2012 (9) TMI 1049 - HC - Income Tax

Exemption u/s.11 - directing acceptance of audit report from the assessee - Held that - The question whether it is permissible to the assessee to produce the audit report at the appellate stage, has already been answered by this court in CIT v. Gujarat Oil & Allied Industries Ltd. 1992 (9) TMI 67 - GUJARAT HIGH COURT , wherein it is held that the provision regarding furnishing of audit report along with the return has to be treated as a procedural provision. It is directory in nature and its substantial compliance would suffice. In that case, the assessee had not produced the audit report along with the return of income, but produced before completion of the assessment. Benefit of exemption should not be denied merely on account of delay in furnishing the same, and it is permissible for the assessee to produce the audit report at a later stage either before the Income Tax Officer or before the appellate authority by showing a sufficient cause - decided in favour of assessee

Issues:
- Appeal under section 260A of the Income-tax Act, 1961 against the order of the Income Tax Appellate Tribunal for the assessment year 2006-07.
- Substantial question of law regarding acceptance of audit report for granting exemption under section 11 of the Act.
- Commissioner of Income-tax (Appeals) directing acceptance of audit report and granting exemption under section 11.
- Permissibility of producing audit report at the appellate stage.
- Interpretation of procedural provisions regarding audit report submission.

Analysis:

The judgment in question pertains to an appeal under section 260A of the Income-tax Act, 1961, concerning the assessment year 2006-07. The primary issue revolves around the acceptance of an audit report for the purpose of granting exemption under section 11 of the Act. The Commissioner of Income-tax (Appeals) directed the acceptance of the audit report, which was not initially filed during the assessment proceedings, and granted the exemption under section 11.

The crux of the matter lies in the interpretation of procedural provisions related to the submission of audit reports. The court referred to previous decisions to establish that the requirement to furnish an audit report along with the return is procedural in nature and its substantial compliance is sufficient. The court cited the case of CIT v. Gujarat Oil & Allied Industries Ltd., where it was held that the delay in furnishing the audit report should not result in denial of exemption if a sufficient cause is shown. This principle was reiterated by the Punjab and Haryana High Court in CIT v. Shahzadanand Charity Trust, emphasizing that the benefit of exemption cannot be denied solely due to a delay in submitting the audit report.

In light of the above legal precedents, the Tribunal's decision to allow the assessee to produce the audit report at a later stage, even during the appellate proceedings, was deemed justified both in law and on facts. The Tribunal highlighted that the audit report was obtained before the filing of the return, and the delay in submission was not a valid reason to deny the exemption. The conduct of the assessee in previous and subsequent years, along with supporting evidence, further strengthened the case for accepting the audit report and granting the exemption under section 11 of the Income-tax Act.

Ultimately, the court found the appeal of the Revenue to be devoid of merit, as it did not raise any substantial question of law. Consequently, the appeal was dismissed, affirming the decision to accept the audit report and allow the exemption under section 11 of the Act.

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