Non-filing of audit report Form 10B is procedural irregularity, cannot deny sections 11/12 exemption

ITAT Indore held that non-filing of audit report (Form 10B) with return of income constitutes mere procedural irregularity and cannot deny exemption under sections 11/12. The tribunal ruled that while assessee should have appealed against intimation under section 143(1) rather than rectification order under section 154, tax authorities cannot burden assessee with incorrect tax amount despite wrong appellate channel chosen. Following Gujarat HC precedent in Indian Panel Board Manufacturer case, the tribunal emphasized that CBDT circular providing condonation remedy is additional, not compulsory. Exemption under sections 11/12 cannot be denied solely for delayed audit report filing.

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Issues Involved:
1. Entitlement to exemption under Section 11/12 of the Income-tax Act, 1961.
2. Filing of audit report (Form No. 10B) after the return of income.
3. Procedural requirements and implications of delayed filing.
4. Jurisdiction and procedural aspects regarding rectification applications under Section 154 and appeals against intimation under Section 143(1).

Detailed Analysis:

1. Entitlement to Exemption under Section 11/12:
The primary issue revolves around whether the assessee, a charitable trust registered under Section 12A, is entitled to exemption under Section 11/12 despite not filing the audit report (Form No. 10B) along with the return of income but filing it before the first appeal. The Tribunal referred to prior decisions, emphasizing that the requirement to file the audit report is procedural and directory. The exemption cannot be denied solely due to the delayed filing of the audit report if the trust meets all other conditions for exemption.

2. Filing of Audit Report (Form No. 10B) After the Return of Income:
The Tribunal noted that the assessee's auditors failed to e-file the audit report with the return of income, which was later filed before the first appeal. The Tribunal cited several judicial precedents, including ITAT decisions and High Court rulings, which support the view that the procedural delay in filing the audit report does not justify denying the exemption under Section 11/12. The Tribunal highlighted that such procedural lapses should not overshadow the substantive compliance by the assessee.

3. Procedural Requirements and Implications of Delayed Filing:
The Tribunal emphasized that the procedural requirement of filing the audit report along with the return of income is directory and not mandatory. It referred to the CBDT Circular No. 10/2019, which allows the Commissioner of Income-tax to condone the delay in filing the audit report. However, the Tribunal clarified that the failure to seek condonation does not preclude the assessee from claiming the exemption if the audit report is eventually filed. The Tribunal cited the Gujarat High Court's decision in Indian Panel Board Manufacturer, which supports the view that procedural delays should not bar the assessee from appellate remedies.

4. Jurisdiction and Procedural Aspects Regarding Rectification Applications under Section 154 and Appeals Against Intimation under Section 143(1):
The Tribunal addressed the procedural aspect where the assessee filed rectification applications under Section 154 instead of appealing directly against the intimation under Section 143(1). The Tribunal referred to the ITAT Jodhpur decision in Akbar Mohammad, which held that even if the assessee took a wrong procedural route, the authorities should ensure that the correct amount of tax is levied. The Tribunal concluded that the assessee's procedural misstep should not result in the denial of legitimate exemptions.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, remanding the matter back to the Assessing Officer for a fresh assessment after considering the belatedly filed audit report. The Tribunal emphasized that procedural lapses should not overshadow substantive compliance and the legitimate entitlement to exemptions under the Income-tax Act. The Tribunal's decision reinforces the principle that procedural requirements should not be used to deny substantive rights when all other conditions for exemption are met.

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