2024 (1) TMI 1524 - AT - Income Tax

Denial of tax exemption due to missing audit report overturned after report filed during assessment; exemption allowed thereafter.

Denial of tax exemption was premised on non-filing of the audit report with the return, but the audit report was produced during assessment proceedings ... Denial of Exemption u/s 11 - adjustment u/s 143(1) - disallowance is initiated because the Audit Report is not filed by the assessee alongwith return of income. HELD THAT:- Assessee after obtaining the Audit Report during the course of assessment proceedings has filed the Audit Report and non filing of the Audit Report by the Auditor cannot be termed as assessee’s lacuna. As decisws in the case of Association of Indian Panelboard Manufacturer [2023 (3) TMI 1374 - GUJARAT HIGH COURT] has categorically mentioned that filing of Audit Report is held to be substantive requirement but not the nodal stage of filing which is procedure once the Audit Report in Form 12B is filed to be available with the AO before assessment proceedings take place, the requirement of law is satisfied. In the present case also, the assessee obtained the Audit Report dated 31.10.2018 from the Auditor but could not file the same on Income Tax Portal. Thus, the audit report was prepared well within the time. Thus CIT(A) should have taken cognisance of the same and the AO should have also taken into account Audit Report for allowing the exemption u/s 11 of the Act to the assessee. Thus, appeal of the assessee is allowed. Issues: Whether exemption under Section 11 of the Income-tax Act, 1961 claimed by a trust can be disallowed solely because the statutory audit report (Form 10B) was not e-filed with the original return when the audit report was prepared before the return filing and subsequently produced during assessment/appellate proceedings.Analysis: The matter requires assessment of whether filing of the audit report is a substantive condition precedent to claiming exemption under Section 11 or a procedural requirement as to the stage of e-filing. The statutory framework concerning exemption under Section 11 and registration/audit under Section 12A must be read to determine if availability of an audit report prepared within time but uploaded later satisfies the legislative requirement. Precedential rulings of the High Court treating the audit report filing as substantive compliance where the report was prepared and made available to the assessing authority before completion of assessment are relevant. On the facts, the audit report was prepared on 31.10.2018 (i.e. prior to the return filing date) though the auditor uploaded it later; the audit report was thus available and produced during assessment/appellate proceedings. Procedural lapse in e-filing by the auditor does not negate substantive compliance where the report exists and is placed before the assessing authority before assessment is concluded. The appellate authority therefore had jurisdiction and grounds to allow the exemption by treating the belated filing as satisfying the statutory requirement.Conclusion: The exemption under Section 11 is allowable because the audit report was prepared before the return filing and was produced during the assessment/appellate proceedings; the disallowance based solely on non e-filing with the original return is not justified.