JUDGMENT
R. Jayasimha Babu, J.
1. The question referred to us is as to whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that non-filing of the audit report in Form No. 10B of the Income-tax Rules, 1962, would not defeat the claim of the assessee for exemption under Sections 11 and 12 of the Income-tax Act, 1961.
2. The assessment year is 1987-88. The assessee is a trust which filed a return for that year unaccompanied by the audit report which it was required to furnish, as required by Section 12A(b) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”). The Assessing Officer, without any ado, rejected the assessee’s claim for the benefit of Section 11 of the Act and assessed the entire income of the trust under Section 164(1) of the Act at the maximum marginal rate.
3. On appeal, the Commissioner allowed the appeal holding that non-furnishing of the audit report was a “defect” within the meaning of Section 139(9) of the Act and in all fairness the Assessing Officer should have given an opportunity to the assessee to rectify the defect. He, however, proceeded to grant the benefit of exemption under Section 11 of the Act, even without receiving the audit report. The Tribunal, having affirmed that order, the Revenue has brought this reference before us.
4. Section 12A of the Act deals with the conditions as to the registration of a trust, etc. It provides that the provisions of Sections 11 and 12 will not apply in relation to the income of a trust or institution unless the conditions set out in Section 12A of the Act are fulfilled. One such condition is that prescribed under Clause (b) which reads as under :
“where the total income of the trust or institution as computed under this Act without giving effect to the provisions of Section 11 and Section 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-section (2) of Section 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.”
5. It is, therefore, essential that, in order to claim the benefit of Sections 11 and 12 of the Act, the trust, when it files returns, must comply with Section 12A(b) of the Act.
6. Section 139 of the Act which occurs in Chapter XIV–Procedure for assessment concerns the return of income. Sub-section (9) of Section 139 requires the Assessing Officer when he considers the return of income furnished by the assessee to be defective, to intimate the defect to the assessee and give him an
opportunity to rectify that defect within a period of 15 days from the date of such intimation or within such further period which, on an application made in this behalf, the Assessing Officer may, in his discretion, allow, and if the defect is not rectified within the time allowed by him, the return is to be treated as an invalid return and the provisions of the Act would apply as if the assessee had failed to file the return. The Explanation under the proviso to Sub-section (9) sets out that for the purposes of that sub-section, a return of income shall be regarded as defective unless the conditions set out under that Explanation are fulfilled. One of the conditions prescribed under that Explanation is that found in Clause (e) which reads thus :
“where the accounts of the assessee have been audited, the return is accompanied by copies of the audited profit and loss account and balance-sheet and the auditor’s report and, where an audit of cost accounts of the assessee has been conducted, under Section 233B of the Companies Act, 1956 (1 of 1956), also the report under that section.”
7. Section 12A(b) of the Act requires the trust which claims the benefit of Sections 11 and 12 of the Act, when it files a return of income, to file along with that return the report of the audit for that year in the form prescribed under Rule 17B of the Income-tax Rules, 1962. To the extent the return is not accompanied by that audit report in Form No. 10B the assessee will not be eligible to claim the benefit of Sections 11 and 12 of the Act, The return so filed by such an assessee would therefore be defective, as the return filed by the trust is filed, inter alia, with the object of claiming a benefit under Sections 11 and 12 of the Act. Such a defect when noticed by the Assessing Officer is a defect which the Assessing Officer may bring to the notice of the assessee so that the assessee can rectify that defect within the time allowed by the Assessing Officer.
8. Section 139(9) of the Act is a wholesome provision meant to avoid undue hardship to the assessees who, for one reason or the other, may not have filed a return which is complete in all respects and may have defects therein. The Assessing Officer before making assessments is empowered to provide an opportunity to such assessees to correct those defects. An assessment made by the Assessing Officer without granting such an opportunity to the assessee to rectify the defect can result in drastic consequences to the assessees. The provisions of the Act which confer a benefit on the assessee are required to be given full effect to, and in case of any doubt, the doubt be resolved in favour of the assessee rather than in favour of the Revenue.
9. It is noticed by the Commissioner in the course of his order that the assessee had all along been under the impression that the audit report had been filed with the returns and non-filing of the same is clearly due to inadvertence. It is thus evident that, had the defect been brought to the notice of the assessee, the report would have been filed.
10. Unfortunately for the assessee here, there is nothing on record to show that the assessee had filed the audit report at any point of time. The Commissioner has, after holding that the return filed was defective and therefore, an opportunity which ought to have been given to the assessee to rectify the defect, completely overlooked the defect and notwithstanding the continued existence of the defect, granted a benefit to which the assessee was not entitled in the absence of the audit report. That erroneous view of the Commissioner has been affirmed by the Tribunal.
11. The order of the Tribunal therefore cannot be sustained. We, therefore,
answer the question that has been referred to us in favour of the Revenue and
against the assessee.