority could not take the same in its file. The plea of the counsel for the assessee that ITO had not provided him with an opportunity to produce the auditors report on the prescribed form was not accepted. The AAC dismissed the appeal on the ground that the assessee had not furnished the auditors report in the prescribed form.
4. Thereafter the assessee filed an appeal before the Tribunal and reiterated its plea which had been raised before the AAC. According to the assessee, there was no motive for withholding the auditors report. It was thought that the requirement of section was fulfilled in furnishing the income and expenditure account, balance sheet and the auditors note. It was not mandatory to furnish the auditors report along with the return and the same could be furnished at a later date as well specially when the same was done under the bona fide mistaken view of law. Tribunal accepted the plea of the assessee. It was held that having furnished the audited accounts comprising of income and expenditure, balance sheet and auditors note giving most of the particulars required in the auditors report prescribed in s. 12A, there could be no motive in withholding the auditors report. It was held that provisions contained in s. 12A(b) have to be fulfilled if exemption of income is required under ss. 11 and 12 but the law did not provide any time limit for production of the report. It was held that the first appellate Court did not advise itself correctly in the matter by refusing to admit the auditors report which in the circumstances of the case, the assessee could not produce before the ITO. Findings recorded by the AAC were set aside and the appeal was restored to his file for fresh disposal after allowing the assessee to submit the auditors report.
5. Revenue filed a petition under s. 256(1) of the Act claiming three questions of law stated to be arising from the order of the Tribunal. Tribunal was of the opinion that only one question arose from the order of the Tribunal and referred the same to the jurisdictional High Court for its opinion.
Note of the auditor, balance sheet and income and expenditure account which had been furnished by the assessee along with the return were not made a part of the paper book. As the Tribunal had recorded a finding that there was a substantial compliance by the assessee of the provisions of cl. (b) of s. 12A of the Act, during the course of arguments, it was deemed appropriate to direct the counsel appearing for the Department to produce the auditors note along with the annexures which had been appended with the return filed by the assessee. The original file of assessment containing the note of the auditor, balance sheet and income and expenditure account were produced in compliance with the aforesaid directions issued by the Court. They have been perused.
6. Under s. 11, subject to certain provisions of the Act, and on fulfilling of certain conditions provided under s. 12A, income from property held for charitable or religious purpose has been exempted from payment of tax. Sec. 12A provides that the provisions of ss. 11 and 12 shall not apply in relation to the income of any trust or institution unless two conditions provided in cls. (a) and (b) of this section are fulfilled. Clause (b) of s. 12A which is relevant and as it existed at the relevant time reads :
“12A. The provisions of s. 11 and s. 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely :
(a) xxx
(b) where the total income of the trust or institution as computed under this Act without giving effect to the provisions of s. 11 and s. 12 exceeds twenty-five thousand rupees in any previous year, the accounts of the trust or institution for that year have been audited by an accountant as defined in the Explanation below sub-s. (2) of s. 288 and the person in receipt of the income furnishes along with the return of income for the relevant assessment year the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed.”
Rule 17B of the IT Rules, 1962 (hereinafter referred to as the Rules) provides that the report of audit of the accounts of a trust or institution which is required to be furnished under cl. (b) of s. 12A, shall be in Form No. 10B. In Form No. 10B, the Chartered Accountant has to certify that he has examined the balance sheet of the trust and the P&L a/c for the year ended which are in agreement with the books of account maintained by the said trust. It has to be further certified that in the opinion and to the best of the knowledge of the Chartered Accountant, the said accounts give true and fair view of the accounts. The particulars (which have been prescribed) have to be annexed along with the auditors report.
7. Counsel appearing for the Revenue argued that furnishing of audit report in the prescribed form duly signed and verified by the Chartered Accountant with the furnishing of return is mandatory. Failure to do so is fatal disentitling the assessee to claim the benefit of exemption from tax. The audit report could not be produced at any subsequent time either before the ITO or the appellate authority. Reliance for this was placed upon a judgment of this Court in CIT vs. Jaideep Industries (1989) 180 ITR 81 (P&H) .
8. Counsel for the assessee has controverted the argument raised by the counsel for the Revenue. It has been contended by him that furnishing of report along with the filing of the return was directory in nature in view of the circular of CBDT issued on 9th February, 1978, which provides as under :
“Charitable trust – Requirement of filing audit report in Form 10B – Sec. 12A(b) – Instructions regarding
The Board have considered whether the requirement under s. 12A(b) of filing audit report along with the return of income is mandatory so as to disentitle the trust from claiming exemption under ss. 11 and 12 in case of omission to furnish such report in the prescribed form along with the return.
Normally, it should be possible for a charitable or religious trust or institution to file the auditors report along with the return of total income, where such trust or institution claims exemption under ss. 11 and 12. However, in cases where for reasons beyond the control of the assessee some delay has occurred in filing the said report the exemption as available to such trust under ss. 11 and 12 may not be denied merely on account of delay in furnishing the auditors report and the ITO should record reasons for accepting a belated audit report.
(1/1148-CBDT F. No. 267/482/77-IT(Part) dt. 9th February, 1978 – CBDT Bulletin Tech. XXIII/582).”
9. On behalf of the assessee reliance was placed upon CIT vs. Rai Bahadur Bissesswarlal Motilal Malwasie Trust (1992) 195 ITR 825 (Cal) and CIT vs. Gujarat Oil & Allied Industries (1993) 201 ITR 325 (Guj) .
In Jaideep Industries case (supra), the point under consideration before this Court was – Whether the Tribunal was right in holding that filing of the audit report under s. 80J(6A) during the assessment proceedings and not along with the return of income would satisfy the requirements of s. 80J(6A). It was held that filing of audit report along with the return of income was mandatory and deduction under s. 80J(6A) would not be admissible to the assessee unless it furnished the audit report in the prescribed form duly signed and verified by the accountant along with the return. The question was answered in favour of the Revenue and against the assessee. Counsel for the assessee (sic – Revenue) argued that s. 80J(6A) was pari materia with s. 12A(b) of the Act and, therefore, applying the ratio of the law laid down by this Court in Jaideep Industries case (supra), the question referred to us in this case has also to be answered in favour of the Revenue and against the assessee.
10. Calcutta High Court in Rai Bahadur Bissesswarlals case (supra) while interpreting s. 12A(b) held that the provision was directory in nature and the AO could allow the assessee to file the audit report, at any time before the completion of the assessment. In this case the assessee, a charitable trust registered with the CIT filed its return on 17th September, 1984, declaring a deficit of Rs. 1,61,452. The return so filed was not accompanied by audited accounts and audit report in Form No. 10B as required under s. 12A of the Act. The audit report dt. 12th November, 1984 was, however, filed by the assessee in the prescribed form on 6th March, 1987, before the completion of the assessment. The ITO while completing the assessment refused to allow the benefit of exemption under s. 11 of the Act to the assessee on the ground that audit report in Form No. 10B was not filed along with the return. Income of the assessee was put to tax. Order of the ITO was upheld by the CIT(A) against which assessee filed further appeal before the Tribunal which was accepted. On these facts, it was held that the IT authority had taken hyper-technical view of the matter where the assessee has complied with the provisions of the Act in the course of assessment by curing the defect in the return by filing an audit report. The ITO cannot ignore such audit report or the return in completing the assessment. The delay in getting the account audited and in filing the return (sic-report) in Form No. 10B did not defeat any object of the Act and, therefore, the provision was directory in nature. It also referred to the circular of the Board dt. 9th February, 1978.
11. Gujarat High Court in Gujarat Oil & Allied Industries case (supra) was considering s. 80J(6A). Gujarat High Court took the view put by this Court in Jaideep Industries case (supra). It was held that the provision about furnishing of the auditors report along with the return has to be treated as procedural provision and, therefore, directory in nature.
12. Provisions of s. 80J(6A) and s. 12A of the Act are para materia. The ratio of the law laid down in Jaideep Industries case (supra) would have been applicable to the facts of the present case as well had the CBDT not issued the Circular dt. 9th February, 1978, reproduced in the earlier part of the judgment. As per this circular, it is not mandatory under. s. 12A(b) to file the audit report along with return of income. Normally, a charitable religious trust or institution is expected to file auditors report along with the return but in cases where for reasons beyond the control of the assessee some delay has occurred in filing the said report, the ITO, for reasons to be recorded, has been authorised to condone the delay in furnishing the auditors report and accepting the same at a belated stage. It has been clarified that the exemption available to the trust under s. 11 may not be denied merely on account of delay in furnishing the auditors report. The word “shall” occurring in s. 12A cannot, under the circumstances, be read as a “must” making it mandatory for the trust to furnish the auditors report along with the filing of the return. If for certain unavoidable circumstances, the assessee is unable to furnish the auditors report along with the return then the same can be furnished at a later date with the permission of the AO who may permit the assessee to do so after recording its reasons for so doing.
13. Counsel appearing for the Revenue then argued that as per this circular, the auditors report could only be furnished upto the stage of framing of assessment as the power to condone the delay for accepting the auditors report at a later date has only been given to the ITO and not thereafter, i.e., at the appellate stage. We find no merit in this submission. The CBDT by issuing the Circular dt. 9th February, 1978 has treated the provision regarding furnishing of auditors report along with the return to be procedural and, therefore, directory in nature. By showing sufficient cause, the auditors report could be produced at any later stage either before the ITO or before the appellate authority.
14. In view of the Boards Circular dt. 9th February, 1978, the requirement of filing auditors report in Form 10B as provided in s. 12A(b) r/w r. 17B of the Rules, the ratio of the law laid down by this Court in Jaideep Industries case (supra) would not apply to the present case.
For the reasons recorded above, the question referred to us is answered in the affirmative i.e., against the Revenue and in favour of the assessee. No costs.