2001 (11) TMI 22 - HC - Income Tax

Exemption Charitable Trust - 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. - 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 exist ence 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. - 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.

Summary

Issues:
1. Whether non-filing of the audit report in Form No. 10B would defeat the claim of the assessee for exemption under sections 11 and 12 of the Income-tax Act, 1961.

Analysis:
The High Court of MADRAS considered the case of a trust for the assessment year 1987-88, where the assessee failed to submit the required audit report along with the income tax return, leading to the rejection of the claim for exemption under sections 11 and 12 of the Income-tax Act, 1961. The Commissioner, on appeal, acknowledged the defect but still granted the benefit of exemption under section 11 without the audit report. The Tribunal upheld this decision, prompting the Revenue to challenge it. The court delved into the provisions of Section 12A(b) of the Act, emphasizing the necessity for trusts to comply with the audit report requirement to claim benefits under sections 11 and 12. Additionally, Section 139(9) was discussed, highlighting the Assessing Officer's duty to notify and allow rectification of defects in the return of income, failing which the return could be treated as invalid. The court noted that the failure to file the audit report rendered the return defective, impacting the eligibility for sections 11 and 12 benefits.

Moreover, the court emphasized the importance of Section 139(9) in preventing undue hardship for assessees with incomplete returns, underscoring the Assessing Officer's role in providing opportunities for rectification. The judgment highlighted that doubts should be resolved in favor of the assessee, and the provisions of the Act benefiting the assessee should be upheld. Despite the assessee's claim of inadvertence in not filing the audit report, the court noted the absence of evidence supporting the submission of the report at any point. The Commissioner's decision to overlook the defect and grant unwarranted benefits, upheld by the Tribunal, was deemed erroneous by the court. Consequently, the court ruled in favor of the Revenue, emphasizing the need for compliance with statutory requirements for claiming exemptions under the Income-tax Act, 1961, and overturning the decision granting benefits without the necessary audit report.