Delay in filing Form 10B condoned; exemption claim under sections 11 and 12 remanded for fresh consideration

The ITAT Mumbai held that the assessee-trust's audit report in Form 10B, though filed belatedly, had been produced during appellate proceedings before CIT(A) and formed part of the record. The assessee satisfactorily explained the delay as arising from late completion of audit, which the Revenue did not dispute. Treating the delay as reasonable, the Tribunal condoned the delay in filing Form 10B. It directed the AO to consider the audit report and adjudicate the assessee's claim for exemption under ss. 11 and 12 afresh, in accordance with law and after affording adequate opportunity of hearing. The appeal was allowed for statistical purposes.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether delay of 168 days in filing the appeal before the Tribunal deserved to be condoned.

1.2 Whether delay in furnishing the audit report in Form 10B and its non-filing along with the return of income justified denial of exemption under sections 11 and 12.

1.3 Whether the appellate authority was required and empowered to consider Form 10B filed during appellate proceedings and condone delay even in absence of a separate condonation application before the competent authority.

1.4 Consequentially, whether the matter required remand to the Assessing Officer for adjudication of the claim of exemption under sections 11 and 12 after considering the belated audit report.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Condonation of delay in filing appeal before the Tribunal

Interpretation and reasoning

2.1 The Tribunal noted that there was a delay of 168 days in filing the appeal. After hearing both parties and examining the facts, it found that the assessee had demonstrated reasonable cause for the delay.

Conclusions

2.2 The delay of 168 days in filing the appeal was condoned and the appeal was admitted for adjudication.

Issue 2 - Effect of belated filing / non-filing of Form 10B with return on exemption under sections 11 and 12

Legal framework (as discussed)

2.3 The Tribunal referred to judicial precedents holding that the requirement of furnishing the audit report in the prescribed form along with the return is procedural and directory, and that substantial compliance suffices. It relied particularly on decisions of a High Court holding that exemption under section 11 should not be denied merely on account of delay in furnishing Form 10B, and that the audit report can be produced at a later stage, including in appellate proceedings, where sufficient cause is shown.

2.4 The Tribunal also referred to a co-ordinate Bench decision which, relying on High Court rulings and CBDT circulars under section 119(2)(b), treated timelines for filing Forms 9A/10/10B/10BB as procedural, capable of condonation, and not forming a mandatory bar to exemption where audit is completed and there is no mala fide or dispute on the contents of the audit report.

Interpretation and reasoning

2.5 The Tribunal noted that the assessee had filed a belated return claiming exemption under section 11 without enclosing Form 10B, as the audit was not completed by that time. The audit was subsequently completed and the audit report in Form 10B was issued and later furnished during appellate proceedings before the first appellate authority.

2.6 The Tribunal adopted the principle that furnishing of the audit report is a procedural requirement, the timelines are directory, and where audit is completed and the report exists, mere delay or non-filing along with the return should not defeat a substantive claim to exemption under sections 11 and 12.

2.7 It treated the explanation regarding delay in completion of audit and consequent delay in furnishing Form 10B as reasonable, noting absence of any adverse material or allegation of mala fide by the Revenue.

Conclusions

2.8 The delay in filing the audit report in Form 10B was condoned. The Tribunal held that exemption under sections 11 and 12 cannot be denied merely for delayed or belated filing of Form 10B when the audit report has been duly obtained and produced and its contents are not in dispute.

Issue 3 - Power and duty of appellate authority to consider belated Form 10B filed during appellate proceedings

Legal framework (as discussed)

2.9 The Tribunal referred to a co-ordinate Bench decision which held that, where there is delay in filing the prescribed audit forms, the appellate authority, in exercise of appellate powers under section 251, is competent to condone the delay and consider the audit report, even if the assessee has not approached the administrative authority under section 119(2)(b) for condonation.

2.10 The same co-ordinate Bench decision, read with High Court judgments and CBDT circulars, treated the filing of Form 10B as a procedural requirement whose belated compliance can be regularised in appellate proceedings.

Interpretation and reasoning

2.11 In the present case, the assessee produced the audit report in Form 10B before the first appellate authority. The appellate authority refused to consider it on the ground that no condonation application had been made before the competent authority under section 119.

2.12 The Tribunal held that, in light of the binding judicial view that the requirement to file Form 10B is directory and procedural, and given the settled position that the audit report can be produced at the appellate stage, the appellate authority should have taken on record and considered the audit report rather than rejecting it for want of a separate condonation application.

2.13 The Tribunal accepted that the assessee had explained delay in completion of audit and consequent delay in filing Form 10B, and observed that such explanation had not been disputed by the Revenue.

Conclusions

2.14 It was held that the delay in furnishing Form 10B should be condoned at the appellate stage, and that the appellate authority was required and empowered to consider Form 10B filed during appellate proceedings while adjudicating the claim for exemption under sections 11 and 12.

Issue 4 - Remand to Assessing Officer for decision on exemption under sections 11 and 12

Interpretation and reasoning

2.15 Having condoned the delay in filing Form 10B, the Tribunal considered it appropriate that the Assessing Officer examine the audit report and adjudicate the assessee's entitlement to exemption under sections 11 and 12 on merits.

2.16 The Tribunal followed its co-ordinate Bench's approach in similar matters of remitting the issue to the Assessing Officer with a direction to consider the belated audit report and recompute income in accordance with law, after affording due opportunity to the assessee.

Conclusions

2.17 The matter was remanded to the Assessing Officer with direction to consider the audit report in Form 10B, verify the claim, and decide the assessee's entitlement to exemption under sections 11 and 12 in accordance with law after providing reasonable opportunity of hearing.

2.18 The appeal was allowed for statistical purposes.

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