2024 (6) TMI 1403 - AT - Income Tax

Denial of section 11 - delay in filing the audit report within the due date prescribed - Form 10 was not filed electronically - As regards the delay in filing the audit report, AR submitted that the same is directory in nature and not a mandatory requirement and thus denying the exemption u/s 11 is bad in law - HELD THAT - Statement of the CIT(A) that return of income was not filed on time is incorrect. So non-filing of return within the due date prescribed cannot be a ground for denying the claim of exemption under section 11 of the Act. Further, we notice in CIT(A) s Order, it has been stated that Form 10 is not filed before filing the return of income. This conclusion of the CIT(A) is contrary to the facts on record. The assessee had filed Form 10 electronically on 27.09.2018. So, this reasoning of the CIT(A) for denying the benefit of exemption under section 11 of the Act is also not correct. Only surviving reason for denying claim of exemption under section 11 of the Act, is that audit report has not been filed along with the return of income - It is the contention of the assessee that the above requirement is only directory in nature and not mandatory requirement. It was contended that denying exemption under section 11 of the Act is bad in law. Admittedly, in this case, audit report was available before the AO when the return of income was processed vide intimation under section 143(1) of the Act. Hon ble Supreme Court in the case of Sambhaji and Others Vs. Gangabai and Others 2008 (11) TMI 393 - SUPREME COURT held that procedure cannot be a tyrant but only a servant. It is not an obstruction in the implementation of the provisions of the Act, but an aid. The Hon ble court further held that the procedures are handmaid and not the mistress. It is a lubricant and not a resistance. A procedural law should not ordinarily be construed as mandatory; the procedural law is always subservient to and is in aid to justice. Thus, we hold that filing of audit report along with return of income is directory in nature and not mandatory and exemption u/s 11 of the Act, cannot be denied when the audit report is available before the AO while passing the intimation under section 143(1)(a) of the Act. Filing of audit report though not filed within the due date, but has been filed prior to passing of the intimation under section 143(1) is not fatal to the claim of exemption u/s 11, matter is remanded to the AO to examine whether other conditions for claiming exemption under section 11 of the Act are satisfied in this case (since at the very threshold the claim of exemption was denied by the AO for the reason that there was belated filing of the audit report). Appeal filed by the assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Denial of exemption under section 11 of the Income Tax Act due to delay in filing the audit report.

Detailed Analysis:

1. Delay in Filing the Appeal:
The assessee filed the appeal with a delay of 442 days. The delay occurred because the assessee was pursuing an alternative remedy by filing a condonation application under section 119(2)(b) of the Act, which was ultimately rejected by the Principal Chief Commissioner of Income Tax (Exemptions) on 22.09.2023. The Tribunal noted that the time taken for pursuing another appellate remedy should be excluded for computing the period of limitation for filing an appeal, citing various judicial pronouncements such as Union Carbide India Ltd. Vs. CC and Karnataka Minerals & Mfg. Co. Ltd. Vs. CCE. The Tribunal condoned the delay, emphasizing that substantial justice should prevail over technical considerations, and proceeded to dispose of the appeal on its merits.

2. Denial of Exemption Under Section 11:
The assessee, a Public Charitable Trust, claimed exemption under section 11 of the Act. The exemption was denied by the CPC on the grounds that:
- Form 10 was not filed electronically.
- The return of income was not filed within the due date.
- The audit report was not e-filed before the return filing.

The Tribunal found factual errors in the CIT(A)'s order. The original return was filed within the due date, and Form 10 was filed electronically on 27.09.2018. The only remaining issue was the delay in filing the audit report. The Tribunal held that filing the audit report along with the return is directory and not mandatory, relying on various judicial pronouncements such as the Hon'ble Gujarat High Court judgment in CIT(E), Ahmedabad Vs. Gujarat Energy Development Agency and the Hon'ble Supreme Court judgment in Mangalore Fertilizers and Chemicals Vs. Deputy Commissioner.

The Tribunal emphasized that procedural requirements should aid justice and not obstruct it. The audit report was available before the AO when the return was processed, and thus, the exemption under section 11 should not be denied. The Tribunal also distinguished the present case from the case of Navodaya Educational Trust V. DCIT, where the facts were different, and the audit report was not available at the time of processing the return.

The Tribunal remanded the matter to the AO to examine whether other conditions for claiming exemption under section 11 were satisfied, as the exemption was initially denied due to the belated filing of the audit report.

Conclusion:
The appeal filed by the assessee was allowed for statistical purposes, and the matter was remanded to the AO for further examination. The Tribunal condoned the delay in filing the appeal and held that the procedural requirement of filing the audit report along with the return is directory and not mandatory.