Denial of deduction u/s 11 for non-filing of Form No. 10B is unjustifiable

Shyam Charan Sewa Trust Vs DCIT (ITAT Amritsar)

ITAT Amritsar held that failure in furnishing of Form No. 10B is a procedural defect. Accordingly, denial of deduction u/s 11 of the Income Tax Act for such a defect is unsustainable in law.

Facts- The assessee filed the return u/s 139. The return was processed u/s 143(1) and claimed deduction u/s 11 which was disallowed by the CPC, Bangalore and total addition was made Rs. 11,46,800/-. The assessee had not filed the audit report in Form No. 10B with the return u/s 139. Accordingly, the return was treated as defective u/s 139(9). The assessee rectified within one month &submitted the report on dated 23.03.2019 as time allowed in the deficiency letter by the ld. AO. Finally, the rectified order was passed on dated 21.05.2019 without considering the submission of assessee and sustained the addition amount of Rs. 11,46,800/- with the assessee’s total income. Aggrieved assessee filed an appeal before the ld. CIT(A) but remained unsuccessful. Being aggrieved assessee has preferred the present appeal.

Conclusion- Held that filling of Form No. 10B is a procedural direction in in the provision. The assessee is registered u/s 12A and followed the direction as per the Act during filing of return. For non-filing of Form No. 10B with the return is just a failure of procedural system. Form 10B was filed within stipulated time for removal of defect in the return.

The assessee had rectified the defect within stipulated time and the procedure for filing Audit Report was completed. We find that assessee is eligible for deduction u/s 11 of the Act. The addition made by the ld. AO is liable to be quashed. Accordingly, the appeal of the assessee is allowed.

FULL TEXT OF THE ORDER OF ITAT AMRITSAR

The instant appeal was filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeal), NFAC, Delhi,[in brevity the ‘CIT (A)’] bearing appeal DIN & Order No. ITBA/NFAC/S/250/2022-23/1046010605(1), date of order 27.09.2022, the order passed u/s 250 of the Income Tax Act 1961, [in brevity the Act] for A.Y. 2018-19.The impugned order was emanated from the order of the ld. Income Tax Officer, Exemption, Jalandhar, (in brevity the AO) order passed u/s 143(1) of the Act date of order 21.05.2021.

2. The assessee has taken the following grounds:

” 1.That the order of Ld. CIT(A) is against the law and facts of the case.

2. That the Ld. CIT(A) has grossly erred in upholding the illegal order passed by the AD, CPC, Bangalore, whereby the learned AD has disregarded our reply dated 23.03.2019 in response to a deficiency letter issued on 28.02 .2019; and made addition of Rs. 1146800/- by way of adjustment u/s 143(1) (a) by denying exemption u/s 11 for the only reason that the Audit Report in Form 10B was filed while removing deficiency u/s 139(9); and was not filed at the time of filing the return.

3. Thus, the order passed by the Ld. CIT (A) is contrary to the statutory provisions and the well-settled law as laid down by the Honble Supreme Court of India.

4. That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard and disposed off.”

3. Brief fact of the case is that the assessee filed the return u/s 139. The return was processed u/s 143(1) and claimed deduction u/s 11 which was disallowed by the CPC, Bangalore and total addition was made Rs. 11,46,800/-. The assessee had not filed the audit report in Form No. 10B with the return u/s 139. Accordingly, the return was treated as defective u/s 139(9). The assessee rectified within one month &submitted the report on dated 23.03.2019 as time allowed in the deficiency letter by the ld. AO. Finally, the rectified order was passed on dated 21.05.2019 without considering the submission of assessee and sustained the addition amount of Rs. 11,46,800/- with the assessee’s total income. Aggrieved assessee filed an appeal before the ld. CIT(A) but remained unsuccessful. Being aggrieved assessee filed an appeal before us.

4. During hearing the ld. counsel for the assessee has filed written submission which is kept in the record. The ld. counsel for the assessee placed that due to unavoidable reason the audit report in Form No. 10B was not filed with the return. The return was treated as defective u/s 139(9) by the revenue. The ld. AO allowed 30 days’ time for recovering the deficiency. Within 30 days the Form No. 10B was filed therefore assessee is eligible for deduction u/s 11 of the Act.

4.1 The ld. counsel further relied on the order of the jurisdictional High Court in the case of CIT vs. Mahalaxmi Rice Factory (2006) 203 CTR PH 117 date of order 03 .05.2006 the relevant para 11 is extracted as below:

“11. A perusal of dictum of law as referred Id above dearly shows that the provisions of Section 8oJ(6A) of the Act have been head to be directory in nature to the extent that audit report, in case not filed along with the retain is not fatal for pant of deduction. However, the provisions have been held to be directory only to the extent that in case the audit report is not filed along with return, the same can be filed any time before the assessment takes place, as it is at that time when the AO applies his mind on the case. As is evident from the facts of the case, the audit report in the present case was filed on 18th Jan. 1979 after the assessment had already taken place on 19th Dec., 1978, hence, in terms of the discussions above and law laid down by the Gujarat High Court in Gujarat Oils & Allied Industries’ case supra) and Madras High Court in A.N. Arunachalam’ s case (supra), which has been approved by . Full Bench of this Court in Punjab Financial Corporation’s case (supra), we are of the view that the Tribunal was not right in granting relief to the assessee as admittedly the audit report was filed by the assessee after the assessment had already been framed by the AD.”

5. The ld. Sr. DR vehemently argued and relied on the order of the revenue authorities. In connection to his argument, the relevant paragraph of page 3 of CIT (A)’sorder is reproduced as below:-

“The section above clearly spells out the time limit of compliance. That means that both the return of income and audit report has to be filed by the due date prescribed u/s. 139. 139 provides prescribed dates both for the audited accounts and the date of filing of returns. In any case it is difficult to file the return without getting the accounts audited, as auditing facilitates in reporting correct income. CPC has intimated the appellant about the deficiency pointing out noncompliance of the time lines. Though the appellant complied with the direction of providing the audit report, but the fact remained that it had not observed the time limit prescribed. The default of not filing the audit report renders the appellant not eligible to claim the exemption and the same has been done by the subsequent CPC order dated 21.05.2019. The case law relied by the appellant is not applicable as the same is distinguishable on facts as it is in context of Form 3AA which is no longer there on statute.

4.4 In view of the facts narrated above and legal provision. This office need not interfere with the order of the CPC.”

6. We heard the rival submission and considered the documents available in the record. We respectfully relied on the order of the Jurisdictional High Court for adjudication the issue. The filling of Form No. 10B is a procedural direction in in the provision. The assessee is registered u/s 12A and followed the direction as per the Act during filing of return. For non-filing of Form No. 10B with the return is just a failure of procedural system. Form 10B was filed within stipulated time for removal of defect in the return. Here we respectfully refer the order of Hon’ble High Court of Gujarat in the case of Sarvodaya Charitable Trust vs. Income Tax Officer. (Exemption), [2021] 125 taxmann.com 75 (Gujarat). The relevant paragraph is extracted as below:-

“32. We may also refer to the decision of this Court in CIT v. Gujarat Oil and Allied Industries Ltd. [1993] 201 ITR 325 (Guj.), wherein it is held that the provision regarding furnishing of audit report with the return has to be treated as a procedural proviso. It is directory in nature and its substantial compliance would suffice. In that case, the assessee had not produced the audit report along with the return of income but produced the same before the completion of the assessment. This Court took the view that the benefit of exemption should not be denied merely on account of delay in furnishing the same and it is permissible for the assessee to produce the audit report at a later stage either before the Income-tax Officer or before the appellate authority by assigning sufficient cause”.

The assessee had rectified the defect within stipulated time and the procedure for filing Audit Report was completed. We find that assessee is eligible for deduction u/s 11 of the Act. The addition made by the ld. AO is liable to be quashed. Accordingly, the appeal of the assessee is allowed.

7. In the result, the appeal of the assessee bearing ITA No.214/Asr/2022 is allowed.

Order pronounced in the open court on 24.02.2023