2023 (6) TMI 923 - AT - Income Tax

Tribunal condones delay in filing Audit Report, orders reassessment for exemption claim

Hari Gyan Pracharak Trust Versus The Deputy Commissioner of Income Tax CPC, Bangalore

The Tribunal allowed the appeal, condoning the delay in filing the Audit Report in Form No. 10B. The matter was restored to the file of the Ld. CIT(A) to ... Exemption u/s 11 - Condonation of delay in filing the audit report in Form 10B - main contention of assessee is 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 - HELD THAT:- As relying on case of Association of Indian Panelboard Manufacturer [2023 (3) TMI 1374 - GUJARAT HIGH COURT] 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 CIT(A) to pass order in regard to the exemption claimed by the assessee strictly in accordance with law. Assessee’s appeal is allowed for statistical purposes. ISSUES PRESENTED AND CONSIDERED 1. Whether the delay in filing the audit report in Form No.10B can be condoned where the report is filed after the time of filing the return but before completion of assessment proceedings. 2. Whether filing of the audit report in Form No.10B is a substantive requirement for claiming exemption under Sections 11(1) and 11(2) or merely a procedural/mode-and-stage requirement (i.e., whether non-filing with the return is a bar to entitlement). 3. Whether a circular issued under Section 119 (and the procedure laid down therein) can be treated as ousting the appellate remedy or as making condonation under that circular a compulsory prerequisite. 4. Whether, upon condonation of delay in filing Form No.10B, the matter should be remitted for adjudication on merits of the exemption claim. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Condonation of delay in filing Form No.10B Legal framework: The Assessing Officer's powers under Section 143(1) (processing), the rectification provision Section 154, the administrative directions issued under Section 119, and the procedural Rule 12(2) requiring electronic filing of audit reports set the contextual statutory and administrative matrix. The tribunal examined the effect of administrative circulars/case processing guidelines which prescribe condonation procedures for delayed Form No.10B. Precedent treatment: The Tribunal relied on the ratio of the jurisdictional High Court which held in favour of condonation where the audit report was available to the Assessing Officer before assessment proceedings and where non-filing with the return amounted to a procedural omission. Interpretation and reasoning: The Court accepted that the administrative circular's failure to condone delay does not automatically preclude judicial relief; where the audit report is ultimately placed on record and available to the AO prior to the assessment action, the purpose of filing is fulfilled. The Tribunal found the CPC's suo moto reversion of an earlier rectification (which had accepted the Form 10B) to be incorrect because the delay could properly be condoned in view of the substantive sufficiency of the report being made available. Ratio vs. Obiter: Ratio - delay in filing Form No.10B can be condoned if the audit report is available to the AO before the assessment proceedings take place, because the requirement is procedural insofar as mode/stage of filing is concerned. Obiter - specific administrative steps taken by CPC or the particular dates of notices in this file are factual observations rather than binding dicta. Conclusions: The delay in filing Form No.10B is amenable to condonation; the Tribunal allowed condonation and reinstated the claim for merits adjudication. Issue 2 - Substantive vs. procedural character of filing Form No.10B Legal framework: The statutory entitlement to exemptions under Sections 11(1) and 11(2) requires satisfaction of conditions, and procedural rules (including Rule 12(2)) prescribe electronic filing; Section 119 confers power on the Board to issue administrative directions. Precedent treatment: The Tribunal followed the jurisdictional High Court's reasoning that the statutory requirement relates to the availability of the audit report for assessment purposes, while the prescribed mode/stage of filing is procedural. The Tribunal found no contrary authoritative decision placed before it. Interpretation and reasoning: The Tribunal emphasised that the substantive law governing entitlement to exemption was not altered by the procedural rule making e-filing mandatory; hence non-filing along with the return, if remedied by making the audit report available to the AO before assessment, should not defeat the substantive claim. The Court treated filing time as a matter of procedure (mode/stage) rather than a condition precedent destroying substantive rights. Ratio vs. Obiter: Ratio - filing the audit report is a substantive requirement only in the sense that the report must be available for assessment; the mode and stage of filing are procedural, and a procedural omission (non-filing with the return) cannot, by itself, extinguish the right to claim exemption. Obiter - remarks about the Finance Act, 2015 and its effect on electronic filing requirements (acknowledging the change to mandatory electronic filing under Rule 12(2)) are explanatory and do not alter the ratio. Conclusions: Non-filing of Form No.10B with the return is at best a procedural omission and cannot be an impediment in law to claiming exemption under Sections 11(1) and 11(2), provided the audit report is available to the Assessing Officer when assessment is undertaken. Issue 3 - Effect of administrative circulars under Section 119 on appellate remedies and condonation Legal framework: Section 119 empowers the Board to issue directions and circulars; such administrative instructions govern procedure but cannot oust statutory appellate remedies unless clearly intended and enacted. Precedent treatment: The Tribunal accepted the High Court's view that circulars under Section 119 providing for condonation are an additional remedy and do not supplant statutory appellate or judicial remedies. Interpretation and reasoning: The Tribunal held that the circular prescribing condonation does not make resort to that administrative mechanism compulsory before approaching appellate fora. Administrative guidelines cannot be treated as supplanting legal remedies or converting a procedural omission into a substantive bar to relief. Ratio vs. Obiter: Ratio - Section 119 circulars providing condonation procedures constitute an additional non-exclusive remedy and do not deprive the assessee of appellate or judicial relief. Obiter - the Tribunal's critique of specific application of the circular to the facts of the file is contextual and non-binding beyond these circumstances. Conclusions: The administrative circular under Section 119 does not oust the appellate remedy and cannot be read to make condonation under the circular a compulsory precondition to judicial relief. Issue 4 - Remand for adjudication on merits after condonation Legal framework: Where procedural irregularity is condoned, substantive claims remain to be decided under the governing statutory provisions; appellate tribunals commonly remit matters to the first appellate authority for fresh adjudication in accordance with law. Precedent treatment: The Tribunal followed the High Court's holding that condonation resolves the procedural impediment but does not decide entitlement to exemptions in substance. Interpretation and reasoning: Having condoned delay, the Tribunal considered it appropriate to restore the matter to the file of the Commissioner (Appeals) to decide the exemption claim strictly in accordance with law and on the merits, ensuring that the substantive entitlement is examined afresh with the audit report on record. Ratio vs. Obiter: Ratio - condonation results in restoration for merits adjudication; the Tribunal's order remanding for determination of exemptions is operative and necessary to effectuate substantive justice. Obiter - directions as to the precise manner of reconsideration are procedural guidance rather than core ratio. Conclusions: On condoning delay in filing Form No.10B, the matter was remitted to the next appellate authority to decide the exemption claim strictly in accordance with law.