The requirement to file an audit report (Form 10B/10BB) along with the income tax return is procedural and directory in nature; therefore, the denial of exemption under Section 11 of the Income Tax Act for a delayed filing is not justified if the report is submitted during appellate proceedings.

O R D E R

PER VIKRAM SINGH YADAV, A.M :

This is an appeal filed by the assessee against the order of the Learned Addl/JCIT(A)-1, Bengaluru, dated 17-01-2025, pertaining to Assessment Year (AY) 2014-15.

At the outset, it is noted that there is a delay of 168 days in filing the appeal as pointed out by the Registry. After hearing both the parties and perusing the facts placed on record, we find that there was reasonable cause for the delay in filing the present appeal and hence, the delay is hereby condoned and appeal is admitted for adjudication.

During the course of hearing, the ld AR submitted that the assessee-club filed a belated return of income on 31-03-2016 on the basis of provisional accounts claiming exemption u/s. 11 of the Income Tax Act, 1961 (‘the Act’). At the time of furnishing of return of income, the audit of accounts of the club was not complete and consequently, the return was filed without the audit report in Form-10B. The audit was completed on 13-12-2016 and the audit report in Form-10B was issued. Thereafter, on 28-12-2016, the CPC treated the return so filed as ‘invalid’ and thereafter on 29-03-2017, the return of income was processed, denying the claim of exemption u 11 of the Act, vide intimation u/s. 143(1) of the Act.

Thereafter, the assessee carried the matter in appeal before the Ld.CIT(A) and a copy of the audit report in Form-10B was furnished. The Ld.CIT(A), however, confirmed the denial of exemption u/s. 11 of the Act and did not take into consideration the audit report in Form-10B for the reason that the assessee has not filed a condonation application for delay in filing of the audit report before the competent authority. Against the said order, the assessee is in appeal before us.

In the aforesaid factual matrix, the Ld.AR submitted that since the audit report in Form 10-B has been duly furnished before the Ld.CIT(A) during the appellate proceedings, the audit report in Form-10B should have been considered and the matter could have been remitted back to the file of the AO to examine the audit report so furnished and decide the claim of exemption as so claimed by the assessee-club u/s. 11 and 12 of the Act. It was submitted that merely for the reason that the assessee has not moved a condonation application before the competent authority, the Ld.CIT(A) has failed to take into consideration the audit report so furnished.

It was submitted that it is a settled position that where the audit report has been submitted during the appellate proceedings, the claim of exemption u/s. 11 of the Act cannot be denied to the assessee and in this regard, reliance was placed on the decision of the Hon’ble Gujarat High Court in the case of CIT vs. Xavier Kelavani Mandal (P.) Ltd., [2014] 41 taxmann.com 184 (Gujarat), wherein the Hon’ble High Court has held as under:

“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 v. Gujarat Oil & Allied Industries Ltd. (1993] 201 ITR 325 (Guj.) wherein it is held that the provision regarding furnishing of audit report along with 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 along with 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/[1998] 96 Taxman 494 has reiterated the same principle holding 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 showing a sufficient cause. This decision of Punjab & Haryana High Court has been relied on by the Tribunal.

5. In the above view, the Tribunal is eminently justified both