2011 (6) TMI 863 - AT - Income Tax

Summary

Issues Involved:
1. Denial of exemption u/s 11 of the IT Act.
2. Filing of return in incorrect form.
3. Non-submission of audit report in Form No. 10B.
4. Validity of assessment order based on incorrect return form.

Summary:

1. Denial of exemption u/s 11 of the IT Act:
The AO denied exemption u/s 11 of the IT Act and taxed the gross receipt of Rs. 7,68,43,040/- without granting deduction of the expenditure of Rs. 8,41,77,633/-. The AO observed that the assessee failed to furnish the audit report in Form No. 10B, a compulsory requirement for eligibility of exemption u/s 11A as stated in section 12A(b) of the IT Act read with Rule 17B of the IT Rules. The AO concluded that the assessee did not fulfill the conditions of Sec. 12A of the IT Act required for claiming exemption u/s 11 and 12 of the IT Act.

2. Filing of return in incorrect form:
The AO noticed that the assessee filed its return of income in Form No.1 instead of Form No.3A as required by IT Rules. The assessee explained that due to technical issues with the computer program, it was unable to file the return in Form No.3A and instead filed it in Form No.1. The assessee claimed to have filed the return in Form No.3A by hand delivery along with the Auditor's report in Form No.10B, but the AO found no evidence of this in the records.

3. Non-submission of audit report in Form No. 10B:
The assessee contended that it had submitted the audit report in Form No.10B along with the return in Form No.3A by hand delivery. The learned CIT(A) accepted the audit report at the appellate stage, citing various judicial precedents that allow for the audit report to be submitted before the assessment is over. The learned CIT(A) directed the AO to accept the audit report and grant exemption to the assessee.

4. Validity of assessment order based on incorrect return form:
The assessee raised an additional ground that the assessment order based on ITR 1 was invalid as the correct form should have been Form No.3A. The learned CIT(A) rejected this additional ground, stating that the main ground of appeal had been allowed and the assessee had consistently filed returns in Form No.3A in past and subsequent years.

Conclusion:
The learned CIT(A) directed the AO to accept the audit report from the assessee and grant exemption u/s 11 of the IT Act, considering the audit report was filed at the appellate stage and the procedural issues faced by the assessee. The appellate authority's decision was based on judicial precedents that allow for the audit report to be submitted at any stage before the assessment is completed. The departmental appeal was dismissed, confirming the findings of the learned CIT(A).