2023 (5) TMI 1170 - AT - Income Tax

Exemption u/s 11 - denial of claim while processing return u/s 143(1) on the reason that assessee has not filed the audit report in form No.10B along with return of income - HELD THAT - The assessee stated before us that the medical emergency of the trustee is a reason for delay in filing the audit report in form no.10B along with return of income. Admittedly, the assessee filed the return of income on 10.1.2018, wherein assessee enclosed the income and expenditure account and balance sheet and statement of income which are dated 1.1.2018. When the assessee was in a position to get audited its books of accounts and filed the audited income and expenditure account and balance sheet along with statement of income, how it was not able to file the audit report in form no.10B is not explained. Assessee has taken the support of petition filed for condonation of delay in filing the appeal before this Tribunal dated 18.1.2023 so as to explain the delay in filing audit report in form no.10B along with return of income. Assessee has not separately explained this delay in filing the audit report in form no.10B along with return of income with any reasonable causes. Having said this, we are of the opinion that there is no good and sufficient reason to condone the delay in filing the audit report in form no.10B along with return of income - Lower authorities are justified in denying the exemption u/s 11 of the Act to the assessee in view of the non-filing of audit report in form no.10B along with return of income.Decided against assessee. If the exemption u/s 11 is denied for non-filing of audit report in form no.10B, the assessee s income is to be computed in accordance with law as business income and gross income of the assessee cannot be taxed by the AO - Once the exemption claimed by the assessee u/s 11 of the Act has been denied, the income of the assessee has to be assessed as business income and assessee is entitled for all usual deductions under the provisions of the Act while computing the income of the assessee under the head business , more so, deduction u/s 30 to 38 of the Act it has to be allowed. In view of this, we direct the AO to tax only the net income of the assessee after granting all usual expenditure u/s 30 to 38 of the Act and not gross income of the assessee. Ordered accordingly.

Summary

Issues:
1. Appeal against order of NFAC, Delhi for assessment year 2017-18.
2. Dismissal of appeal without proper hearing and consideration of evidence.
3. Non-consideration of CBDT circular regarding condonation of delay in filing Audit Report.
4. Failure to consider additional grounds for delay in filing appeal.
5. Dismissal of appeal on technical grounds citing limitation period.
6. Allegation of professional inaction regarding compliance issues.
7. Citation of irrelevant Supreme Court case in the order.
8. Denial of exemption u/s 11 of the IT Act, 1961.

Analysis:
1. The appeal was filed against the NFAC order for the assessment year 2017-18. The appellant raised various grounds, including lack of proper hearing, non-consideration of evidence, and dismissal on technical grounds. The appellant argued that the CBDT circular condoning delay in filing Audit Report should apply to their case, and additional grounds for delay were not considered by the authorities. The appellant also alleged professional inaction and cited an irrelevant Supreme Court case in the order.

2. The appellant claimed exemption u/s 11 of the IT Act, 1961, which was denied due to a delay in filing the Audit Report in Form 10B. The appellant argued that the delay was due to a trustee's medical emergency and should be condoned as per the CBDT circular. The NFAC dismissed the appeal due to the delay, but the Tribunal, after reviewing the medical affidavit and lack of opposition from the department, condoned the delay and admitted the appeal for adjudication.

3. However, the Tribunal upheld the denial of exemption u/s 11 due to the unexplained delay in filing the Audit Report. The Tribunal noted that the CBDT circular did not automatically condone delays and required reasonable causes for each case. The appellant's explanation of the trustee's medical emergency was deemed insufficient as the Audit Report could have been filed along with the return of income. Consequently, the denial of exemption u/s 11 was confirmed.

4. Regarding the revenue prejudice issue, the Tribunal agreed with the appellant that if the exemption u/s 11 was denied, the income should be treated as "business income" with allowable deductions. The Tribunal directed the AO to tax only the net income after granting all usual deductions under the relevant provisions of the Act.

5. Ultimately, the Tribunal partly allowed the appeal, confirming the denial of exemption u/s 11 but directing the AO to tax only the net income after deductions. The order was pronounced on 6th March 2023.