Delayed Filing of Audit Report Form 10B Before Income Return Does Not Deny Exemption Under Sections 11/12

The ITAT Indore held that delayed filing of the audit report (Form No. 10B) beyond the prescribed due date, but before filing the return of income, constitutes only a procedural irregularity and does not warrant denial of exemption under sections 11/12. The tribunal upheld the order of the FAA, allowing the assessee the benefit of exemption claimed in the return despite the delay. The appeal was allowed.

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ISSUES:

Whether the exemption under sections 11 and 12 of the Income-tax Act can be denied solely on the ground of delay in filing the audit report in Form No. 10B.Whether the delay in filing the audit report in Form No. 10B is a procedural or substantive defect affecting the entitlement to exemption under sections 11/12.Whether the First Appellate Authority (FAA) has the statutory authority to condone delay in filing the audit report, or such power is exclusively vested in the jurisdictional Commissioner of Income-tax as per CBDT Circular No. 02/2020 dated 03.01.2020.Whether the assessee should have been directed to approach the competent authority, i.e., Commissioner of Income Tax (Exemption), for condonation of delay instead of FAA condoning the delay.

RULINGS / HOLDINGS:

The exemption under sections 11 and 12 cannot be denied merely due to a delay of six days in filing the audit report in Form No. 10B; such delay is considered a "procedural lapse" and "curable defect" when the audit report is filed before the return of income.The delay in filing the audit report is a "procedural-cum-directory requirement," and substantive benefit of sections 11/12 cannot be denied on the basis of such procedural irregularity if the assessee is otherwise eligible and genuinely engaged in charitable activities.The FAA has the authority to condone the delay in filing the audit report; the power to condone delay is not exclusively vested in the jurisdictional Commissioner of Income-tax, and the appellate remedy is not barred by the CBDT Circular No. 02/2020 or Section 119(2)(b) of the Act.The assessee is entitled to exemption under sections 11/12 upon filing the audit report, even if belatedly, provided the assessment proceedings are pending or the appeal is pending before a higher forum, as the assessment is not final until disposal of such appeal.

RATIONALE:

The Court applied the statutory framework of sections 11 and 12 of the Income-tax Act, 1961, which provide exemption for income of charitable trusts subject to compliance with conditions including filing of audit report in Form No. 10B.Precedents from various ITAT Benches and High Courts were relied upon, including decisions holding that the requirement of filing audit report is procedural and directory, not mandatory to the extent of denying exemption if delayed but eventually filed.The Court distinguished the present case from judgments involving negative provisions or different sections (e.g., section 10B) and emphasized the genuineness of charitable activities and fulfillment of substantive conditions for exemption.The Court referred to the principle that assessment proceedings remain pending while appeals are pending, thus allowing compliance during appellate proceedings to cure procedural lapses.The Court noted that the CBDT Circular and Section 119(2)(b) do not oust the appellate forum's jurisdiction to condone delay, as confirmed by the Gujarat High Court, preserving the assessee's right to appeal.

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