2023 (9) TMI 1029 - AT - Income Tax

Deduction u/s 11 - Claim denied as audit report in Form 10B is not filed alongwith the return of income as laid down in section 12A(1)(b) - CIT(A) allowed the claim - HELD THAT - The appellate proceedings being the continuation of assessment proceedings merely because the assessee has not furnished at the threshold i.e. furnishing the audit report along with return of income, but filed during the assessment proceedings, and available even during the appellate proceedings, it cannot be stated that the assessee has failed to comply with the provisions so as to deny substantial justice by way of granting exemption. As in a recent decision in Social Security Scheme of GICEA 2022 (12) TMI 1172 - GUJARAT HIGH COURT in the matter of exemption provisions contained in section 11/12 of the Act, requiring filing of Form 10B alongwith return of income for claiming exemption, held the requirement of furnishing of report to be a mandatory requirement while that of filing the report alongwith return of income to be a procedural requirement. We have no hesitation in holding that the Ld. CIT(A) has rightly held the denial of exemption u/s 11 of the Act for non-filing of requisite form alongwith return of income, to be not as per law, noting the fact that the assessee did file the requisite form during regular assessment proceedings and appellate proceedings before him. Decided against revenue.

Summary

Issues:
The judgment involves the issue of whether the claim of deduction under section 11 of the Income Tax Act was justified despite the audit report in Form 10B not being filed along with the return of income, and whether the provisions regarding the audit report are procedural or directory in nature.

Issue 1 - Deduction under Section 11:
The solitary issue raised in the appeal was the disallowance of the claim of benefit under sections 11 and 12 of the Act to the assessee-trust due to the failure to furnish the audit report along with the return of income as required by section 12A(1) of the Act. The Commissioner of Income-Tax(A) reversed this decision, stating that the audit report was indeed filed during the assessment proceedings, which was deemed sufficient compliance with the relevant provisions to claim the benefit under sections 11 and 12 of the Act. The assessee, a registered charitable trust, had declared total income for the assessment year 2018-19, which included business income and voluntary contributions. The CPC, Bangalore initially disallowed the claim of exemption under section 11 as the audit report was not e-filed along with the return of income. However, the Commissioner, after considering various judicial pronouncements on delayed submission of Form No. 10B, allowed the claim of the assessee, emphasizing that filing the audit report at a later stage during assessment or appellate proceedings should not result in denial of the benefit of deduction.

Issue 2 - Compliance with Provisions:
During the proceedings, the Revenue argued that the assessee cannot claim benefits under sections 11 and 12 as the audit report was not furnished along with the return of income, as required by section 12A(1)(b) of the Act. Conversely, the counsel for the assessee supported the Commissioner's order, citing settled law that delay in furnishing the audit report should not lead to denial of exemption under sections 11 and 12. The counsel referred to a recent judgment of the jurisdictional High Court to support this argument. The Tribunal found no infirmity in the Commissioner's order, noting that the assessee had substantially complied with the provisions by filing the audit report during the assessment and appellate proceedings, even though it was not submitted along with the initial return of income.

Conclusion:
The Tribunal upheld the Commissioner's decision, emphasizing that the denial of exemption under section 11 for not filing the requisite form along with the return of income was not in accordance with the law. Citing the judgment of the jurisdictional High Court, the Tribunal concluded that the assessee's actions constituted substantial compliance with the provisions, and therefore, the benefit of deduction under section 11 should not be denied. The appeal of the Revenue was dismissed, affirming the order of the Commissioner.