1. The assessee in this case are the Trustees of Virji Peraj Trust. The assessee is aggrieved by the order of the Commissioner (Appeals) upholding the order of the ITO that the assessee was not eligible for exemption under Section 11 of the Income-tax Act, 1961 ('the Act') in respect of a part of its income.
2. Virji Peraj, by a settlement deed dated 8-6-1931, settled certain movable and immovable properties, including certain interest in two registered firms on trust for certain objects, which were patently non-charitable and for certain objects, which were stated to be charitable. This deed was further modified by a further deed dated 27-6-1946. For the assessment year under consideration, it was claimed before the ITO that the income deriv-de from certain sources was exempt under Section 11. The balance of the income was admittedly to be taxable. Since the declared income of the assessee without giving effect to the provisions of Section 11 exceeded Rs. 25,000, the accounts of the trust were required to be audited under Section 12A(b) of the Act and the trustees were expected to have furnished along with the return of income for the relevant assessment year, a report of such auditor in the prescribed form as required under the aforesaid section.
The assessee filed the return of income on 30-8-1978 without such an audit report accompanying the return. As the assessee's case was otherwise liable for action under Section 144B of the Act, the ITO drew up a draft assessment order and forwarded it to the IAC on 12-3-1981 observing therein that the books of account of the assessee-trust were not audited as per the provisions of Section 12A(b) and, accordingly, the assessee was not eligible for exemption under Section 11 even in respect of the income other than business income. As stated earlier, the settlor had settled his share in two vegistered firms also on trust. The trust was deriving certain income from this source. In respect of the income from this business activity, the ITO held that the case was fully covered by the provisions of Section 13(1)(bb) of the Act and the assesseewas not eligible for exemption in respect of such business income. When the proceedings under Section 144B were in progress before the IAC, the assessee got the accounts audited and filed a report before him on 23-7-1981. In the meanwhile, by its letter dated 24-3-1981, the assessee explained to the ITO that there was a change of auditor and due to the fall of the office of the auditor the files and the books of account were misplaced. Hence, the audit of the accounts was delayed. Therefore, the ITO was requested to grant time for completion of the audit. It was further submitted that these facts and circumstances were beyond the control of the assessee.
3. In due course, the IAC considered the draft assessment order submitted by the ITO and after hearing the assessee's representatives issued instructions to the ITO under Section 144B(4), wherein he observed that although the audited accounts were filed during the proceedings under Section 144B before him, he considered them to be invalid since, according to him, the requirement of the law was that the audited accounts should have been filed with the return of income.
Subject to these remarks, he approved the draft assessment order submitted by the ITO. The ITO, accordingly, completed the assessment under Section 143(3) of the Act read with Section 144B rejecting the entire claim for relief under Section 11.
4. The assessee appealed before the Commissioner (Appeals) on various grounds, one of the grounds being that the ITO had erred in holding that the books of account of the assessee-trust were not audited as per the provisions of Section 12A(b) when in fact the audited balance sheet and the profit and loss account were filed by the assessee during the assessment proceedings. After dealing with the other grounds, the Commissioner (Appeals) observed that since the denial of exemption was justified on the primary ground of the applicability of, Section 13(1)(bb), it was not necessary for him to consider the arguments of the assessee regarding the applicability of Section 12A(b), which was mentioned by the assessing authority only to support the main ground for refusal of exemption under Section 11.
5. The assessee has filed an appeal before the Tribunal on various grounds numbering in all 13. One of the grounds is that the Commissioner (Appeals) erred in holding that the assessee-trust was not eligible for exemption under Section 11. During the course of the hearing, the assessed filed an additional ground to the effect that the Commissioner (Appeals.) was not justified in not considering the argument of the assessee regarding the violation of the provisions of Section 12A(b). According to the assessee, the Commissioner (Appeals) ought to have held that the requirements of Section 12A(6) were not mandatory but only directory in nature and, therefore, exemption under Section 11 could not be denied to the assessee on this ground only. It was explained on behalf of the assessee that the additional ground was being filed out of abundant caution. Actually the point is stated to have been covered by the ground about the non-availability of exemption under Section 11. In support of this additional ground our attention is invited to a large number of the Tribunal decisions wherein it has been held that where the law required that the return claiming certain reliefs should be accompanied by an audit report, it was enough if the audit report was submitted before the ITO finally concluded the assessment. For example, the decision in IT Appeal No. 1427 (Jp.) of 1980 decided by the Cuttack Bench of the Tribunal camping at Jaipur, wherein the Bench has held that the provisions of Section 12A(6) were procedural and enabling provisions. The requirement appears to be that for finalising the assessment the audit report should be made available to the ITO for properly investigating the issue. It was, therefore, difficult to read that it was mandatory and that the report should definitely and positively be accompanied with the return of income. The Tribunal, Delhi Bench 'B', in Laxmi Rice Mills v. ITO decided on 13-4-1982 by the Hon'ble Judicial Member, sitting as a single member, has decided the appeal and who happeas to be sitting on the present Bench, that the requirement under Section 80J(6A) of the Act that the audit report should be filed along with the return of income for claiming relief under Section 80J was only directory and on facts there was sufficient and proper compliance with this requirement. The Hon'ble member has held that Section 80J(6A) was an enabling provision and should not be construed in a narrow and technical manner if other requirements of law were satisfied. The Chandigarh Bench of the Tribunal in the case of Maha-laxmi Rice Factory v. ITO [IT Appeal No.429 (Chd.) of 1980 decided on 22-2-1983] held likewise. To the same effect is the decision of the Tribunal, Madras Bench 'D', in the case of Coromandel Steel Products v. ITO [IT Appeal No. 1582 (Mad.) of 1981 decided on 2-4-1982]. The Tribunal, Ahmedabad Bench 'C, in the case of Gujarat Oil & Allied Industries v. ITO [IT Appeal No. 898 (Ahd.) of 1980 decided on 29-9-1981] has taken the same view. Finally, our attention is invited to the Patna High Court decision in the case of Purusottam Lal Kishorilal v. CIT [1978] 115 ITR 377 where the learned Judges had occasion to deal with the provisions of Section 184(7) of the Act to the effect that for claiming the benefits of registration under Section 185 of the Act, the firm, which was previously granted registration, should file a declaration in Form No. 12 'along with' the return of income. The learned Judges held that all that the Legislature intended was that the return should be duly filed and the declaration should be duly made and both the documents should be before the assessing authority at the time when he was applying his mind to the assessment of any particular firm. If these conditions were satisfied, the advantage of renewal of registration under Section 184(7) must follow to the assessee-firm. On behalf of the revenue, it was submitted that the assessee was not competent to take the additional ground of appeal as late as this. Apart from that, it was submitted that the ground did not arise out of the order of the Commissioner (Appeals).
Further, on merits, it was submitted that the accounting period of the assessee ended on 11-11-1977. The return was due on 30-6-1978. It was filed on 30-8-1978 without the auditor's report. There was no explanation for the default under Section 12A(b). The assessee filed the audit report before the IAC as late as on 23-7-1981. There is no explanation for the inordinate delay. The assessee's case suffered from laches. Apart from that, the ITO had no opportunity to examine the auditor's report before he could finally say whether the assessee was eligible for exemption under Section 11. Further, reliance is also placed on the Bombay High Court decision in the case of Velji Deoraj & Co. v. CIT [1968] 68 ITR 708. Particular reference is made to the observations of the learned Judges at page 714 of the report to the effect that the admission of the additional evidence in an appeal before the Tribunal was depending upon the Tribunal having required it for the purpose of pronouncing its judgment or for the purpose of curing some inherent lacuna, which it had itself discovered.
6. We have carefully considered the facts and circumstances of the case and the arguments on either side. We shall first deal with the objections on behalf of the revenue to the admission of the additional ground. The learned departmental representative has objected to the admission of the ground firstly, on the plea that it was submitted too late and secondly, that it did not arise out of the order of the Commissioner (Appeals). We are unable to agree with either of these objections. The ground was taken before the Commissioner (Appeals) but the Commissioner (Appeals) has not adjudicated upon it. The ground remains an open issue for being taken up before the Tribunal. As regards the delay, in our opinion, the ground is part and parcel of the assessee's ground regarding the availability of the exemption under Section 11. All that the assessee has done now is out of abundant caution chosen to chisel it out as a separate ground. The ground is admitted.
7. As regards the objections on merit, on behalf of the revenue, we have carefully considered the Bombay High Court decision in the case of Velji Deoraj & Co. (supra). The decision of the Bombay High Court is clearly on a different subject. It has no relevance to the issues presently before us. The audit report was expected to be filed along with the return of income. The question is what is the meaning of the term 'along with'. The only direct judicial authority on the subject is the Patna High Court decision in the case of Purusottam Lal Kishorilal (supra), wherein the learned Judges have explained the meaning of the term 'along with', though in a different context. The same view has been universally accepted by the Tribunal in all the Benches as can be seen from the Tribunal decisions relied upon by the assessee. On behalf of the revenue, not a single decision to the contrary either of the High Court or of the Tribunal has been brought to our notice. In the circumstances, we are inclined to hold that under Section 12A(b) what was required was that the auditor's report should ordinarily be filed along with the return of income, in any case, not after the ITO makes his final assessment dealing with the assessee's claim under Section 3. On a perusal of the orders of the authorities below, we find that, though the assessee had filed the auditor's report before the ITO made the final assessment under Section 143(3), the ITO did not have the advantage of the audit report before he submitted the case to the IAC under Section 144B. The IAC has not availed of the opportunity to scrutinise the audit report. In the circumstances, in the instant case, we are inclined to hold that the audit report has not received the attention due to it. Therefore, in our opinion, the revenue is entitled to succeed on the plea made on its behalf by the learned departmental representative that the report should be made available to the ITO for a further scrutiny, if it was finally decided to admit it. We, therefore, hereby direct that the ITO will take the audit report on record and process the assessee's plea for exemption under Section 11 afresh. Since the orders of the lower authorities have proceeded without consideration of the audit report, the assessment order is set aside. The ITO will reframe the assessment afresh in accordance with law.
9. In the circumstances, we find it unnecessary to deal with the assessee's other grounds of appeal, namely, concerning the applicability of the provisions of Section 13(1)(bb) to the facts of the present case. As stated earlier, the assessee has appealed against the orders of the authorities below on as many as 13 grounds. The ITO will, in the reassessment proceedings, apply his mind to the assessee's objections taken before us to the denial of exemption by application of the provisions of Section 13(1)(bb).