ASHOK BHAN, J.

1. At the instance of the Revenue, the Income-tax Appellate Tribunal, Amritsar (hereinafter referred to as "the Tribunal"), after drawing up a statement of the case, has referred the following question of law to this court for its opinion :

" Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in setting aside the order of the Appellate Assistant Commissioner in regard to filing of the audit report in terms of the provisions of Section 12a (b) and in directing the Appellate Assistant Commissioner to allow the assessee to submit the said audit report to him at the appellate stage "

2. For the assessment year 1977-78, the assessee which is a charitable trust claimed that its income was exempt from payment of income-tax under Sections 11 and 12 of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), being income of the public charitable trust. The assessee had been allowed the benefit of exemption in respect of its income in the past years regularly ; however, for the assessment year 1977-78 which is in issue, it was found by the Income-tax Officer that its income was not liable to be treated as exempt under Section 11 of the Act. It was further held by the Income-tax Officer that the assessee was not entitled to the exemption as it had failed to furnish the auditors report which was required to be done mandatorily under Section 12a (b) of the Act.

3. The assessee carried an appeal before the Appellate Assistant Commissioner who after hearing counsel for the assessee was satisfied that the first objection of the Income-tax Officer did not have any merit. The appellate authority found substance in the second objection taken by the Income-tax Officer. According to him, the provisions contained in Section 12a (b) made it mandatory for the assessee to furnish the auditors report duly signed and verified by the chartered accountant with the return of income. Failure to furnish the auditors report disentitles the assessee to claim the exemption under Sections 11 and 12 of the Act. The assessees request to take the report of the auditor during the pendency of the appeal on record was rejected by the appellate authority on the ground that the submission of the auditors report along with the furnishing of return was mandatory. Since the assessee had failed to furnish the report along with the return before the Income-tax Officer, the appellate authority could not take the same on its file. The plea of counsel for the assessee that the Income-tax Officer had not provided him with an opportunity to produce the auditors report in the prescribed form was not accepted. The Appellate Assistant Commissioner dismissed the appeal on the ground that the assessee had not furnished the auditors report in the prescribed form.

4. Thereafter, the assessee filed an appeal before the Tribunal and reiterated its plea which had been raised before the Appellate Assistant Commissioner. According to the assessee, there was no motive for withholding the auditors report. It was thought that the requirement of the section was fulfilled in furnishing the income and expenditure account, balance-sheet and the auditors note. It was not mandatory to furnish the auditors report along with the return and the same could be furnished at a later date as well especially when the same was done under a bona fide mistaken view of law. The Tribunal accepted the plea of the assessee. It was held that having furnished the audited accounts comprising income and expenditure, balance-sheet and the auditors note giving most of the particulars required in the auditors report prescribed in Section 12a, there could be no motive in withholding the auditors report. It was held that the provisions contained in Section 12a (b) have to be fulfilled if exemption of income is required under Sections 11 and 12 but the law did not provide any time limit for production of the report. It was held that the first appellate court did not advise itself correctly in the matter by refusing to admit the auditors report which in the circumstances of the case, the assessee could not produce before the Income-tax Officer. The findings recorded by the Appellate Assistant Commissioner were set aside and the appeal was restored to his file for fresh disposal after allowing the assessee to submit the auditors report.

5. The Revenue filed a petition under Section 256 (1) of the Act claiming three questions of law stated to be arising from the order of the Tribunal. The Tribunal was of the opinion that only one question arose from the order of the Tribunal and referred the same to the jurisdictional High Court for its opinion.

6. The note of the auditor, balance-sheet and income and expenditure account which had been furnished by the assessee along with the return were not made a part of the paper book. As the Tribunal had recorded a finding that there was substantial compliance by the assessee with the provisions of Clause (b) of Section 12a of the Act, during the course of arguments, it was deemed appropriate to direct counsel appearing for the Department to produce the auditors note along with the annexures which had been appended with the return filed by the assessee. The original file of assessment containing the note of the auditor, balance-sheet and income and expenditure account were produced in compliance with the aforesaid directions issued by the court. They have been perused.

7. Under Section 11, subject to certain provisions of the Act, and on fulfilling of certain conditions provided under Section 12a, income from property held for charitable or religious purpose has been exempted from payment of tax. Section 12a provides that the provisions of Sections 11 and 12 shall not apply in relation to the income of any trust or institution unless the two conditions provided in Clauses (a) and (b) of this section are fulfilled. Clause (b) of Section 12a which is relevant and as it existed at the relevant time reads :

" 12a. The provisions of Section 11 and Section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely :. . .

(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. "

8. Rule 17b of the Income-tax Rules, 1962 (hereinafter referred to as "the Rules"), provides that the report of audit of the accounts of a trust or institution which is required to be furnished under Clause (b) of Section 12a, shall be in Form No. 10b. In Form No. 10b, the chartered accountant has to certify that he has examined the balance-sheet of the trust and the profit and loss account for the year ended which are in agreement with the books of account maintained by the said trust. It has to be further certified that in the opinion and to the best of the knowledge of the chartered accountant, the said accounts give a true and fair view of the accounts. The particulars (which have been prescribed) have to be annexed along with the auditors report.

9. Counsel appearing for the Revenue argued that furnishing of the audit report in the prescribed form duly signed and verified by the chartered accountant with the furnishing of the return is mandatory. Failure to do so is fatal disentitling the assessee to claim the benefit of exemption from tax. The audit report could not be produced at any subsequent time either before the Income-tax Officer or the appellate authority. Reliance for this was placed upon a judgment of this court in CIT v. Jaideep Industries [1989] 180 ITR 81. [LQ/PunjHC/1989/383]

10. Counsel for the assessee has controverted the argument raised by counsel for the Revenue. It has been contended by him that furnishing of report along with the filing of the return was directory in nature in view of the circular of the Central Board of Direct Taxes issued on February 9, 1978, which provides as under :

" Charitable trust-Requirement of filing audit report in Form 10b 12a (b). Instructions regarding--The Board have considered whether the requirement under Section 12a (b) of filing audit report along with the return of income is mandatory so as to disentitle the trust from claiming exemption under Sections 11 and 12 in case of omission to furnish such report in the prescribed form along with the return.

Normally, it should be possible for a charitable or religious trust or institution to file the auditors report along with the return of total income, where such trust or institution claims exemption under Sections 11 and 12. However, in cases where for reasons beyond the control of the assessee some delay has occurred in filing the said report the exemption as available to such trust under Sections 11 and 12 may not be denied merely on account of delay in furnishing the auditors report and the Income-tax Officer should record reasons for accepting a belated audit report.

(1/1148-CBDT F. No. 267/482/77-IT (Part), dated February 9, 1978-CBDT Bulletin Tech.

XXIII/582.)"

11. On behalf of the assessee, reliance was placed upon CIT v. Rai Bahadur Bissesswarlal Motilal Malwasie Trust [1992] 195 ITR 825 (Cal) and CIT v. Gujarat Oil and Allied Industries [1993] 201 ITR 325 (Guj).

12. In CIT v. Jaideep Industries [1989] 180 ITR 81 (P [LQ/PunjHC/1989/383] & H), the point under consideration before this court was whether the Tribunal was right in holding that filing of the audit report under Section 80j (6a) during the assessment proceedings and not along with the return of income would satisfy the requirements of Section 80j (6a). It was held that filing of audit report along with the return of income was mandatory and deduction under Section 80j (6a) would not be admissible to the assessee unless it furnished the audit report in the prescribed form duly signed and verified by the accountant along with the return. The question was answered in favour of the Revenue and against the assessee. Counsel for the Revenue argued that Section 80-J (6a) was in pari materia with Section 12a (b) of the Act and, therefore, applying the ratio of the law laid down by this court in CIT v. Jaideep Industries [1989] 180 ITR 81 [LQ/PunjHC/1989/383] , the question referred to us in this case has also to be answered in favour of the Revenue and against the assessee.

13. The Calcutta High Court in CIT v. Rai Bahadur Bissesswarlal Motilal Malwasie Trust [1992] 195 ITR 825 [LQ/CalHC/1991/221] while interpreting Section 12a (b) held that the provision was directory in nature and the Assessing Officer could allow the assessee to file the audit report, at any time before the completion of the assessment. In this case, the assessee, a charitable trust registered with the Commissioner of Income-tax, filed its return on September 17, 1984, declaring a deficit of Rs. 1,61,452. The return so filed was not accompanied by audited accounts and audit report in Form No. 10b as required under Section. 12a of the Act. The audit report dated November 12, 1984, was, however, filed by the assessee in the prescribed form on March 6, 1987, before the completion of the assessment. The Income-tax Officer, while completing the assessment, refused to allow the benefit of exemption under Section 11 of the Act to the assessee on the ground that the audit report in Form No. 10b was not filed along with the return. The income of the assessee was put to tax. The order of the Income-tax Officer was upheld by the Commissioner of Income-tax (Appeals) against which the assessee filed further appeal before the Tribunal which was accepted. On these facts, it was held that the income-tax authority had taken a hypertechnical view of the matter where the assessee has complied with the provisions of the Act in the course of the assessment by curing the defect in the return by filing an audit report. The Income-tax Officer cannot ignore such audit report or the return in completing the assessment.

The delay in getting the accounts audited and in filing the return in Form No. 10b did not defeat any object of the Act and, therefore, the provision was directory in nature. It also referred to the circular of the Board dated February 9, 1978.

14. The Gujarat High Court in CIT v. Gujarat Oil and Allied Industries [1993] 201 ITR 325 was considering Section 80j (6a). The Gujarat High Court took the view put by this court in CIT v.

Jaideep Industries [1989] 180 ITR 81. [LQ/PunjHC/1989/383] It was held that the provision about furnishing of the auditors report along with the return has to be treated as procedural provision and, therefore, directory in nature.

15. The provisions of Section 80j (6a) and Section 12a of the Act are pari materia. The ratio of the law laid down in CIT v. Jaideep Industries [1989] 180 ITR 81 (P [LQ/PunjHC/1989/383] & H) would have been applicable to the facts of the present case as well had the Central Board of Direct Taxes not issued the circular dated February 9, 1978, reproduced in the earlier part of the judgment. As per this circular it is not mandatory under Section 12a (b) to file the audit report along with the return of income. Normally, a charitable or religious trust or institution is expected to file the auditors report along with the return but in cases where for reasons beyond the control of the assessee some delay has occurred in filing the said report, the Income-tax Officer, for reasons to be recorded, has been authorised to condone the delay in furnishing the auditors report and accept the same at a belated stage. It has been clarified that the exemption available to the trust under Section 11 may not be denied merely on account of delay in furnishing the auditors report.

The word "shall" occurring in Section 12a cannot, under the circumstances, be read as a "must"

making it mandatory for the trust to furnish the auditors report along with the filing of the return.

If for certain unavoidable circumstances, the assessee is unable to furnish the auditors report along with the return then the same can , be furnished at a later date with the permission of the Assessing Officer who may permit the assessee to do so after recording his reasons for so doing.

16. Counsel appearing, for the Revenue then argued that as per this circular, the auditors report could only be furnished up to the stage of framing of assessment as the power to condone the delay for accepting the auditors report at a later date has only been given to the Income-tax Officer and not thereafter, i. e. , at the appellate stage. We find no merit in this submission. The Central Board of Direct Taxes by issuing the circular dated February 9, 1978, has treated the provisions regarding furnishing of the auditors report along with the return to be procedural and, therefore, directory in nature. By showing sufficient cause, the auditors report could be produced at any later stage either before the Income-tax Officer or before the appellate authority.

17. In view of the Boards circular dated February 9, 1978, the requirement of filing the auditors report in Form No. 10b as provided in Section 12a (b) read with Rule 17b of the Rules, the ratio of the law laid down by this court in CIT v. Jaideep Industries [1989] 180 ITR 81 [LQ/PunjHC/1989/383] would not apply to the present case.

18. For the reasons recorded above, the question referred to us is answered in the affirmative, i.e. , against the Revenue and in favour of the assessee. No costs.