2020 (11) TMI 962 - AT - Income Tax

Denial of exemption u/s 11 - audit report in Form no.10B of the Act was filed belatedly - HELD THAT - In Circular no.10./2019, the CBDT has clarified that for the assessment year 2016 17 and 2017 18, in all cases where the audit report for the year under consideration has been obtained before filing of the return of income and has been furnished subsequent to filing of return of income, but before the date specified under section 139 such delayed filing should be condoned. In the facts of the present case, the claim of the assessee that it has obtained the audit report prior to the date of filing of return of income and has filed audit report before the due date of return of income under section 139(1) has not been controverted by DR. Commissioner (Appeals) has also upheld the disallowance of exemption by simply stating that it is not a rectifiable mistake under section 154 of the Act. When the assessee has complied with the statutory provisions in terms of the CBDT Circular, the delay if any, in filing the audit report should have been condoned. We delete the disallowance made and allow assessee s claim of exemption under section 11 - Grounds raised by the assessee are allowed.

Summary

Issues:
1. Disallowance of exemption under section 11 of the Income Tax Act due to delayed filing of audit report.
2. Application for rectification under section 154 of the Act dismissed by the AO/CPC.

Analysis:
1. The appeal was filed by the assessee challenging the order passed by the Commissioner of Income Tax (Appeals) for the assessment year 2016-17. The assessee, a charitable trust, filed its return of income claiming exemption under section 11 of the Act. However, the Assessing Officer disallowed an amount and treated it as income of the assessee due to a delayed filing of the audit report. The assessee applied for rectification under section 154, stating that exemption under section 11 should be available as 85% of the income received was applied for the trust's objects. The Tribunal noted that the audit report was filed before the due date of the return of income under section 139(1) of the Act. The CBDT Circular clarified that delayed filing of the audit report should be condoned if obtained before the return filing date. The Tribunal held that since the assessee complied with statutory provisions and obtained the audit report before the return filing date, the disallowance of exemption under section 11 should be deleted. The Tribunal allowed the assessee's claim for exemption under section 11, as the delay in filing the audit report was condoned.

2. The Tribunal considered the application for rectification under section 154 of the Act, which was dismissed by the AO/CPC. The Authorized Representative argued that the audit report was filed before the due date of the return of income, even though there was a delay in its approval by the trustees. The Departmental Representative relied on the Commissioner (Appeals) observations. The Tribunal observed that the denial of exemption under section 11 was solely due to the delayed filing of the audit report. The Tribunal referred to the CBDT Circular, which clarified that delayed filing of the audit report should be condoned if obtained before the return filing date. Since the assessee had obtained the audit report before the return filing date and had applied 85% of its receipts towards the trust's objects, the Tribunal held that the disallowance of exemption under section 11 should be deleted. The Tribunal allowed the assessee's appeal, emphasizing that the delay in filing the audit report should have been condoned, as per the CBDT Circular.

In conclusion, the Appellate Tribunal ITAT Mumbai allowed the appeal filed by the assessee, deleting the disallowance made and allowing the claim of exemption under section 11 of the Income Tax Act for the assessment year 2016-17.