2023 (4) TMI 1222 - AT - Income Tax

Religious trust wins exemption despite audit report delay, highlighting importance of substance over form

Navratna Sukrat Foundation Versus CPC, Bangalore

The Tribunal ruled in favor of the religious trust assessee, allowing the exemption claimed under sections 11/12 despite a delay in filing the audit ... Exemption u/s 11/12 - delayed filing of Audit Report in Form 10B - procedural defect - claim made in the return of income, when the audit-report (Form No. 10B) was filed after filing of return but before processing u/s 143(1) - HELD THAT:- We are convinced that the controversy is directly settled in favour of assessee by decision in Savitri Foundation [2022 (8) TMI 1372 - ITAT MUMBAI] as following case of Mumbai Metropolitan Regional Iron & Steel Market Committee [2015 (4) TMI 512 - BOMBAY HIGH COURT] non-filing of Audit Report in Form 10B along with Return of Income is merely a procedural defect which is rectifiable. If the Audit Report was available with the assessee at the time of filing of Return of Income and was not filed due to bona fide reasons the benefit of exemption under section 11 cannot be denied if otherwise assessee is eligible to claim the same - late filing of required documents would not disentitle the assessee from availing benefit of section 11 of the Act. Thus the assessee can’t be denied the benefit of exemption u/s 11 as claimed in the return of income for mere delay in filing of audit-report. We, therefore, deem it fit to remand this matter back to the file of AO for a fresh assessment. Appeal of assessee is allowed for statistical purpose. Issues involved: The judgment deals with the issue of whether the assessee was entitled to exemption u/s 11/12 as claimed in the return of income, considering the filing of the audit report (Form No. 10B) after the return but before processing u/s 143(1).Comprehensive Details:Issue 1 - Entitlement to Exemption u/s 11/12:The assessee, a religious trust registered u/s 12A, claimed exemption u/s 11/12 in the return of income filed on 31.03.2017. The AO, upon processing the return u/s 143(1) on 07.08.2018, denied the exemption citing the non-filing of the audit report with the return. Subsequently, the assessee filed a rectification application u/s 154, which was rejected by the AO on 11.04.2019. The CIT(A) also dismissed the appeal. The issue revolved around the timing of filing the audit report and whether the delay should disentitle the assessee from the claimed exemption.Arguments by the Assessee:The AR argued that the delay in filing the audit report was due to inadvertent human error and that the assessee, engaged in genuine religious activities, should not be denied legitimate exemption. The AR emphasized that the audit report was available at the time of filing the return and was subsequently filed before the processing by the AO u/s 143(1). The AR relied on a recent decision by ITAT in a similar case where exemption was allowed due to the rectification of the audit report during the first appeal process.Arguments by the Revenue:The DR contended that the requirement of filing the audit report along with the return is a pre-condition for claiming exemption u/s 11, and the denial by lower authorities was justified.Judgment and Decision:The Tribunal, after considering the arguments and precedents, held in favor of the assessee. Citing the decision in Savitri Foundation, the Tribunal concluded that the delay in filing the audit report was a procedural defect that should not disentitle the assessee from claiming the exemption. The Tribunal remanded the matter back to the AO for a fresh assessment after considering the audit report, thereby allowing the appeal of the assessee for statistical purposes.Conclusion:The judgment emphasizes that procedural delays, if rectifiable and not intentional, should not deprive genuine entities like religious trusts from availing legitimate exemptions under the Income-tax Act. The decision underscores the importance of substance over form in tax matters, ensuring fairness and adherence to the spirit of the law.