Trust gets section 11 exemption despite filing wrong audit form when corrected voluntarily

ITAT Bangalore allowed the appeal where exemption under section 11 was denied due to filing audit report in Form 10BB instead of required Form 10B. The assessee trust's auditor mistakenly uploaded wrong form but audit was completed within due date. Upon realizing error, assessee filed revised return and correct Form 10B on same date. ITAT held this was not non-filing of audit report requiring condonation but inadvertent error in form selection. CIT(A) failed to adjudicate on merits citing lack of powers. ITAT directed AO to delete additions and allow exemption, considering audit completion within timeline and voluntary corrective steps taken by assessee.

---

---

The primary legal questions considered by the Tribunal in this appeal pertain to the validity and timing of filing the audit report required under the Income Tax Act, 1961, specifically:

1. Whether the filing of the audit report in Form 10BB instead of the prescribed Form 10B on the due date constitutes a non-compliance fatal to the claim of exemption under sections 11 and 12 of the Act.

2. Whether a revised return filed after the due date, accompanied by the correct Form 10B audit report, can be treated as compliance with the statutory requirements, thereby entitling the assessee to exemption.

3. Whether the delay or error in filing the audit report can be condoned by the Assessing Officer (AO) or the Commissioner of Income Tax (CIT), or whether such power lies exclusively with the Commissioner under section 119(2) of the Act.

4. The extent of the powers of the National Faceless Appeal Centre (NFAC) and the CIT(A) in adjudicating appeals involving such procedural irregularities.

Issue-wise Detailed Analysis:

Issue 1: Validity of filing audit report in Form 10BB instead of Form 10B on the due date

The relevant statutory framework involves section 12A(b) of the Income Tax Act, which mandates that a trust claiming exemption under sections 11 and 12 must file an audit report in Form 10B along with the return of income on or before the due date. Form 10BB, while an audit report, is not the prescribed form for this purpose.

The AO and NFAC held that since the assessee filed Form 10BB instead of Form 10B by the due date, the condition precedent for exemption was not satisfied, leading to denial of exemption benefits. The AO further observed an absence of Form 10BB on record, which was contradicted by the assessee's submissions and documentary evidence.

The Tribunal noted that the assessee had indeed filed the return and audit report within the extended due date, but inadvertently filed Form 10BB instead of Form 10B. The Tribunal examined the audit report copies and acknowledgements submitted, confirming the filing of Form 10BB on the due date.

The Tribunal concluded that this was a procedural irregularity rather than a substantive failure to file the audit report. The audit itself was completed on time, and the error was in the form used for filing.

Issue 2: Effect of filing revised return with correct Form 10B audit report after the due date

Under section 139(5) of the Act, a revised return can be filed to rectify mistakes or omissions in the original return. The assessee filed a revised return on 16.3.2020 accompanied by the correct audit report in Form 10B.

The AO and NFAC rejected the revised return's audit report on the ground that it was filed beyond the due date, and that the AO lacked the power to condone such delay. The Tribunal scrutinized this position and found that the revised return was voluntarily filed to correct the inadvertent mistake of filing the wrong audit report form.

The Tribunal emphasized that the audit was completed timely and the audit report was obtained before the due date, and that the revised return was filed promptly upon realizing the error. The Tribunal held that the revised return with the correct audit report should be accepted as compliance with the statutory requirement.

Issue 3: Power to condone delay in filing audit report and effect of procedural irregularity

The AO and NFAC relied on the principle that neither the AO nor the CIT(A) has the power to condone delay in filing the audit report beyond the statutory due date, citing section 119(2) which vests such power exclusively with the Commissioner of Income Tax.

The assessee submitted an application under section 119(2) for condonation of delay before the Commissioner. The Tribunal noted that the law and CBDT circulars have recognized difficulties faced by taxpayers in filing audit reports and have authorized Commissioners to condone delays on merits.

However, the Tribunal distinguished the present case from a mere delay scenario, holding that since the audit report was filed on time albeit in the wrong form, the case did not involve delay requiring condonation. The Tribunal observed that the AO's finding of non-filing of Form 10BB was factually incorrect, and that the procedural irregularity of filing Form 10BB instead of Form 10B was rectified by the revised return.

The Tribunal criticized the NFAC and CIT(A) for dismissing the appeal on the ground of lack of powers without addressing the merits and facts adequately.

Issue 4: Jurisdiction and powers of NFAC and CIT(A) in adjudicating such appeals

The NFAC had dismissed the appeal citing lack of jurisdiction and power to condone delay or decide on the merits, despite agreeing with the legal position cited by the assessee from a High Court judgment.

The Tribunal found this approach unsatisfactory, emphasizing that the NFAC and CIT(A) should have adjudicated the appeal on merits, especially given the factual matrix and the voluntary corrective steps taken by the assessee.

The Tribunal set aside the orders of the CIT(A)/NFAC and remanded the matter to the AO with directions to allow the exemption claimed by the assessee.

Significant Holdings:

"It is not a case of non-filing of audit report on or before the due date for which condonation of delay in filing the audit report is required to be filed before the commissioner."

"The auditor had mistakenly uploaded Form 10BB instead of Form 10B as required in the case of the assessee trust. The assessee trust realizing the mistake... took voluntary steps not only to file revised return on 16.3.2020 but also filed audit report in Form 10B on the same date."

"We set aside the order of the ld. CIT(A)/NFAC and direct the AO to delete the additions and allow the exemption claimed by the assessee u/s 11 of the Act for the AY 2019-20."

Core principles established include:

• Filing of the audit report in the prescribed form on or before the due date is a condition precedent for exemption under sections 11 and 12.
• An inadvertent procedural irregularity in filing the wrong form, when rectified by a revised return filed promptly with the correct form, should not disentitle the assessee to exemption.
• The AO and CIT(A) do not have the power to condone delay in filing audit reports; such power lies with the Commissioner under section 119(2). However, when there is no delay but a procedural error, the principle of condonation of delay is inapplicable.
• Appeal authorities such as NFAC and CIT(A) should adjudicate appeals on merits and not dismiss them solely on jurisdictional or power grounds, especially where factual errors are apparent.

---