Case Law Details
JCIT Vs Gujarat Energy Development Agency (ITAT Ahmedabad)
Introduction: The case of JCIT vs Gujarat Energy Development Agency, as adjudicated by ITAT Ahmedabad, presents a profound perspective on the implications of non-filing an audit report in Form 10B with the income tax return (ITR). The focal point revolves around whether the deduction under Section 11 can be denied solely based on this.
Background of the Case: The Revenue contested against an order passed by the ld. Commissioner of Income-Tax(A), highlighting that the assessee-trust did not file the audit report in Form 10B along with their return of income. Despite this, the ld. CIT(A) concluded that since the audit report was presented during the assessment proceedings, it constituted adequate compliance, thus allowing the assessee to claim benefit under sections 11 and 12 of the Income Tax Act.
Key Points Raised by Revenue:
- Audit Report’s Importance: The Revenue emphasized the significance of filing the audit report in Form 10B along with the return of income as mandated by section 12A(1)(b) of the Income Tax Act.
- Procedural Vs. Directory: A disagreement arose over the procedural nature of the requirement, with the Revenue pointing out that nowhere in the Act does it specify section 12A(1) as directory in nature.
Assessee’s Counter-Argument: The assessee, a registered charitable trust with a 40-year history, presented two main defenses:
- Delayed Submission: Even though the audit report wasn’t filed along with the return, it was subsequently filed, satisfying the compliance requirements.
- Judicial Precedents: The trust leaned heavily on prior judicial decisions that maintained that delays in Form 10B submissions shouldn’t result in denial of benefits, especially if the report is furnished later during assessment or appellate proceedings.
The Tribunal’s Verdict: The ITAT Ahmedabad, after meticulous review, concurred with the ld. CIT(A)’s conclusion. Their rationale was:
- Nature of Requirement: While furnishing the audit report is mandatory, the timing (i.e., along with the return) is procedural. Therefore, substantial compliance, even if it’s at a later stage, is acceptable.
- Judicial Support: Drawing from the jurisdictional Gujarat High Court’s decision, the Tribunal reinforced the belief that an entity shouldn’t be deprived of benefits merely due to procedural lapses, especially when the necessary documents are furnished later.
Conclusion: The verdict of ITAT Ahmedabad in the JCIT vs Gujarat Energy Development Agency case underscores the distinction between procedural requirements and core compliances. While it reinforces the need for timely audit report submissions, it also provides relief to entities who, despite delays, ensure subsequent compliance. It’s a testament to the judicious balance between strict adherence and genuine omissions.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
Present appeal has been filed by the Revenue against order passed by the ld. Commissioner of Income-Tax(A), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “ld. CIT(A)”] dated 31.3.2022 under section 250(6) of the Income Tax Act, 1961 (“the Act” for short)pertaining to Asst.Year2018-19.
2. The grounds raised by the Revenue read as under:
“1. Whether the Ld. CIT(A) was justified in allowing the claim of deduction u/s 11 of the Act despite the fact that the audit report in Form 10B is not filed along with the return of income as laid down in section 12A(l)(b) of the Income Tax Act.
2. Whether the Ld. CIT(A) has erred in upholding the view that the provisions regarding furnishing of audit report along with the return is a procedural proviso, whereas nowhere in the Act it is mentioned that provisions of section 12A(1) are. directory in nature.”
3. Solitary issue raised in the appeal of the Revenue is that the AO has disallowed the claim of benefit under section 11 and 12 of the Act to the assessee-trust on the ground that the assessee failed to furnish audit report along with return of income as per the requirement of section 12A(1) of the Act, which the ld. CIT(A) reversed, finding that the assessee had indeed filed the audit report though during the assessment proceedings, which tantamount to sufficient compliance of the relevant provisions in order to claim benefit under sections 11 and 12 of the Act.
Briefly put, the fact emerges out from orders of the lower authorities are that assessee is a registered charitable trust under section 12A of the Act and engaged in charitable activities for over 40 years. In the return of income for the assessment year 2018-19 assessee declared total income at Rs.13,54,46,670/-. In the return it had shown business income of Rs.13,54,46,670/- and voluntary contribution of Rs.1,52,03,71,381/-. While processing the return, the CPC, Bangalore disallowed claim of exemption under section 11 of the Act, as audit report in Form No.10B was not e-filed along with return of income. Accordingly, in the intimation made u/s 143(1) of the Act the income was assessed at Rs.1,65,58,18,047/- by making addition of Rs.1,52,03,71,381/- to the declared income. This intimation was challenged by the assessee before the ld. CIT(A), who after detailed discussion and in the light of various judicial pronouncements on the issue of delayed submission of form No.10B, allowed claim of the assessee by observing that the impugned audit report was e-filed to AO in regular assessment proceedings, on 6.10.2018 and was available before the AO when he passed the assessment order under section 143(3) on 6.4.2021. Taking note of judicial precedents to the effect that filing of form along with return being a procedural requirement, and if the same was available during assessment or in appellate proceedings the assessee should not be denied of the benefit of deduction, he allowed assessee’s claim of deduction u/s 11 of the Act and deleted the addition made to the income of the assessee of Rs.1,52,03,71,381/-
4. Dissatisfied with order of the ld. CIT(A), the Revenue is now before the Tribunal.
5. Before us, the ld. DR while strongly objecting to the finding of the ld. CIT(A) contended that provisions of section 11 and 12 shall not apply in relation to the income of any trust or institution unless the person in receipt of income furnishes along with the return of income for the relevant assessment year the audit report in the prescribed form. And the assessee having failed to fulfill the conditions provided in section 12A(1)(b) of the Act, the assessee cannot claim benefit under section 11 and 12. He accordingly supported order of the AO/CPC.
6. The ld. counsel for the assessee, on the other hand, supported the order of the ld. CIT(A). He further submitted that the law in this regard is settled that benefit of exemption under section 11 and 12 should not be denied merely on account of delay in furnishing the audit report, and it would be sufficient compliance, if the audit report is furnished at a later stage either before the AO during the assessment proceedings or before the ld. CIT(A) in the appellate proceedings. In support of his submissions, the ld. counsel for the assessee drew our attention to a recent judgment of the jurisdictional High Court on identical issue in the case of Social Security Scheme of GICEA Vs. CIT (Exemptions), (2023) 147 taxmann.com 283 (Guj). A copy of judgment of the Hon’ble High Court is placed on record.
7. We have heard both the parties, and we do not find any infirmity in the order of the ld. CIT(A) on the issue. The issue before us is related to denial of deduction under section 11 and 12 of the Act on the ground that the assessee had failed to furnish audit report in form No.10B along with return of income filed. We find, this issue has been discussed and appreciated by the ld. CIT(A) in impugned order in the light of various judicial decisions, and allowed the claim of the assessee, by observing that the assessee did file the audit report and the same was available both during assessment and appellate proceedings, and thereby the assessee has substantially complied with relevant provisions of the Act. The relevant findings of the ld. CIT(A) are as under:
“(g) In the instant case the appellant/assessee is a charitable trust registered u/s 12A on 29.01.1980. Thus it is engaged in charitable activities for over 40 years. The audit report in Form 10B was e-filed on 06.10.2018 and was available before the Assessing Officer when he passed the assessment order under section 143(3) on 06.04.2021. The audit report is also available before the CIT(A) during the appellate proceedings. It has been unambiguously held by the jurisdictional Gujarat High Court [CIT v. Gujarat Oil and Allied Industries Ltd. [1993] 201 ITR 325 (Guj.)] that provisions regarding furnishing of audit report with the return have to be treated as a procedural proviso. It is directory in nature and its substantial compliance would suffice. The Hon’ble Court also took the view that the benefit of exemption should not be denied merely on account of delay in furnishing the audit report and it is permissible for the assessee to produce the audit report at a later stage, either before the AO or the appellate authority. This view has been reiterated by the Hon’ble Court in its recent judgement in Sarvodaya Charitable Trust v. Income Tax Officer. (Exemption) [2021] 125 taxmann.com 75 (Gujarat). Respectfully following the ratio given by the Hon’ble Gujarat High Court (which is jurisdictional High Court), I am of the view that the CPC Bangalore erred in not allowing deduction to the appellant/assessee for the amount applied for the charitable purpose on revenue account as well as capital account. It was merely a procedural lapse on part of assessee to not file Form 10B along with return of income. The appellant/assessee uploaded the audit report within a week of filing return of income. It cannot be denied the benefit of exemption under section 11 merely on account of delay in furnishing audit report. Thus the addition made by CPC Bangalore in its order under section 143(1) of the IT Act 1961 dated 17.03.2020 in respect of voluntary contribution other than the corpus received by the appellant trust amounting to Rs.1,52,03,71,381/- is ordered to be deleted.”
8. The appellate proceedings being the continuation of assessment proceedings merely because the assessee has not furnished at the threshold i.e. furnishing the audit report along with return of income, but filed during the assessment proceedings, and available even during the appellate proceedings, it cannot be stated that the assessee has failed to comply with the provisions so as to deny substantial justice by way of granting exemption. The Hon’ble Jurisdictional High Court in a recent decision in Social Security Scheme of GICE Vs. CIT(E) (supra) in the matter of exemption provisions contained in section 11/12 of the Act, requiring filing of Form 10B along with return of income for claiming exemption, held the requirement of furnishing of report to be a mandatory requirement while that of filing the report along with return of income to be a procedural requirement. Conclusion made by the Hon’ble jurisdictional High Court is as under:
“5. Having heard learned advocates for the respective parties and having gone through the material on record, the only question which falls for consideration is whether respondent committed an error in passing the order by not condoning the delay in filing Form No. 10B along with the return filed. In the decision of this Court in Sarvodaya Charitable Trust (supra) this Court has observed that furnishing of audit report along with return filed is to be treated as a procedural requirement. It is though mandatory in nature the substantial compliance is required to be made. In the case of Sarvodaya Charitable Trust (supra) the assessee had produced the audit report after processing the return under section 143(1). This Court in the said order has observed that the approach of the authority in these type of cases should be equitable, balancing and judicious. Technically speaking, respondent No. 2 might be justified in denying the exemption under section 11 of the Act by rejecting such condonation application, but an assessee, which is a public charitable trust for past 30 years which substantially satisfies the conditions for availing such exemption, should not be denied the same merely on the bar of limitation especially when the legislature has conferred wide discretionary powers to condone such delay . Applying the said principle, the petition is allowed. The impugned order passed by respondent dated 12-3-2021 is quashed and aside. The impugned order of rectification under section 154 of the Act dated 25-1-2019 is also quashed and set aside. The application for condonation of delay filed by the petitioner before the respondent is allowed.”
The issue before us being identical to that as dealt with by the Hon’ble jurisdictional High Court the decision rendered therein will squarely apply to the present case. Following the same, we have no hesitation in holding that the Ld. CIT(A) has rightly held the denial of exemption u/s 11 of the Act for non-filing of requisite form along with return of income, to be not as per law, noting the fact that the assessee did file the requisite form during regular assessment proceedings and appellate proceedings before him.
We, therefore, uphold order of the ld. CIT(A) and reject the grounds of appeal of the Revenue.
9. In the result, the appeal of the Revenue is dismissed.
Order pronounced in the Court on 2nd August, 2023 at Ahmedabad.
