2023 (3) TMI 1374 - HC - Income Tax

Exemption u/s 11 - non filing the audit report in Form 10B alongwith return of income - procedural omission - HELD THAT - Filing of audit report is held to be substantive requirement but not the mode and stage of filing, which is procedural. Once the audit report in Form 12B is filed to be available with the Assessing Officer, before assessment proceedings take place, the requirement of law is satisfied. In that view, the Income Tax Tribunal was not justified in dismissing the appeal of the assessee. The appellant assessee has to be held to be eligible and entitled to exemptions u/s 11(1) and 11(2) of the Act and the alleged ground of non-filing of audit report along with return of income which was at the best procedural omission, could never to an impediment in law in claiming the exemption. Decided in favour of assessee.

Summary

Issues involved:
The judgment involves the interpretation of provisions u/s 260A of the Income Tax Act, 1961, related to the denial of exemptions under Section 11(1) and 11(2) due to belated filing of audit report in Form 10B by a charitable trust.

Issue 1:
The appellant charitable trust filed for exemptions under Section 11(1) and 11(2) of the Income Tax Act, 1961 but faced denial due to the belated filing of the audit report in Form 10B.

The appellant argued that the audit report was available when the return of income was processed under Section 143(1), therefore, exemptions should not have been denied. They contended that the requirement of filing the audit report along with the return of income is procedural and directory in nature. The appellant also highlighted that the tribunal failed to consider the legal position regarding the filing of the audit report.

Issue 2:
The Income Tax Appellate Tribunal's decision to deny exemptions under Section 11(1) and 11(2) based on the belated filing of the audit report was challenged.

The Division Bench of the court referred to previous judgments and held that the provision regarding the filing of the audit report is procedural and its substantial compliance is sufficient. The court emphasized that the audit report's availability with the Assessing Officer before assessment proceedings fulfill the legal requirement. The court also noted that the filing of the audit report at a later stage should not be an impediment in claiming exemptions under Section 11(1) and 11(2).

Issue 3:
The appellant argued that the tribunal erred in not following the binding decision of the jurisdictional High Court and wrongly relied on amendments by the Finance Act, 2015.

The court clarified that there was no change in the substantive law regarding the filing of the audit report, despite the requirement for electronic filing under Rule 12(2) of the Income Tax Rules, 1962. The court emphasized that the availability of the audit report with the Assessing Officer before assessment proceedings is crucial, and the mode and stage of filing are procedural aspects.

Conclusion:
The court allowed the appeal, holding that the appellant charitable trust is eligible for exemptions under Section 11(1) and 11(2) of the Income Tax Act, 1961. The court emphasized that the alleged procedural omission of not filing the audit report along with the return of income should not impede the trust's right to claim exemptions. The substantial questions of law were decided in favor of the appellant.