Tribunal grants appeal overturning denial of tax exemption for late audit report, allows evidence post-return filing

The Tribunal allowed both appeals of the assessee, overturning the decisions of the CIT(A) and A.O. CPC Bangalore. The denial of exemption under Section 80IB due to the late filing of the audit report was deemed rectifiable under Section 154, as per CBDT Circular No. 689. The Tribunal found in favor of the assessee, emphasizing the permissibility of submitting evidence post-return filing. The orders of the lower authorities were set aside, and the appeals were decided in favor of the assessee.

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Issues Involved:
1. Denial of exemption under Section 80IB due to non-filing of audit report in Form-10CCB with the return of income.
2. Rejection of rectification application under Section 154 of the Income Tax Act, 1961.
3. Validity of the orders passed by the CIT(A) and the A.O. CPC Bangalore.

Issue-wise Detailed Analysis:

1. Denial of Exemption under Section 80IB:
The primary issue in these appeals is the denial of exemption under Section 80IB of the Income Tax Act, 1961. The assessee's claim for exemption was rejected because the audit report in Form-10CCB was not filed along with the return of income but was submitted later, after the intimation under Section 143(1) was issued. The assessee argued that the omission to upload the audit report was an error by the auditor, and upon realizing this, the audit report was uploaded, and a rectification application was filed under Section 154. The CIT(A) upheld the A.O.'s decision, stating there was no mistake apparent from the record.

2. Rejection of Rectification Application under Section 154:
The assessee contended that the CIT(A) erred in law and on facts by sustaining the A.O.'s rejection of the rectification request under Section 154. The assessee referenced CBDT Circular No. 689 dated 24.08.1994, which allows for rectification if the evidence for a claim is filed after the return's submission. The assessee cited a Karnataka High Court judgment in ITO vs. Smt. Mandira D Vakharia, where it was held that non-filing of the audit report with the return is not fatal to the claim, and the proof can be furnished later with a rectification application.

3. Validity of Orders by CIT(A) and A.O. CPC Bangalore:
The CIT(A) and A.O. CPC Bangalore's orders were challenged on the grounds that they were arbitrary, lacked valid reasoning, and did not provide a reasonable opportunity for the assessee to be heard. The CIT(A) dismissed the appeals, holding that there was no mistake apparent from the record. However, the Tribunal found that the CIT(A) overlooked the contents of Circular No. 689, which directs officers to allow rectification under Section 154 for non-filing of audit reports or other evidence with the return of income.

Tribunal's Findings:
The Tribunal noted that the authorities below did not allow the claim solely because the audit report was not filed with the return but was submitted later. The Tribunal emphasized that the CBDT Circular No. 689 supports the assessee's case, allowing rectification if evidence is subsequently furnished. The Tribunal also referenced the Karnataka High Court's decision in a similar case, which supported the assessee's position.

Conclusion:
The Tribunal found merit in the assessee's arguments and allowed the appeals. Both appeals were decided in favor of the assessee, and the orders of the CIT(A) and A.O. CPC Bangalore were set aside.

Result:
Both appeals of the assessee were allowed.

Order Pronounced:
The order was pronounced in the open court on 23/05/2022.

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