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July 18, 2023

Failure to File an Audit Report (Form 10B) No Obstacle to Exemption Claims

Failure to File an Audit Report (Form 10B) No Obstacle to Exemption Claims

Fact and issue of the case

The instant appeal filed by the assessee is directed against the order dated 01.09.2021 passed by the National Faceless Appeal Centre (NFAC), Delhi, arising out of the order dated 23.11.2019 passed by the DCIT, CPC, Bangalore, under section 154 of the Income Tax Act, 1961 (hereinafter referred as to ‘the Act’) for Assessment Year 2016-17.

The issue before us is this that the delay in filing the audit report in Form 1 0B whether can be condoned.

The brief facts leading to the case is this that the appellant filed its return of income for 2019-20 on 31.03.2018 showing the gross receipts at Rs. 76,71,487/-. The CPC, Bangalore, while processing the return under Section 143(1) of the Act, made a disallowance to Rs.76,71,487/-, being the expenses / application of income claimed by appellant and raised a demand of 32,34,000/ by denying Form No.10B. Aggrieved with the order u/s 143(1), the appellant filed rectification application 154 on 24.07.2019. The CPC, Bengaluru, vide rectification order dated 07.08.20 19, has allowed the claim of the appellant amounting to Rs.76,71 .487/-, accepting the application of income as per Form 10B.

Subsequently, the CPC vide order dt 23.11.2019 has once again, suo moto, disallowed the claim of the expenditure, stating as under: “In your case, the date of filing the audit report, is after the time allowed us 139. Hence, the conditions laid down by the Board are not satisfied in total and the delay in fling the audit report in Form 100 in your case is not condoned by the above circular. In order to revert the condonation effect wrongly given, a Notice for the proposed rectification was sent on 07.11.2019. However, no response has been received to the proposed rectification. Hence, it is deemed that you do not have any objection to the proposed rectification. The condonation effect wrongly given is therefore reverted.”

The main contention by the Ld. Counsel appearing for the assessee before us is this that the filing of Audit Report is a substantive requirement but the mode and stage of filing is a procedural one. Once it is filed under Form 10B and made available with the Assessment Officer before assessment initiates, the purpose is served.

In this regard, Ld. Counsel relied upon the judgment passed by the Hon’ble Gujarat High Court in case of Association of Indian Panelboard Manufacturer vs. DCIT in R/Tax Appeal No. 655 of 2022, wherein ratio has been laid down in affirmative, in favour of the assessee. The Ld. DR has not been able to controvert such submission made by the assessee, neither could place any judgment on this issue passed against the assessee pronounced by any Judicial Forum.

Observation of the court

We have carefully considered the order passed by the authorities below and the judgment passed by the Hon’ble Jurisdictional High Court in case of Association of Indian Panelboard Manufacturer (supra) on the issue involved. While passing order in favour of the assessee, the Hon’ble Jurisdictional High Court has been pleased to observe as follows:

The tribunal further committed an error in appreciating the import of Section 119 2(b) of the Act inasmuch as the application contemplated thereunder is only additional remedy for the assessee which could not be said to be compulsorily resorted to by the assessee. The circular No. 7/18 dated 20.12.2018 issued under Section 119 of the Act could not be, therefore said to have taken away the appellate remedy. 5.7 The tribunal misdirected itself in yet another way when it observed that The Finance Act, 2015 with effect from 1.4.201 6, that is from assessment year 2016-17 changed the legal position. There is no such change which could be said to have altered the legal position. The only change is with regard to compulsory filing of audit report in Form 10B in electronically form which is made mandatory under Rule 12 (2) of the Income Tax Rules, 1962 but there is no change with regard to the substantive law about filing of audit report as stated above.

The moot aspect thus centres around to the requirement of the availability of the audit report when the assessment was undertaken by the Assessing Officer even though the same may not have been filed along with the return of income. 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 under Section 11(1) and 11(2) of the Act and the alleged ground of non-filing of audit report alongwith return of income which was at the best procedural omission, could never to an impediment in law in claiming the exemption. 6.2 Accordingly the substantial questions of law have to be decided in favor of the appellant.

They are accordingly decided. The appeal is allowed.”

In view of the ratio laid down by the Hon’ble Jurisdictional High Court holding that non filing of Audit Report along with return of income is a procedural omission and cannot be an impediment in law in claiming the exemption, we allow this appeal condoning the delay in filing the Audit Report in Form No. 10B. However, we also upon condoning the delay, restore the matter to the file of the Ld. CIT(A) to pass order in regard to the exemption claimed by the assessee strictly in accordance with law.

In the result, assessee’s appeal is allowed for statistical purposes.

This Order pronounced on 16/06/2023


In the result, appeal of the assessee is allowed and ruled in favour of the assessee

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