1991 (4) TMI 56 - HC - Income Tax

Court rules audit report filing before assessment completion is directory, not mandatory

Commissioner Of Income-Tax Versus Rai Bahadur Bissesswarlal Motilal Malwasie Trust

The court held that the income-tax authorities were wrong in denying the exemption u/s 11 to the charitable trust for not filing the audit report along ... Charitable Trust, Defects In Return, Exemption For Charitable Trust Issues Involved:1. Filing of audit report along with the return.2. Compliance with section 12A(b) of the Income-tax Act.3. Applicability of sections 139(5) and 139(9) for rectifying defects in the return.4. Interpretation of mandatory provisions and the intent of the Legislature.Summary:1. Filing of Audit Report Along with the Return:The assessee, a charitable trust, filed its return for the assessment year 1984-85 on September 17, 1984, declaring a deficit but did not include the audit report in Form No. 10B as required u/s 12A. The audit report was later submitted on March 6, 1987, before the completion of the assessment. The Income-tax Officer denied the exemption u/s 11 due to the absence of the audit report 'along with the return.'2. Compliance with Section 12A(b) of the Income-tax Act:The Commissioner of Income-tax (Appeals) upheld the Income-tax Officer's decision, stating that the assessee violated the mandatory provisions of section 12A(b) and thus was not entitled to the exemption u/s 11. The Tribunal, however, found this view to be overly technical and concluded that the authorities were incorrect in denying the exemption since the audit report was filed before the assessment was completed.3. Applicability of Sections 139(5) and 139(9) for Rectifying Defects in the Return:The Tribunal and the court considered sections 139(5) and 139(9), which allow for the rectification of defects in the return. The court noted that the assessee could have filed a revised return with the audit report, and the Income-tax Officer should have allowed the assessee an opportunity to rectify the defect. The court emphasized that the provisions of section 12A should not be read in isolation and that the intent of the Legislature should be considered.4. Interpretation of Mandatory Provisions and the Intent of the Legislature:The court opined that the provisions of section 12A are directory, not mandatory, in the sense that the Assessing Officer can allow the filing of the audit report any time before the completion of the assessment. The court highlighted the importance of coherence and consistency in interpreting the provisions to avoid undesirable consequences. The court also referred to a CBDT circular which stated that exemption should not be denied merely due to a delay in furnishing the audit report if reasons for the delay are recorded.Conclusion:The court concluded that the income-tax authorities erred in denying the exemption u/s 11 to the assessee. The question referred to the court was answered in the affirmative and in favor of the assessee, with no order as to costs.