MALWA PATIDAR SAMAJ SHIKSHA SAMITI ,HATPIPLIYA vs. ADIT, CPC, BENGALURU

Per Vijay Pal Rao, JM :

This appeal by assessee is directed against the order dated 19.12.2023 of the Commissioner of Income Tax (Appeal) National Faceless Appeal Centre (NFAC) Pune, for A.Y.2020-21. The assesse has raised following grounds of appeal:

“1. On the facts and circumstances of the case and applicable law, Ld. CIT(A) erred in sustaining the adjustment made by Ld. ADIT, CPC, in the intimation order passed u/s 143(1) which is

ITANo.140/Ind/2024 Malwa Patidar Samaj Shiksha Samiti contrary to the material on records and provisions of the Act, unjust and bad in law. 2. On the facts and circumstances of the case and applicable law, 45,51,3 Ld. CIT(A) erred in sustaining the adjustment made by Ld.ADIT, CPC by denying the exemption claimed u/s 10(23C) of Rs. 1,51,71,281. 3. On the facts and circumstances of the case and applicable law, Ld. CIT(A) erred in sustaining the adjustment made by Ld.ADIT, CPC by denying the exemption claimed u/s 10(23C) of Rs. 1,51,71,281 merely because of delay in filing of Form 10BB. 4. On the facts and circumstances of the case and applicable law, Ld. CIT(A) erred in sustaining the adjustment made by Ld.ADIT, CPC u/s 10(23C) of Rs. 1,51,71,281 without considering the fact that approval has been granted by CIT(Exemption), Bhopal. 5. On the facts and circumstances of the case and applicable law, NA the Ld. CIT(A) erred in not considering the written submission along with documentary evidences in proper perspective. 6. The appellant craves leave to add, amend, alter otherwise raise any other ground of appeal.” 2. Ld. AR of the assesse has submitted that the assessee is running educational institution and claimed exemption u/s 10(23C)(iv) of the Act which was denied by the CPC while processing return of income due to the reasons that gross receipt of the assessee are exceeding Rs.1 crore. Ld. AR has pointed out that though at the time of filing original return the assesse was yet to be granted approval u/s 10(23C)(iv) of the Act however, vide order dated 10.02.2021 an approval was granted u/s 10(23C)(iv) w.e.f A.Y.2020-21. Thereafter the assesse filed revised return of income

Page 2 of 11

ITANo.140/Ind/2024 Malwa Patidar Samaj Shiksha Samiti as claimed exemption u/s 10(23C)(iv). Therefore, the Ld. AR has submitted that the assesse is entitled for exemption u/s 10(23C)(iv) once the approval was granted w.e.f assessment year under consideration. She has further contended that the CIT(A) has dismissed the appeal of the assesse on the ground that the delay in filing audit report in form 10BB could have been condoned by the competent authority u/s 119(2)(b) of the Act. Ld. AR has submitted that before the approval there was no occasion for the assessee to file the audit report in form 10BB and therefore, the assesse has filed the audit report after approval was granted u/s 10(23C)(iv) of the Act. Even otherwise the filing of audit report within the limitation for filing the return of income u/s 139(1) is not mandatory but it is directly as held by various High Courts. She has relied upon the judgment of Hon’ble Gujarat High Court in case of Association of Indian Panelboard Manifacturer vs. DCIT 157 taxmann.com 550. By following the said decision of the Hon’ble Gujarat High Court, the Ahmadabad Benches of the Tribunal in case of Hari Gyan Pracharak Trust vs. DCIT in ITANo.245/Ahd/2021 has also considered and decided an identical issue vide order dated 16.06.2023 in favour of the assesse. Thus, Ld. AR has submitted that the claim of exemption u/s 10(23c)(iv) cannot be denied merely on the ground of delay in filing the appeal and audit report in form 10BB.

Page 3 of 11

ITANo.140/Ind/2024 Malwa Patidar Samaj Shiksha Samiti 4. We have considered rival submissions as well as relevant material on record. The assesse filed its return of income on 18.02.2021 and claimed deduction u/s 10(23C)(iv) of the Act however, the CPC while processing the return has denied the claim of the assessee because of delay for filing return of income as well as audit report in form 10BB. The assessee challenged the action of the AO before the CIT(A) but could not succeed. The CIT(A) has dismissed the appeal of the assesse on the ground that an avenue for relief is available by seeking condonation of delay in filing for filing the form 10BB u/s 119(2)(b) before the competent authority as specified by the CBDT in Circular no.15/2022 dated 19.07.2022. It is pertinent to note that the claim of exemption u/s 10(23C)(iv) was claimed by the assesse only after the assesse was granted approval u/s 10(23C)(iv) vide order dated 10.02.2021. Therefore, once the assessee was granted approval w.e.f assessment year 2020-21 i.e. the year under consideration then the claim of exemption u/s 10(23C)(iv) cannot be denied on the ground that there is a delay in filing the audit report in form 10BB . The Hon’ble Gujarat High Court in case of Association of Indian Panelboard Manifacturer vs. DCIT (supra) has held in para 5 to 6.1 as under:

“5. The decision of the Division Bench of this court in Xavier Kelavani Mandal (P) Ltd. (supra) leaves the issue no longer res integra. In that case Form 10B was not filed by the assessee alongwith the return of income, however the appellate authority permitted the assessee to file Form 10B audit report at the appellate stage and accepted the same to allow the exemption under section 11. The department filed appeal which came to be dismissed.

Page 4 of 11

ITANo.140/Ind/2024 Malwa Patidar Samaj Shiksha Samiti 5.1 The Division Bench of this court dismissed the appeal before it confirming the view taken observing that the provisions regarding filing of audit report was procedural in nature, "4. The question whether it is permissible to the assessee to produce the audit report at the appellate stage, has already been answered by this court in CIT Vs. Gujarat Oil & Allied Industries Ltd. [(1993) 201 ITR 325 (Guj.)], wherein it is held that the provision regarding furnishing of audit report alongwith the return has to be treated as a procedural provision. It is directory in nature and its substantial compliance would suffice. In that case, the assessee had not produced the audit report alongwith the return of income, but produced before completion of the assessment. The Punjab and Haryana High Court in CIT v. Shahzadanand Charity Trust [(1997) 228 ITR 292] has reiterated the same principle holding that the benefit of exemption should not be denied merely in 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 showing a sufficient cause. This decision of Punjab & Haryana High Court has been relied on by the Tribunal." 5.2 The decision of this court in Mayur Foundation (supra) stands to support the submission of the appellant. The decision in Rai Bahadur Bissesswarlal Motilal Malwasie Trust (supra) of Culcutta High Court takes a same view as was taken as by this court in Xaviers Kelavni Mandal (P) Ltd. (supra). It that case the assessee- charitable trust filed the return of income but was not accompanied by audit report in Form 10B as required under section 12A. The Culcutta High Court held that the provisions of Section 12A are directory in the sense that Assessing Officer are not powerless to allow an assessee to file audit report, if not filed alongwith return, anytime before completion of assessment. 5.3 Leamed advocate for the respondent was not in position to dispute the law emanating from the decision of Xavier Kelavani Mandal (P) Ltd. (supra) and the other decisions on the issue. 5.4 Recollecting the relevant dates, the income was filed on 31-8- 2018. On 15-3-2019 Form 10B was filed electronically. On 7-12- 2019 intimation under section 143(1) of the Act was given to the appellant that the exemptions were denied, while processing the

Page 5 of 11

ITANo.140/Ind/2024 Malwa Patidar Samaj Shiksha Samiti return of income on the ground that alongwith the return of income Form 10B was not filed. 5.5 It is to be observed in the present case that the Form D-the audit report, though was not filed with the return of income, the same was available with the Assessing Officer when he processed the return of income under section 143(1) of the Act. The conditions for claiming exemption under section 11 was satisfied. Although the requirement of furnishing report was mandatory, filing thereof is a procedural aspect. Even though the Form 10B was filed at a later stage, when it was part of the record of the Assessing Officer in course of the processing of the return of income, the Assessing Officer could not have denied the exemption claimed by the assessee under sections 11(1) and 11(2) on the ground that the audit report was not filed. 5.6 The tribunal further committed an error in appreciating the import of section 119 2(b) of the Act inasmuch as the application contemplated thereunder is only additional remedy for the assessee which could not be said to be compulsorily resorted to by the assessee. The circular No. 7/18 dated 20-12-2018 issued under section 119 of the Act could not be, therefore said to have taken away the appellate remedy. 5.7 The tribunal misdirected itself in yet another way when it observed that The Finance Act, 2015 with effect from 1-4-2016, that is from assessment year 2016-17 changed the legal position. There is no such change which could be said to have altered the legal position. The only change is with regard to compulsory filing of audit report in Form 10B in electronically form which is made mandatory under Rule 12 (2) of the Income-tax Rules, 1962 but there is no change with regard to the substantive law about filing of audit report as stated above. 6. The moot aspect thus centres around to the requirement of the availability of the audit report when the assessment was undertaken by the Assessing Officer even though the same may not have been filed alongwith the return of income. Filing of audit report is held to be substantive requirement but not the mode and stage of filing, which is procedural. Once the audit report in Form 12B is filed to be available with the Assessing Officer, before assessment proceedings take place, the requirement of law is satisfied. In that view, the Income Tax Tribunal was not justified in dismissing the appeal of the assessee. Page 6 of 11

ITANo.140/Ind/2024 Malwa Patidar Samaj Shiksha Samiti 6.1 The appellant assessee has to be held to be eligible and entitled to exemptions under section 11(1) and 11(2) of the Act and the alleged ground of non-filing of audit report alongwith return of income which was at the best procedural omission, could never to an impediment in law in claiming the exemption.” 5. Thus, Hon’ble High Court has held that the requirement of the availability of the audit report is mandatory at the time of assessment undertaken by the AO even though the same may not have been filed along with return of income. The filing of the audit report is held to be substantive requirement but not mode and stage of filing which his procedural. Once the audit report in form 10BB is filed to be available with the AO before the assessment proceedings take place, the requirement of law is satisfied. The following said judgment of Hon’ble Gujarat High Court Ahmadabad Bench of the Tribunal in case of Hari Gyan Pracharak Trust vs. DCIT (supra) was held in pra 7 & 8 as under:

ITANo.140/Ind/2024 Malwa Patidar Samaj Shiksha Samiti is no such change which could be said to have altered the legal position. The only change is with regard to compulsory filing of audit report in Form 10B in electronically form which is made mandatory under Rule 12 (2) of the Income Tax Rules, 1962 but there is no change with regard to the substantive law about filing of audit report as stated above. 6. The moot aspect thus centres around to the requirement of the availability of the audit report when the assessment was undertaken by the Assessing Officer even though the same may not have been filed along with the return of income. Filing of audit report is held to be substantive requirement but not the mode and stage of filing, which is procedural. Once the audit report in Form 12B is filed to be available with the Assessing Officer, before assessment proceedings take place, the requirement of law is satisfied. In that view, the Income Tax Tribunal was not justified in dismissing the appeal of the assessee. 6.1 The appellant assessee has to be held to be eligible and entitled to exemptions under Section 11(1) and 11(2) of the Act and the alleged ground of non-filing of audit Pracharak Trust vs. DCIT(CPC)) A.Y.- 2016-17 -4- report alongwith return of income which was at the best procedural omission, could never to an impediment in law in claiming the exemption. 6.2 Accordingly the substantial questions of law have to be decided in favor of the appellant. 7. They are accordingly decided. The appeal is allowed." 8. In view of the ratio laid down by the Hon'ble Jurisdictional High Court holding that non filing of Audit Report along with return of income is a procedural omission and cannot be an impediment in law in claiming the exemption, we allow this appeal condoning the delay in filing the Audit Report in Form No. 10B. However, we also upon condoning the delay, restore the matter to the file of the Ld. CIT(A) to pass order in regard to the exemption claimed by the assessee strictly in accordance with law. 6.We further note that this tribunal in case of Akshay Academy vs. ITO in ITANo.199/Ind/2024 dated 20.08.2024 has held as under:

Page 8 of 11

ITANo.140/Ind/2024 Malwa Patidar Samaj Shiksha Samiti

“5.5Accordingly in the facts and circumstances of the case as discussed above and following the earlier decisions of this Tribunal we hold that the assessee is entitled for exemption u/s 11 & 12 for the year under consideration. We find that when there is no change in the objects and activities of the assessee since inception as a certificate to this effect was filed by the assessee before CIT(E) which was duly considered while granting registration u/s 12A therefore, the question of verifying the claim does not arise. Further when the claim u/s 11 & 12 was made only after the registration was granted by the CIT(E) then filing the audit report in 10B at the time of filing the return of income would amount to asking the assessee to make a compliance for non-existing fact at that point of time. Even otherwise filing of tax audit in form 10B is a directory requirement. Therefore, the delay in filing the tax audit report is not deliberate but due to the reason of subsequent registration u/s 12A cannot be a ground for denying the claim of exemption u/s 11 & 12 of the Act as this issue is now settled by the Hon’ble High Courts. An identical issue has been considered by this tribunal in case of Welfare Association for the Disabled vs. ADIT, CPC, Bengaluru, in ITANo.138/Ind/2022 dated 21.12.2023. The relevant part of this order is held as under:

“6. Per contra, Ld. DR vehemently defended the orders of lower- authorities and submitted that furnishing of audit-report alongwith return of income is a pre-condition for allowability of exemption u/s 11. Since the assessee has not fulfilled such condition, the lower-authorities have rightly denied assessee’s claim of exemption u/s 11 and there is no infirmity in the action of lower-authorities. Ld. DR also pointed out an additional fact that the assessee has filed an application to higher authorities in terms of CBDT Circular issued u/s 119 of the act for condoning the delay in filing of audit report and such application is still pending with authorities. 7. In rejoinder, Ld. AR submitted that though the assessee has filed application to authorities in terms of CBDT Circular u/s 119 for condonation of delay, pursued the same and made all sincere efforts but the same is pending with authorities. Ld. AR submitted that the assessee has taken several adjournments in this appeal from ITAT itself on the ground of pendency of application before authorities. But, no outcome is forthcoming from authorities. Ld. AR submitted that in any case, the application u/s 119 is only an additional remedy which cannot take away appellate remedy. To fortify this submission, Ld. AR relied upon Para 5.6 of the judgement of Hon’ble Gujrat High Court in Indian Panel Board Manufacturer Vs. DCIT Tax Appeal No. 655 of 2022 dated 21.03.2023 where it has been held thus: “5.6 The tribunal further committed an error in appreciating the import of Section 119 2(b) of the Act inasmuch as the application contemplated thereunder is only additional remedy for the assessee which could not be said to be compulsorily resorted to, by the Page 9 of 11

ITANo.140/Ind/2024 Malwa Patidar Samaj Shiksha Samiti assessee. The circular No. 7/18 dated 20.12.2018 issued u/s 119 of the Act could not be, therefore, said to have taken away the appellate remedy.” 8. We have heard rival contentions of both sides and examined the present controversy in the light of judicial decisions. In view of settled judicial rulings noted in foregoing paragraphs, we find that the assessee can’t be denied the benefit of exemption u/s 11/12 as claimed in return of income for mere delay in filing of audit-report (Form No. 10B), when the assessee has in fact filed such report though after filing of return. We, therefore, deem it fit to remand this matter back to the file of AO for a fresh assessment after considering audit-report (Form No. 10B) filed by assessee. The assessee succeeds in this appeal.” Accordingly, the claim of the assessee u/s 11 & 12 of the Act is allowed.”

Order pronounced in the open court on 12 .09.2024.

Sd/- Sd/- (B.M. BIYANI) (VIJAY PAL RAO) Accountant Member Judicial Member

Indore,_ 12 .09.2024 Patel/Sr. PS

Page 10 of 11

ITANo.140/Ind/2024 Malwa Patidar Samaj Shiksha Samiti

Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Sr. Private Secretary Income Tax Appellate Tribunal Indore Bench, Indore

Page 11 of 11