Filing audit reports with returns is directory not mandatory for section 11 exemption claims

ITAT Bangalore allowed the appeal, ruling that filing audit reports along with income tax returns is directory, not mandatory for section 11 exemption claims. The tribunal found CIT(A)'s denial incorrect as the return was filed timely and Form 10 was filed electronically. Citing SC precedent that procedures are servants not tyrants, ITAT held that audit report availability before AO during section 143(1) processing suffices. The matter was remanded to AO for examining other section 11 conditions, with the appeal allowed for statistical purposes.

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Issues Involved:
1. Delay in filing the appeal.
2. Denial of exemption under section 11 of the Income Tax Act due to delay in filing the audit report.

Detailed Analysis:

1. Delay in Filing the Appeal:
The assessee filed the appeal with a delay of 442 days. The delay occurred because the assessee was pursuing an alternative remedy by filing a condonation application under section 119(2)(b) of the Act, which was ultimately rejected by the Principal Chief Commissioner of Income Tax (Exemptions) on 22.09.2023. The Tribunal noted that the time taken for pursuing another appellate remedy should be excluded for computing the period of limitation for filing an appeal, citing various judicial pronouncements such as Union Carbide India Ltd. Vs. CC and Karnataka Minerals & Mfg. Co. Ltd. Vs. CCE. The Tribunal condoned the delay, emphasizing that substantial justice should prevail over technical considerations, and proceeded to dispose of the appeal on its merits.

2. Denial of Exemption Under Section 11:
The assessee, a Public Charitable Trust, claimed exemption under section 11 of the Act. The exemption was denied by the CPC on the grounds that:
- Form 10 was not filed electronically.
- The return of income was not filed within the due date.
- The audit report was not e-filed before the return filing.

The Tribunal found factual errors in the CIT(A)'s order. The original return was filed within the due date, and Form 10 was filed electronically on 27.09.2018. The only remaining issue was the delay in filing the audit report. The Tribunal held that filing the audit report along with the return is directory and not mandatory, relying on various judicial pronouncements such as the Hon'ble Gujarat High Court judgment in CIT(E), Ahmedabad Vs. Gujarat Energy Development Agency and the Hon'ble Supreme Court judgment in Mangalore Fertilizers and Chemicals Vs. Deputy Commissioner.

The Tribunal emphasized that procedural requirements should aid justice and not obstruct it. The audit report was available before the AO when the return was processed, and thus, the exemption under section 11 should not be denied. The Tribunal also distinguished the present case from the case of Navodaya Educational Trust V. DCIT, where the facts were different, and the audit report was not available at the time of processing the return.

The Tribunal remanded the matter to the AO to examine whether other conditions for claiming exemption under section 11 were satisfied, as the exemption was initially denied due to the belated filing of the audit report.

Conclusion:
The appeal filed by the assessee was allowed for statistical purposes, and the matter was remanded to the AO for further examination. The Tribunal condoned the delay in filing the appeal and held that the procedural requirement of filing the audit report along with the return is directory and not mandatory.

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