This article loses its value on account of amendment vide Finance Act 2018 by which the new insertion in section 12A was made “(ba) the person in receipt of the income has furnished the return of income for the previous year in accordance with the provisions of sub-section (4A) of section 139, within the time allowed under that section.]
A trust or institution or society registered for tax exemption under section 12AA needs to get its accounts audited if the total income is more than the exemption limit. It was previously posted that the rules about filing of audit report along with tax return in Form 10B is held by Courts as directory and not mandatory. But, the filing of Form 10B is mandatory before the assessment order is passed by the A.O . However, this post is examining if the audit certificate in Form 10B can be obtained after the due date of filing the return. In other words, whether an audit report can be signed after the due date and submitted before assessment to the A.O ?
Audit Report U/s 12A is Not Same as Tax Audit u/s 44AB
There is an express provision for audit under section 44AB Income Tax Act for personsearning income from business or profession . Legislature has provided the specific mention of the date ( due date fro filing of tax returr) by which the audit report must be obtained under section 44AB .As far as trust society covered u/s 11 is concerned ,there is no specific rules regarding the obtaining the audit report within a specified period .
Let us compare section 12A language with the provision of tax audit report u/s 44AB , wherein it is clearly provided that the audit must be completed before specified date ( due date) . Read the excerpt
44AB. Every person,—
get his accounts of such previous year audited by an accountant before the specified date and furnish by that date 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 :
However , under section 12A , there is merely a provision for obtaining the audit of accounts certificate in Form 10B and not for getting the accounts audit within any specified time . The relevant part of the provision
(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 the maximum amount which is not chargeable to income-tax 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.
So , the requirement under section 12A is for obtaining an audit report in Form 10B . There is no specified date for obtaining such certificate.
Case Laws on Obtaining Form 10B
Two decisions of Hon’ble Calcutta High Court is base for many decisions of ITAT on the afresaid issue. in the case of CIT vs. Rajbahadur Bishwesharlal Motilal Malwasie Trust, 195 ITR 825(Cal) and CIT vs. Hardeodas Agarwalla Trust ( 1992) 198 ITR 511 (Cal), wherein it was held that audit report field in Form No.10B in the course of assessment proceedings is sufficient to claim exemption u/s. 11 of the Act.
In the Hardeodas case , the fact of the case was that the trust filed a return for the relevant assessment year without the auditor’s certificate in Form No. 10B on December 16, 1983. The assessee, however, filed the balance-sheet as at March 31, 1982, and the income and expenditure account along with the return. The auditor’s certificate was not furnished even at the time of hearing. The accounts of the trust were audited on February 20, 1985, and the report of such audit in the statutory Form No. 10B was signed by the chartered accountant on February 20, 1985.
Most important point that should be noted is that the date of obtaining the audit report was Feburary , 20, 1985 , much after the date of filing of tax return by the trust i.e December 16, 1983.
The Hon’ble Kolkata High Court held as follows:
“The question whether a statute is mandatory or directory depends upon the intent of the Legislature and upon the language in which the intent is clothed. The meaning and intention of the Legislature must govern and these are to be ascertained, not only from the phraseology of the provision, but also by considering its nature, its design, and the consequences which would follow from construing it in one way or the other.
Under section 12A of the Income-tax Act, 1961, exemption from income-tax in respect of income derived from property held under trust or by way of voluntary contribution received from other charitable or religious trusts or institutions will be available only if the conditions mentioned in clauses (a) and (b) of that section are satisfied. Sub-clause (b) provides that, where the total income of the trust or institution (without giving effect to the provisions of sections 11 and 12) exceeds Rs. 25,000 in any previous year, “the accounts of the trust or institution for that year have been audited by the accountant” 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.
For very many reasons, the audit report may not be available before the return is filed. Rule 17B of the Income-tax Rules, 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 provision, ordinarily, should not be construed as mandatory, if the defect in the act done in pursuance of it can be cured by permitting appropriate rectification to be carried out at a subsequent stage. Having regard to the object of section 12A, it cannot be said that the Legislature intended that, even where the trust has got its accounts audited and the certificate obtained in Form No. 10B before the assessment is completed, merely because such report could not be filed in the course of the assessment proceedings, it would deprive a trust from getting the exemption if it is otherwise entitled to it in law. The direction that the audit report should accompany the return is not mandatory as the omission to do it may be rectified by filing the report at a later stage before the assessment is completed.
It must also be noted that for filure to get accounts within specified time, there is penalty provision under section 271B of the Income Tax Act , but there is no similar penal provision for obtaining audit in Form 10B late.
Conclusion on Obtaining Form 10B
So , it is clear that in case of a trust or society covered u/s 12A , following legally settled principles as far as audit of accounts are concerned are important
1. The audit of accounts is mandatory.
2. The report must be in the Form 10B .
3. The audit report date is not specified under the I.Act
4. The audit report in form 10B must be submitted to the assessing officer before the assessment is completed .