1991 (7) TMI 22 - HC - Income Tax

Filing Form 10B under section 12A(b) held procedural; appellate authority may cure defect, reassess section 11 exemption

HC held that the requirement under section 12A(b) to file the audit report in Form 10B along with the return is procedural and directory, not mandatory, ... Entitlement to exemption provided under sections 11 and 12 for the assessment year under consideration - Non-fulfillment the conditions laid down in section 12A(b) - directory Or mandatory - Whether, the Tribunal is justified in law in setting aside the orders of the Commissioner (Appeals) and the Income-tax Officer and in directing the Income-tax Officer to accept the auditor's report in Form No. 10B and to process the assessee's claim for exemption u/s 11 of the Income-tax Act afresh? - HELD THAT:- It is now well-settled that a procedural provision, ordinarily, should not be construed as mandatory, if the defect in the act done in pursuance of it can be cured by permitting the appropriate rectification to be carried out at a subsequent stage. Procedural laws are devised and enacted for the purpose of advancing justice. It does not mean that the procedural laws should be brushed aside by the court. It depends on the facts and circumstances of a particular case as to whether a breach in the observance of any procedural law, if not excused or overlooked, would cause real and substantial injustice to the parties. In our view, having regard to the object of section 12A, it cannot be said that the Legislature intended that, even where the trust has got its accounts audited and the certificate obtained in Form No. 10B before the assessment is completed, merely because such report could not be filed in the course of the assessment proceedings, it would deprive a trust of getting the exemption if it is otherwise entitled to it in law. As we have already indicated, in this case, the audit report had been obtained before the assessment was completed. The Income-tax Officer, before completion of the assessment, did not allow any opportunity to the assessee to furnish the audit report. The direction that the audit report should accompany the return is not mandatory as the omission to do it may be rectified by filing the report at a later stage before the assessment is completed. We have considered this question in CIT v. Rai Bahadur Bissesswarlal Motilal Malwasie Trust [1991 (4) TMI 56 - CALCUTTA HIGH COURT], where the judgment was delivered on April 22, 1991. There, it was held that, if the audit report is not filed with the return, the return becomes defective and the Income-tax Officer should give an opportunity to the assessee to submit the audit report to rectify the defect before completion of the assessment. Where an assessee, in compliance with the provisions of the Act, cures the defect in the return by filing the audit report before the completion of the assessment, the Assessing Officer cannot ignore such audit report or the return in completing the assessment. In our view, the result of ignoring such return or the audit report will be denial of exemption to the trust although the income has been spent for charitable or religious purposes. This was not intended by the legislators. If an assessee fails to obtain the audit report in the prescribed form before the assessment is completed, he may not, ordinarily, be entitled to get the benefit of exemption. In this case, however, as we have indicated, the assessee was not given an opportunity to file the audit report in the prescribed form which was available with the assessee before the assessment was completed. In such a case, the appeal being a continuation of the original proceedings, the appellate authority has the power to accept the audit report and direct the Assessing Officer to redo the assessment. The appellate authority has plenary powers in disposing of an appeal and the scope of his power is coterminous and co-extensive with that of the Assessing Officer. He may, therefore, consider and decide any matter arising out of the proceedings in which the order appealed against is passed. He can do what the Assessing Officer can do and direct him to do what he has failed to do. Such powers are, however, subject to the limitation that what an Assessing Officer could not do validly, the first appellate authority also cannot do in appeal. This question, however, does not arise in this case as the assessee was entitled to file the audit report before the completion of the assessment with or without a revised return for the purpose of curing the defect in the original return filed without the audit report. Thus, we are of the view that, on the facts of this case, the Tribunal came to a correct conclusion. Issues Involved:1. Whether the Tribunal was justified in directing the Income-tax Officer to accept the auditor's report in Form No. 10B and process the assessee's claim for exemption u/s 11 of the Income-tax Act afresh.Summary:Issue 1: Tribunal's Direction to Accept Auditor's Report and Process Exemption Claim u/s 11:In this reference u/s 256(1) of the Income-tax Act, 1961, for the assessment year 1982-83, the key issue was whether the Tribunal was justified in setting aside the orders of the Commissioner of Income-tax (Appeals) and the Income-tax Officer, and directing the Income-tax Officer to accept the auditor's report in Form No. 10B and process the assessee's claim for exemption u/s 11 afresh.The assessee filed a return without the auditor's certificate in Form No. 10B. The Income-tax Officer denied exemption u/s 11 due to the absence of this certificate. The Commissioner of Income-tax (Appeals) upheld this decision, stating that the trust did not fulfill the conditions laid down in section 12A(b).The Tribunal, however, argued that the filing of the auditor's report in Form No. 10B along with the return was not mandatory but directory. It set aside the lower authorities' orders and directed the Income-tax Officer to accept the auditor's report and process the exemption claim afresh.The High Court referenced several cases to support the view that procedural requirements should be treated as directory if the defect can be rectified before the assessment is completed. It emphasized that procedural laws are meant to advance justice and should not be construed to defeat the rights of parties.The Court concluded that the direction for the audit report to accompany the return is not mandatory. The omission can be rectified by filing the report at a later stage before the assessment is completed. The appellate authority has the power to accept the audit report and direct the Assessing Officer to redo the assessment.Thus, the High Court affirmed the Tribunal's decision, answering the question in the affirmative and in favor of the assessee, with no order as to costs.