ITO vs. Sir Kikabhai Premchand Trust (ITAT Mumbai)

DATE: (Date of pronouncement)
DATE: October 2, 2010 (Date of publication)

Click here to download the judgement (kikabhai_premchand_charity_audit_report.pdf)

Non-filing of audit report with ROI not fatal to s. 11 exemption

The assessee, a charitable trust, filed a return claiming exemption u/s 11 in respect inter alia of a receipt of Rs. 35.70 crores on sale of property. The audit report in Form 10B was not filed with the return. During the assessment proceedings, the assessee’s trustee gave a statement u/s 131 to the AO in which he stated that no audit report u/s 10B was obtained. Subsequently, the said statement was retracted on the ground that the trustee was not a tax expert and had no knowledge of the audit report. It was claimed that the audit report had been obtained but was omitted to be filed with the return. The audit report was thereafter filed during the assessment proceedings. The AO took the view that u/s 12A(1)(b) the requirement of the accounts being audited and the audit report being filed with the return was mandatory and the failure to do so dis-entitled the assessee to exemption u/s 11. The AO also rejected the retraction as an after-thought. However, the CIT (A) allowed the claim on the ground that the filing of the report during assessment proceedings was sufficient compliance with s. 12A(1)(b). On appeal by the department, HELD dismissing the appeal:

(i) Though s. 12A (1)(b) provides that the exemption u/s 11 will be available only if the accounts are audited and audit report “furnished along with the return”, the same is not mandatory but is directory. The audit report in Form 10B affirms the statements contained in the balance sheet and income-expenditure statement and is intended to enable the AO to allow the exemption by relying on the audit report and without having to ask the assessee to furnish supporting documents in support of the claim. Such a procedural provision cannot be construed as mandatory because the defect can be cured at a subsequent stage. It is not the intention of the Legislature that the exemption u/s 11 should be denied merely because the audit report was not filed with the return. CIT vs. Hardeodas Agarwalla Trust 198 ITR 511 (Cal) followed;

(ii) On facts, as the trust had filed, with the return, the audit report required to be given under the Bombay Public Trust Act, the claim that the audit report in Form 10B had also been obtained but had been omitted to be filed with the return was acceptable. Also, the AO was not justified in rejecting the retraction of the trustee. The AO did not controvert the averments in the retraction affidavit nor did he cross-examine the trustee. Accordingly, the claim for s. 11 exemption was upheld.

For the law on retraction see Vinod Solanki vs. UOI (SC) and Meghraj Jain vs. UOI (Bom). For more on the law of “along with the return” see The Consolidated Digest of Important Case Laws.

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