TMI Blog2010 (9) TMI 716X X X X Extracts X X X X X X X X Extracts X X X X ..... esult, the appeal of the revenue as well cross objection of the assessee are dismissed - IT APPEAL NO. 5308 (MUM.) OF 2009 C.O. NO. 82 (MUM.) OF 2010 - - - Dated:- 22-9-2010 - N.V. VASUDEVAN, R.K. PANDA, JJ. Hemant Lal for the Appellant. K. Shivram and P.N. Shah for the Respondent. ORDER N.V. Vasudevan, Judicial Member. This is an appeal by the revenue against the order dated 18-6-2009 of CIT(A) XXX, Mumbai relating to assessment year 2006-07. The assessee has also filed cross objection. The grounds of appeal raised by the revenue read as follows: 1. On the facts and in the circumstances of the case, and in law, the ld. CIT(A), Mumbai, erred in directing the Assessing Officer to allow the benefit of exemption under section 11 of the Act, 1961, no appreciating the fact that the trustee Shri Madhav V. Shah during the course of statement under section 131 recorded in this office on 13-10-2008 had categorically stated that the audit was never conducted and no audit report in form No. 10B was ever prepared and further not appreciating the fact that the conduct of audit under section 12A(1)(b) being the mandatory condition for allowance of exemption unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a return of income for assessment year 2006-07 declaring total income at nil and claiming a refund of TDS. Along with return of income the assessee had filed income and expenditure account, balance sheet and auditors report required under the Bombay Public Trust Act, 1950, besides several other documents. During the previous year the assessee had sold an immovable property at Pune which was held under the Trust for a consideration of Rs. 35.70 crores after getting necessary permission from the Charity Commissioner. The aforesaid receipt was taken to the corpus as per directions of the Charity Commissioner (order dated 31-5-2005) and the same was claimed as exempt under section 11(1A) of the Income-tax Act, 1961, hereinafter referred to as the Act . Besides the above the assessee was also in receipt of income in the form of capital gain, interest income received by the assessee, donation received by the assessee, sundry income and dividend income. The entire income was claimed exempt under section 11 of the Act. 4. The Assessing Officer noticed that in the form of return of income, the assessee has not filed Audit Report in Form No. 10B with the return of income. In para 39 i.e. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nection with proceedings under the Act. On 13-10-2008 Shri Madhav V. Shah appeared before the Assessing Officer and his statement was recorded under section 131 of the Act. For the present case answer to Question Nos. 4 to 8 are important and they read as follows: Q.No.4. I am showing you para 39 i.e. List of documents/statements attached . As per your knowledge, has it been certified correctly. Ans. Yes it has been certified correctly. Q.No.5. I am showing you para 39(b) i.e. Audit Report in Form No. 10 B which has been certified as - What does _ mean. Has it been certified correctly. Ans. It means Not Applicable . Since the Report in form No. 10B was not applicable, the same was certified as - It has been correctly certified. Q.No.6. Does that mean that no Audit Report in Form 10B was filed with the return of income as the same was not applicable. Ans. Yes. That is why no Audit Report in Form No. 10B was filed with the return of Income. Q.No.7. Was any Audit Report prepared in Form No. 10B which could not be filed for any reason. Ans. No. Since the same was not applicable, no audit report in Form No. 10B was ever prepared. Q.No.8. Do you wish to say ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and not an expert in the field of accountancy and Income-tax and, therefore, he does not know about the audit report in Form No. 10B of the Act. The assessee further pointed out that in reply to Question No. 6, Shri Madhav V. Shah had replied that he does not know anything about audit report in Form No. 10B and whether the same is applicable to the assessee Trust. It was also clarified that Shri Madhav V. Shah had asserted that audit of accounts of the Trust was done. Even in reply to Question No. 7, Shri Madhav V. Shah had pleaded that he was not aware about the audit report in Form No. 10B of the Act. The assessee, therefore, took a stand that the statement of Shri Madhav V. Shah has not been correctly recorded by the Assessing Officer. The facts were affirmed by Shri Madhav V. Shah in an affidavit filed before the Assessing Officer. In the affidavit Shri Madhav V. Shah also affirmed that he had gone to attend the hearing before the Assessing Officer on 13-10-2008 along with Authorised Representative (A.R.) of the Trust, Mr. Kirit P. Mehta, C.A. The Assessing Officer asked Shri Kirit Mehta to leave Shri Madhav V. Shah alone in his office and started recording his statement. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as left blank. Thereafter the Assessing Officer held that the statement recorded under section 131 of the Act had evidentiary value. The Assessing Officer thereafter referred to the provisions of section 12A(1)(b) of the Act and concluded that the requirement of the accounts of the Truest being audited and the requirement of the same to be furnished along with return of income was mandatory. The Assessing Officer held that since the assessee failed to fulfil the above requirement the exemption under section 11 had to be denied. For the aforesaid reasons the Assessing Officer brought to tax the income in the form of capital gain declared in the return of income and claimed exempt, the sale process of property at Pune, the interest income received by the assessee, donation received by the assessee, sundry income and dividend income to tax after allowing expenses debited in the Profit and Loss Account. 12. Aggrieved by the order of the Assessing Officer the assessee preferred an appeal before CIT(A). Before CIT(A) the assessee reiterated the stand as taken before the Assessing Officer. The assessee further contended that in the event of Form No. 10B not having been filed along with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd No. 2 taken by the Respondents in its grounds of appeal before the said CIT(A). 2. The Respondents submit that if the ground taken by the appellant is allowed, the income of the Respondents should be computed under the normal provisions of the Income-tax Act. It is submitted that the Assessing Officer has computed the total income at Rs. 37,33,40,030 as income from other sources although there was income from (i) capital gains on sale of investment Rs. 13,00,856, (ii) long-term capital gain on sale of property Rs. 35,44,68,066, (iii) dividend from mutual fund (exempt) Rs. 60,34,808 and (iv) donation of Rs. 3,00,000. 16. The Assessee has filed a cross objection because, the Assessing Officer after refusing exemption to the assessee under section 11 of the Act, treated all the items of income as Income from other sources. It is the plea of the assessee that even assuming the exemption under section 11 is denied to an assessee, total income has to be computed by the Assessing Officer in accordance with the provisions of the Act and not in the manner as was done by the Assessing Officer. 17. Before us the ld. D.R relied on the order of the Assessing Officer. He reiterated th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0B was signed by the chartered accountant on 20-2-1985. The Income-tax Officer completed the assessment denying exemption under section 11 of the Income-tax Act, on March 5, 1985, on the ground that the certificate in Form No. 10B had not been filed as required by the law. The assessee, being aggrieved, preferred an appeal before the Commissioner of Income-tax (Appeals). At the hearing of the appeal before the Commissioner of Income-tax (Appeals), the assessee submitted two copies of the audited accounts and the report of the auditor in Form No. 10B. The Commissioner of Income-tax (Appeals) held that the trust had not fulfilled the conditions laid down in section 12A(b) and, consequently, its income was not entitled to exemption provided under sections 11 and 12 for the assessment year under consideration. Against this finding of the Commissioner of Income-tax (Appeals), the assessee took the matter to the Tribunal. In the appeal before the Tribunal, it was argued by the assessee that the filing of the auditor s report in Form No. 10B along with the return was not mandatory but it was only directory. Reliance was placed on certain decisions of the High Courts and the Tribunal. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, 1962, lays down that the report of audit of the trust or the institution should be in Form No. 10B. The annexure to Form No. 10B requires the auditor to certify as to the application of income for charitable or religious purposes and the non-application or non-user of income or property for the benefit of persons referred to in section 13(3). The certificate is, ordinarily, based on the statement of the managing trustees. The balance-sheet and income and expenditure statement would necessarily contain the particulars of the application of income and non-user of income or property. The certificate of the auditor only affirms the statements contained in the balance-sheet and income and expenditure statement. The Assessing Officer can rely on the certificate for allowing the benefit of exemption. This is a procedural matter for the purpose of enabling the Assessing Officer to complete the assessment on the basis of the certificate of the auditor without even asking the assessee to furnish supporting documents in support of the claims and contentions made in the return based on the balance-sheet and the income and expenditure statement. It is now well-settled that a procedural pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounts and also disclosed receipts and disbursement correctly. This report is dated 11-10-2006 and had been filed along with return of income. In these circumstances we are of the view that the report in Form No. 10B, which is similar to the report under the Bombay Public Trust Act, 1950 would not have been obtained by the assessee. The plea of bona fide omission to file Form No. 10B along with return of income in our view deserves to be accepted. There is no reason why the affidavit of Shri K.P. Mehta, C.A. filed in this regard should be rejected. We also notice that the Assessing Officer even after the affidavit was filed as above, did not choose to controvert the allegations in the affidavit of Madhav V.Shah regarding the correct answer given by him. He has also not chosen to cross examine Madhav V. Shah. The reason assigned by the Assessing Officer for not accepting the affidavit of K.P. Mehta by the Assessing Officer is that there is no explanation why the report was not filed along with the return of income. The plea that it was omitted to be filed due to oversight was totally ignored by the Assessing Officer. We, therefore, accept the plea of the assessee in this regard and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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