1. In this appeal filed by the assessee for the assessment year 1984-85 against the order of the Commissioner (A), broadly two questions arise, both of them converging on the ground of exemption from levy of tax under Section 11 of the Income-tax Act, 1961.
2. The first point was as to whether the requirements of Section 12A(5) were satisfied in this case. It is an undisputed fact that the assessee was a charitable institution and was being granted exemption from levy of tax in the previous years. But this year the said exemption was declined on the ground that the requirements of Section 12A were not satisfied. While Section 11 of the Income-tax Act granted exemption on income derived from property held for charitable or religious purposes subject to certain conditions laid down therein, yet that exemption was not absolute and it was made subject to the further conditions imposed under Section 12A of the Income-tax Act. The conditions prescribed under Section 12A are, to quote from its own language: (a) the person in receipt of the income has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the Commissioner before the 1st day of July, 1973, or before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution, whichever is later: Provided that the Commissioner may, in his discretion, admit an application for the registration of any trust or institution after the expiry of the period aforesaid; (b) where the total income of the trust or institution as computed under this Act without giving effect to the provisions of Section 11 and Section 12 exceeds twenty-five thousand rupees in any previous year, the accounts of the trust or institution for that year have been audited by an accountant as defined in the Explanation below Sub-section (2) of Section 288 and the person in receipt of the income furnishes along with the return of income for the relevant assessment year the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed.
Under Clause (b) the requirement is that if the income exceeds Rs. 25,000, the accounts of the trust have to be audited by an accountant as defined in the Explanation below Sub-section (2) of Section 288 and the trust should furnish along with the return of income the report of the Auditor in the prescribed form duly signed and verified by such accountant. The controversy in this case centred round the meaning to be ascribed to the expression "such accountant". The accounts in this case were audited by a firm of Chartered Accountants known as Lovelock & Lewis but in the certificate required under Clause (b) above was given by another firm of Chartered Accountants called M/s Khare Associates. Since the firm of M/s Lovelock and Lewis audited the accounts of the trust, laying stress upon the expression "such accountant", the Inspecting Asstt. Commissioner (Asst.) held that the same firm of Auditors should also give the required certificate under Clause (b) and it was not open to any other Chartered Accountant to give such a certificate. According to him the expression "such accountant" meant the same accountant, who audited the accounts of the trust. On the basis of this interpretation, he held that the certificate given by M/s Khare Associates was not a valid audit report under Section 12A(b) and denied the exemption under Section 11 of the Income-tax Act. There was another reason given for the denial of exemption but we will deal with it a little later.
3. On this issue the Commissioner (A), before whom the first appeal was filed, agreed with the Inspecting Asstt. Commissioner. By referring to the provisions of Section 12A(b), which we have extracted above and the form No. 10B, which was prescribed under this section, the Commissioner (A) reinforced his view with the following observations: Therefore, both the audit report in form No. 10B and the 'prescribed particulars' are to be supplied only by the accountant who has made statutory audit of the trust/institution. In this case, as it has already been noticed, M/s Khare Associates had not made the statutory audit of the accounts of the appellant association. In their report dt. 20-9-1984 under cover of which the prescribed particulars were furnished, M/s Khare Associates admitted to have relied on the audit report of M/s Lovelock & Lewis. This being the position I must observe that the appellant association in obtaining the prescribed particulars being annexures to form No. 10B from an Accountant who had not audited their accounts failed to satisfy the requirements of Section 12A of the Act. I have, therefore, no hesitation in confirming the action of the IAC (Asst.) in denying to the appellant association the benefit of Section 11.
4. Against this view of the department, Shri Khare appearing for the assessee submitted that the view expressed by the department is not borne out by the language of Section 12A(b) or form No. 10B. The requirement of Clause (5) of Section 12A is only that the accounts of the trust must be audited by a Chartered Accountant and that the return should be accompanied by a certificate given-by him in the prescribed form containing the prescribed particulars. There is no condition that the statutory auditor alone should conduct the audit also for the purposes of Clause (b) of Section 12A. If the audit for the purpose of Clause (b) is conducted by a Chartered Accountant, who furnishes a report in the prescribed form containing the prescribed particulars, then the condition is satisfied. It was in fact this was being done in all the earlier years also and no objection was taken to it.
5. The learned Departmental Representative, on the other hand, relying upon the orders of the authorities below defended very strongly the view that the expression "such accountant" meant that the Chartered Accountant who audited the accounts must be the same as the Chartered Accountant who furnishes the certificate and the language in the section cannot be stretched to mean that the Auditor, who audited the accounts can be different from the Accountant, who gave the certificate except by doing violation to the expression "such accountant".
According to the expression "such accountant" means only the Chartered Accountant, who audited the accounts.
6. We have considered the rival submissions very carefully. In our opinion there is no warrant for the view that the statutory auditor alone should furnish the certificate to earn the exemption for the purpose of Clause (b) of Section 12A. If we carefully analyse Clause (b), it would mean that in case where the total income of a trust exceeds Rs. 25,000 its accounts must be audited by a Chartered Accountant and that Chartered Accountant must furnish an audit report in the prescribed form containing the prescribed particulars. The Chartered Accountant, who can audit the accounts can be any person, the only requirement being that he should be an accountant as defined in the Explanation below Sub-section (2) of Section 288. That Explanation provided that accountant means a Chartered Accountant within the meaning of Chartered Accountant Regulation Act, 1949 and includes in relation to any State any person, who by virtue of the provisions of Sub-section (2) of Section 226 of the Companies Act, 1956 is entitled to be appointed to act as an auditor of the company registered in that State. The expression "Chartered Accountant" has been defined in Clause (1)(b) of Section 2 of the Chartered Accountant Regulation Act, 1949 as "a person who is a member of the Institute of Chartered Accountants of India" i.e. any member of the Institute of Chartered Accountants of India holding a certificate of practice as required under that Statute is authorised to audit the accounts and if such an accountant is appointed to audit the accounts of the trust, he should conduct the audit according to the principles of auditing, which are not enshrined in any Statute except by conventions developed as to the verification of the income, the expenditure, the assets, the liabilities and the preparation of statement of accounts and furnish a report but that report must- be in the prescribed form setting forth such particulars as may be prescribed in form No. 10B and duly signed and verified by him. There is no compromise in this area of certification. Therefore the expression "such accountant" used in Clause (b) of Section 12A refers only to the accountant prescribed in the Explanation below Sub-section (2) of Section 288. It is thus clear that the audit of the accounts of the trust can be by one auditor and the certificate of it under Section 12A can be by another auditor only after auditing the accounts, All that the Clause (b) provides for is that the Chartered Accountant, who conducted the audit must give a certificate as is expected of him in the proscribed form containing the prescribed particulars. If a Chartered Accountant does not conduct an audit but gives a certificate in the prescribed form containing such particulars as may be prescribed duly signed and verified by him, such a certificate can be regarded as a false certificate based upon misrepresentation and such a certificate can be ignored provided it is proved that the Chartered Accountant furnished the certificate without conducting the audit as be held out. Only then a certificate can be said to be invalid liable to be rejected, in which case the Chartered Accountant, who gives such a false certificate will be guilty of professional misconduct and liable for disciplinary proceedings leading even to the removal of his membership from the Institute of Chartered Accountants. That has to be proved that the Chartered Accountant gave a false certificate. That is not the case here. Here the Inspecting Asstt. Commissioner and the Commissioner (A) both held that the same Chartered Accountant, namely, M/s Lovelock & Lewis must furnish a certificate under Clause (b) and it is not legally possible for any other Chartered Accountant to furnish such certificate after conducting the audit. This view is, in our opinion, very extreme and is not borne out by the language of Clause (b) of Section 12A. The Commissioner (A) observed that M/s Khare Associates stated in their arguments that they relied upon the audit report of the other firm of Chartered Accountants, namely, M/s Lovelock & Lewis and that argument was sought to be used to justify the conclusion that the certificate given by M/s Khare Associates was not to be acted upon. This again, in our opinion, is not a proper approach because it is open to a Chartered Accountant under the auditing procedures evolved by the Institute of Chartered Accountants of India for the benefit of the Chartered Accountants all over the country and perhaps this also is the practice prevalent over the rest of the world that a Chartered Accountant can always rely upon the certificate given by another Chartered Accountant. This is done day in and day out in day to day practice. In the cases of large companies, public sector undertakings, nationalised banks, the statutory auditors always rely upon the certificate given by other Chartered Accountants appointed to audit the accounts of various other transactions or branches or other aspects. While reliance upon the audit report of another Chartered Accountant is permissible under the auditing procedures, it is for the auditors, who rely upon such a report, to establish, if necessity arises, that there was no negligence on his part in performing his duties and if as a consequence of such a reliance, negligence results and that negligence causes a loss or injury to the users of those statements certified by him, then again he will be liable for defending himself against negligence and if unable to prove, for misconduct and disciplinary proceedings under the Chartered Accountant Regulation Act of 1949 would ensue. Thus the Chartered Accountant, who relies upon the certificate given by another Chartered Accountant, takes the risk of exposing himself to a charge of negligence in the performance of his duties. But that does not mean that the certificate given by him is not a valid certificate unless the contrary is proved. Therefore the expression . "such accountant" merely describes the Chartered Accountant, who is to furnish the certificate and it does not suggest that the statutory auditor alone is entitled to give the certificate required under Clause (b) and no one else. It is open to a trust or to an institution to have its accounts audited for the purpose of the management or to satisfy the requirements of other enactments by one Chartered Accountant and to have the accounts audited for the purposes of Clause (b) by another Chartered Accountant. The only requirement is that the Chartered Accountant, who is appointed to furnish a certificate under Clause (b) of Section 12A must audit the accounts in the same manner as the statutory auditor must have conducted the audit because the certificate that the statutory auditor is required to give appears to be more or less the same as the certificate required to be furnished by the Chartered Accountant conducting the audit under Clause (b) of Section 12A. From the mere similarity of the language it cannot be inferred that the Legislature intended that the statutory auditor must alone give the certificate under Clause (b) also. It is a matter of convenience and greatly facilitate the work if the same statutory auditor gives the certificate also but there is no prohibition as such that could be inferred from the language of Clause (b) of Section 12A. We are therefore of the opinion that the certificate given by M/s Khare Associates is a valid certificate and when he had certified that he has audited the accounts and when he has furnished the required certificate in the prescribed form, that certificate has to be acted upon and the only occasion when that certificate could be discarded is when it is proved to be false.
That not being the case of the department in this case, we hold that the certificate given by M/s Khare Associates cannot be discarded as invalid. This view of the department cannot therefore be accepted as being borne out from the language of Clause (b) of Section 12A.7. As regards the second question, it arose in the following way. The assessee-trust had certain shares in Spencer Co. Ltd., D.C.M. Ltd. and M/s Nava Bharat Perro Alloys Ltd. formerly known as Deccan Wine Syndiate (correct name is to be ascertained but there was a change in the name as a consequence of merger of that company). Those shares were sold during the year (actual date of sale not furnished). The accounting year of the assessee-trust ended on 31-3-1984. under Section 13(1)(d) of the Income-tax Act, as amended with effect from 1-4-1984, the trust will not be entitled to the exemption under Section 11 if any of its trust funds are invested or deposited after 28-2-1983 otherwise than in any form or mode prescribed in Section 11(5) or if the funds of the trust or the institution invested or deposited before 1-4-1983 otherwise than in any one or more of the forms or modes specified in Sub-section (5) of Section 11 continue to remain so invested or deposited after 30-11-1983. Since these shares were admittedly not in the form or mode prescribed under Section 11(5) and they continued to be held in that form even after 30-11-1983, the Inspecting Asstt.
Commissioner held that the assessee had violated its investment portfolio and therefore not entitled to the exemption under Section 11.
The assessee-trust submitted that even though it made efforts up to 29-11-1983 to sell the shares in the market, it did not get any appropriate price, with the result it could not unload itself of those shares. This submission did not find favour with the Inspecting Asstt.
Commissioner.
8. In further appeal before the Commissioner (A), the same view was taken by him also. Reliance was placed before the Commissioner (A) on a circular given by the C.B.D.T. in Circular No. 387 dated 6-7-1987 to justify the action of the assessee-trust for the lenient view. The Commissioner (A) by quoting the circular in full in his order distinguished it and held that that circular did not apply and that the assessee-trust was squarely hit by the mischief of Section 13(1)(d) of the Income-tax Act.
9. Against this view also appeal was filed before us and it was submitted on behalf of the assessee by Shri Khare that the proviso added to Section 13(1)(d), provided that nothing contained in that clause would apply in relation to any asset held by the trust or institution where such assets formed part of the corpus of the trust or institution as on 1-6-1973 and that these shares formed part of the corpus of the trust as on that particular date and that he would so prove with reference to the records of the assessee-trust if an opportunity is provided to him to establish this fact. For this purpose he filed additional grounds pointing out to the evidence on record to establish the fact that these shares formed the corpus of the trust fund before 1-6-1973 and requested us to admit them and send the matter, if necessary, for further investigation and for a finding to the authorities below in order that substantial justice is done. He further pointed out that this being a legal point should be admitted though it may require investigation into the facts." 10. The learned Departmental Representative opposed the admission of this additional ground by placing strong reliance on the recent decision of the Allahabad High Court in the case of Jagan-nath Prasad Kanhaiya Lal v. CIT [1988] 171 ITR 596, which took into consideration a decision of the Bombay High Court on the subject in the case of Velji Deoraj & Co. v. CIT [1968] 68 ITR 708 and an earlier Supreme Court decision in the case of Keshav Mills Co. Ltd. v. CIT [1965] 56 ITR 365.
Her submission was that the assessee had been given adequate opportunity and he had two occasions to file this evidence and raise this point i.e. before the Inspecting Asstt. Commissioner and the Commissioner (A) and having failed to adduce the necessary evidence before those two authorities, it had lost its right to ask for a further opportunity and that no case was made out other than negligence in support of the admission of this additional evidence. She also submitted that this additional evidence require investigation and therefore the Tribunal should be slow enough to admit this additional evidence. Relying upon Rule 29 of the Income-tax (Appellate) Tribunal Rules the learned Departmental Representative made a fervent plea that the assessee in this case having been allowed ample opportunity to present its case in all its aspects before the authorities below, should not now be allowed a further opportunity to produce documents and then ask for adjudication of its matter on the basis of those documents. The parties under the rule have no inherent right to produce additional evidence either oral or documentary. Even the Tribunal can permit additional evidence to be considered only in exceptional cases mentioned in the rule, namely, if the Income-tax authorities have decided the case without giving sufficient opportunity to the assessee to adduce evidence or the Tribunal requires any document to be produced or any witness to be examined or for any other substantial cause. On the facts of this case, it cannot be said that the income-tax authorities decided the case without giving the assessee sufficient opportunity. The inability of the assessee to press its point cannot be considered a substantial cause for the Tribunal to interfere. It was in support of these arguments that reliance was placed on the cases referred to above.
11. Rule 29 of the Income-tax (Appellate) Tribunal Rules, on which both the parties placed their reliance provides as under: 29. The parties to the appeal shall not be entitled to produce additional evidence either oral or documentary before the Tribunal, but if the Tribunal requires any documents to be produced or any witness to be examined or any affidavit to be filed to enable it to pass orders or for any other substantial cause, or, if the income-tax authorities have decided the case without giving sufficient opportunity to the assessee to adduce evidence either on points specified by them or not specified by them, the Tribunal, for reasons to be recorded, may allow such document to be produced or witness to be examined or affidavit to be filed or may allow such evidence to be adduced.
This rule came for interpretation before the Allahabad High Court in the case of Jagannath Prasad Kanhaiya Lal (supra). In that case the Income-tax Officer made a consolidated order of assessment on the assessee for the assessment years 1960-61 and 1964-65 to 1967-68.
Subsequently recovery proceedings were commenced in 1970. The assessee then filed a writ petition on the ground that the recovery proceedings were not valid as the assessment order and the demand notice had not been served on the assessee. The writ petitions were, however, dismissed as not pressed. The assessee filed appeals against the assessments on 2-8-1977 by stating that the assessment order and demand notices were served on 24-7-1977. The Income-tax Officer, however, submitted that the assessment order and the demand notice were served on the assessee on 24-10-1968 and corroborated this fact by filing an affidavit to that effect. The Appellate Asstt. Commissioner dismissed the appeals on the ground of limitation. Thereafter the assessee filed a further appeal before the Tribunal. Along with the memorandum of appeal the assessee filed some fresh documents by way of additional evidence without any application or affidavit mentioning their relevance. The Tribunal refused to allow the additional evidence. Then the question arose as to whether the Tribunal was justified in refusing to admit the additional evidence. Dealing with this point the Allahabad High Court has laid down that Rule 29 of the Income-tax (Appellate) Tribunal Rules, 1963 unambiguously states that the parties to the appeal before the Tribunal shall not be entitled to produce additional evidence either oral or documentary before the Tribunal. It has, however, vested a discretion and power in the Tribunal to admit additional evidence, if it so requires or for a substantial cause or if the Income-tax Officer had decided the case without giving fresh opportunity to the assessee to adduce evidence. Then it laid down that a party desiring to adduce additional evidence having a decisive or clinching value with reference to the points at issue may, however, invite the Tribunal to invoke its power under Rule 29 on the ground that the evidence was not available earlier or the party was prevented from adducing it before the authorities below or for any other substantial cause. Then it pointed out that a clear and specific pleading in support of the claim for allowing additional evidence must be made out by a notice to the other side.
12. We have therefore to examine whether the ambit and scope of Rule 29 of the Income-tax (Appellate) Tribunal Rules, 1963, as explained by the Allahabad High Court, applies to the facts of the case before us. This is not a case where the assessee has pleaded that there was lack of evidence but the point made out by the learned counsel for the assessee was so decisive and of clinching value with reference to the points at issue that the inherent power of the Tribunal has to be invoked in favour of theassessee, if substantial justice is to be rendered and if justice is not to be denied on technical grounds.
13. In our opinion the decision of the Allahabad High Court so strongly relied upon by the learned Departmental Representative does not come in the way of admission of this important piece of additional evidence, which goes to the very root of the assessment if found to be correct and established. The law clearly provides an exception to the conditions provided in Clause (d) of Sub-section (1) of Section 13. So when an exception has been enacted in the section itself, the assessee is entitled to take the benefit of that exception if he is able to establish the conditions prescribed for the application of that exception. The learned counsel for the assessee very candidly admitted before us that they have missed that proviso and that was the reason that a reference to it was not made before the earlier stages. Since these shares formed the corpus of the trust fund even prior to 1-6-1973 and that evidence was available from the records, this was not a question of fabrication or manipulation of evidence but only representing an aspect of the same by pointing out that the provisions of Section 13(1)(d) are not attracted for a different reason. One line of argument was adopted before the authorities below and another line of argument was being taken up before the Tribunal pointing out to the same effect, namely, non-application of the provisions of Section 13(1)(d). We are therefore of the opinion that the additional evidence is very relevant decisive and of clinching value and should be admitted along with the additional grounds. The assessee-trust cannot be denied exemption merely on this technical ground. Non-admission of the additional evidence, if it is very relevant to determine the case, would amount to even miscarriage of justice. We are therefore of the opinion that the additional evidence should be admitted and it should be got verified by the authorities below for its correctness and as to its applicability for the exception carved out in Section 13(1)(d). We therefore set aside, insofar as this point is concerned, the order of the Commissioner (A) and remit the case back to him for examination of the additional evidence and then to give his finding on this issue.