Non-Filing of Audit Report before Due Date Not Grounds for Adjusting Exempted Income: ITAT Directs CPC to Amend Intimation [Read Order]

The Income Tax Appellate Tribunal ( ITAT ), Cochin, has ruled that the non-filing of the audit report in Form 10B before the due date as prescribed under Section 139 of the Income tax act, 1961 does not justify the Centralized Processing Centre ( CPC ) adjusting the exempted income claimed under Section 11 of the Income tax Act.

The tribunal clarified that the procedural non-compliance, such as the delayed filing of Form 10B, does not amount to an incorrect claim under the law.

An appeal was filed by Isa Viswa Prajnana Trust, a registered charitable trust, against the order of the CIT(A) for the assessment year 2017–2018. The trust, engaged in social, economic, educational, and environmental activities, had filed its return of income on time, but due to the unfortunate demise of its Chartered Accountant, the audit report required under Section 12AA was submitted only later during the appellate proceedings.

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The CPC had processed the return under Section 143(1) of income tax law and disallowed an amount of ₹20,20,174 applied for charitable purposes, citing the late filing of the audit report. The CIT(A) upheld this adjustment, stating that the CPC was justified in denying the Section 11 exemption.

However, upon appeal, the Tribunal analyzed the scope of Section 143(1) and stated that adjustments can only be made if an “incorrect claim” is apparent from the return itself. It clarified that procedural non-compliance, such as the delayed filing of Form 10B, does not amount to an incorrect claim under the law.

The tribunal observed that “On a mere reading of the provisions of sec.143(1) of the Act, adjustment can be made where incorrect claim is made in the return of income based on the information contained in the return of income. The said provision nowhere stipulates that the mere non-filing of audit report would amount to incorrect claim.”

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The bench of Inturi Rama Rao relied on the ITAT decision in Ammini Foundation v. DCIT and the Gujarat High Court ruling in Association of Indian Panel Board Manufacturer v. DCIT, the Tribunal held that the CPC’s adjustment exceeded the statutory scope under Section 143(1).

The ITAT, therefore, directed the CPC to amend the intimation.

To Read the full text of the Order CLICK HERE

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