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2022 (3) TMI 470 - AT - Income TaxExemption u/s 11 - assessee had filed the audit report in Form No. 10B in the course of proceedings before the first Appellate - whether assessee-trust being well within its rights had rightly filed the audit report in Form No. 10B in the course of proceedings before the CIT(A), therefore, it was duly entitled for claim of exemption u/s 11? - HELD THAT - The manner in which the A.O in the course of the set-aside proceedings had dealt with the issue in hand clearly militates against the specific directions of the Tribunal. Be that as it may, we are of the considered view, that as in the case before us, the audit report of the assessee trust in Form No. 10B was there before the A.O in the course of de novo assessment proceedings, therefore, it was obligatory on his part to have considered the same specifically when there was clearly a direction by the Tribunal to the said effect. Before parting, we may herein observe, that the requirement for filing the audit report in Form No. 10B a/w the return of income had been made mandatory by the legislature in all its wisdom vide the Finance Act 2017 w.e.f. 01-4-2018 i.e from A.Y 2018-19 by inserting Clause (ab) to sub-sec.(1) of Sec. 12A of the Act. In the backdrop of our aforesaid observations, we find no infirmity in the view taken by the CIT(A) who had on the basis of his well reasoned observations, concluded, that there was no justification on the part of the A.O in declining the assessee s claim of exemption u/s 11 for the reason, that it had delayed filing of its audit report in Form No. 10B in compliance with the provisions of Sec. 12A (b), more so, when the said Form No. 10B was available on his record during the course of the set-aside proceedings, i.e, while framing the assessment vide his order passed u/s 143(3) r.w.s 254 of the Act, and no defect therein could be detected by him. We, thus, in terms of our aforesaid observations uphold the view taken by the CIT (A). - Decided against revenue.
Issues Involved:
1. Whether the CIT(A) erred in directing the AO to allow exemption under Section 11 of the Income-tax Act, 1961, despite the assessee not filing the audit report in Form 10B with the return of income. 2. Whether the CIT(A) failed to appreciate that the assessee had not filed its return of income under Section 139(1) but in response to a notice under Section 148, and without the audit report in Form 10B. 3. Whether the CIT(A) ignored the findings of the AO and the earlier CIT(A) regarding the non-submission of the audit report during the assessment proceedings. 4. Whether the AO was justified in disallowing the exemption claim under Section 11 due to the non-filing of the audit report in Form 10B. Detailed Analysis: Issue 1: CIT(A)'s Direction to Allow Exemption under Section 11 The Department argued that the CIT(A) erred in directing the AO to allow the benefits of exemption under Section 11 without the assessee filing the audit report in Form 10B with the return of income. The Tribunal noted that the CIT(A) had found that the assessee had filed the audit report during the appellate proceedings, which should have been considered. The Tribunal emphasized that the appellate proceedings are a continuation of the assessment proceedings, and thus, the late filing of Form 10B should not disentitle the assessee from claiming the exemption. The Tribunal upheld the CIT(A)'s direction, stating that the AO should have considered the audit report available during the set-aside proceedings. Issue 2: Filing of Return in Response to Notice under Section 148 The Department contended that the CIT(A) failed to appreciate that the assessee had not filed its return of income under Section 139(1) but in response to a notice under Section 148, and without the audit report in Form 10B. The Tribunal observed that the assessee had provided a reasonable explanation for the delay in filing the audit report, including circumstances beyond its control, such as a dispute with its erstwhile Chartered Accountant and the theft of documents. The Tribunal found that these reasons were judicially appreciated by the CIT(A), and thus, the filing of the audit report during the appellate proceedings was valid. Issue 3: Ignoring AO and Earlier CIT(A) Findings The Department argued that the CIT(A) ignored the findings of the AO and the earlier CIT(A) regarding the non-submission of the audit report during the assessment proceedings. The Tribunal noted that the CIT(A) had considered the reasons for the delay and the fact that the audit report was eventually filed during the appellate proceedings. The Tribunal emphasized that the CIT(A) had the authority to accept the audit report and direct the AO to redo the assessment, which was in line with judicial precedents. Thus, the Tribunal found no fault in the CIT(A)'s approach. Issue 4: Justification for Disallowing Exemption Claim The Department contended that the AO was justified in disallowing the exemption claim under Section 11 due to the non-filing of the audit report in Form 10B. The Tribunal referred to various High Court judgments, which held that the late filing of the audit report should not disentitle an assessee from claiming exemption if the report is filed during the appellate proceedings. The Tribunal found that the AO, during the set-aside proceedings, had the audit report before him but failed to consider it, which was against the Tribunal's earlier directions. The Tribunal upheld the CIT(A)'s view that the AO should have considered the audit report and allowed the exemption claim. Conclusion: The Tribunal dismissed the Department's appeal, upholding the CIT(A)'s decision to allow the exemption under Section 11 of the Income-tax Act, 1961, to the assessee. The Tribunal emphasized that the audit report in Form 10B, though filed late, was validly submitted during the appellate proceedings and should have been considered by the AO. The Tribunal found no merit in the Department's grounds of appeal and affirmed the CIT(A)'s order.
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