Top Stories Case Digest on Delay in Filing Audit Report under Income Tax Act By Franklin Joshva – On January 4, 2025 9:27 pm – 14 mins read This case digest provides an analytical summary of judgments and observations related to delays in filing audit report under Income Tax Act that were reported in Taxscan.in What is an Audit Report? An audit Report is a document that states about the financial statements, accounting practices, etc., which will be prepared by the Chartered Accountant or any other qualified persons if it exceeds a certain threshold limit, which enables income tax authorities to verify the accuracy of income and deductions filed by the Taxpayer in the income tax return.  Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here Audit Report under Income Tax Act? Audit Report is mandated by Section 44AB of the Income Tax Act, 1961.

It provides that every person who is engaged in business or profession to file an audit report for the relevant financial year. Section 44AB states that- Every person who engaged in business activities for which total sales or turnover exceeds Rs. 1 crore during a financial year is generally required to have their accounts audited. Every person who is carrying on a profession for which gross receipts exceed Rs. 50 lakhs in a financial year are typically required to have their accounts audited. Every person who is carrying on the business, the profits and gains from the business are deemed to be the profits and gains of such a person under section 44AE or section 44BB or section 44BBB, claims profits or gains lower than the prescribed limit required to have their accounts audited. Every person who is carrying on the profession shall under section 44ADA and claims profits or gains lower than the prescribed limit of the total receipts from such profession and income exceeds the basic exemption limit required to have their accounts audited. Every person who is carrying on the business under Section 44AD income exceeds the maximum amount which is not chargeable to income-tax in any previous year required to have their accounts audited. Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here Penalty for Non-Compliance The person who failed to get his accounts audited under Section 44AB of the Income Tax Act such a person is liable to pay a penalty under Section 271B of the Income Tax Act. The penalty amount can be one-half percent of the total turnover or gross receipts, subject to a maximum limit of Rs. 1,50,000.

Late Filing of Audit Report Leads to Disallowance of S.11 Exemption: ITAT Directs Re-Adjudication Rajdhani Maitri Club Foundation vs Income-tax Officer CITATION: 2024 TAXSCAN (ITAT) 1697  The assessee is a charitable trust filed its income tax return without the mandatory audit report required under Section 12A(1)(b) of the Income Tax Act. The Assessing Officer (AO) denied the exemption under Section 11 because the audit report was not submitted on time. The tribunal held that the delay in filing the audit report should not automatically lead to the denial of exemption under Section 11, especially when the charitable nature of the trust’s activities was not disputed.  The tribunal directed the AO to re-examine the case, taking into account the audit report and other relevant documents, and to re-adjudicate the matter in light of these observations. ITAT Overturns Exemption Denial: Assessee’s Delayed Filing Deemed Timely Due to Extended Deadline  Sufi Kathak Foundation vs ITO  CITATION: 2024 TAXSCAN (ITAT) 1547  The Commissioner of Income Tax (Appeals) had denied exemptions, stating that the foundation failed to file its tax returns and audit reports by the original deadline for the 2018-19 assessment year.

The ITAT stated that the Central Board of Direct Taxes (CBDT) had extended the filing deadline to October 31, 2018. Therefore the ITAT held that the foundation filed within extended time and directed the Assessing Officer to reassess the case by  granting the exemptions under Sections 11 and 12 of the Income Tax Act. Lack of Digital Submission of Audit Report not Destructive: Delhi HC Quashes Reassessment Proceedings SHREE BHAVANI POWER PROJECTS vs INCOME TAX OFFICER CITATION: 2024 TAXSCAN (HC) 1821 The Reassessment Order was based on the failure of the company to electronically file the audit report along with its income tax return. The court held that the failure to digitally upload the audit report was a procedural lapse and did not amount to non-disclosure of material facts necessary for assessment. Therefore, it should not lead to the denial of deductions under Section 80-IA. The court noted that the reassessment for AY 2013-14 was initiated beyond the permissible period of six years, rendering it time-barred. The court allowed the writ petitions and quashed the reassessment notices and stated that the failure to digitally file an audit report, should not result in the denial of legitimate tax deductions.

No Disallowance of Deduction u/s 80-IA(7) solely on Failure to Digitally File Audit Report: Delhi HC SHREE BHAVANI POWER PROJECTS PVT. LTD vs INCOME TAX OFFICER CITATION: 2024 TAXSCAN (HC) 1812 The Delhi High Court has ruled that failing to digitally file an audit report does not justify denying a deduction under Section 80-IA(7) of the Income Tax Act. The petitioner challenged the reassessment action, arguing that the digital filing requirement was procedural and not mandatory and that the statutory obligations were substantially fulfilled. The court observed that the primary requirement of submitting the audit report to the AO was fulfilled. The court determined that the conditions of Section 80-IA(7), as they existed before amendments in 2020, were satisfied. Therefore, the court held that the failure to file the report digitally should not be considered detrimental to the deduction claim under Section 80-IA(7). Requirement of Filing Audit Report In Form 10B is only Procedural: ITAT grants Income Tax Exemption Shambhu Dayal Modern School vs ITO (Exemption) CITATION: 2024 TAXSCAN (ITAT) 891 The assessee filed the audit report in Form 10B after the due date. The Assessing Officer denied the exemption, citing the late filing of Form 10B and the absence of details about fresh registration under Section 12AB in the return. The tribunal observed that the society had obtained provisional registration under Section 12AB, effective April 5, 2022, for subsequent assessment years. The tribunal also observed that the society’s original registration under Section 12AA was valid until the relevant Assessment Year 2021-22.

Therefore, the Tribunal held that the late filing of Form 10B is a procedural lapse and should not result in the denial of tax exemption under Sections 11 to 13 of the Income Tax act. Filing of Audit Report before Framing Income Tax Assessment is Deemed Fulfilment of Section 80-IA(7) Requirement: Delhi HC THE ASSOCIATED CHAMBERS OF COMMERCE AND INDUSTRY OF INDIA vs DEPUTY COMMISSIONER OF INCOME TAX CITATION: 2024 TAXSCAN (HC) 1708 The Delhi High Court held that submitting an audit report before the completion of an income tax assessment satisfies the requirements of Section 80-IA(7) of the Income Tax Act, 1961. The Income Tax Department initiated reassessment proceedings, citing the delayed digital submission of the audit report. The petitioner contended that the physical submission of the report before the assessment’s completion met the statutory requirements. The High Court Division Bench of Justices Yashwant Varma and Ravinder Dudeja noted that the electronic submission of Form 10B is a procedural requirement rather than a mandatory condition within substantive law.

Therefore, the high court held that deductions under Section 80-IA(7) cannot be denied solely due to the failure to digitally file the audit report. Penalty u/s 271B for Not Filing Audit Report: ITAT upholds Order Goodwill Team Papers Ltd. vs The Assistant Commissioner of Income Tax CITATION: 2024 TAXSCAN (ITAT) 823 The Chennai Bench of Income Tax Appellate Tribunal (ITAT) upheld a penalty imposed under Section 271B of the Income Tax Act, 1961, for the failure to file a mandatory audit report. The Assessing Officer (AO) initiated penalty proceedings under Section 271B due to the non-compliance. The ITAT observed that the assessee neither provided any valid explanation nor demonstrated reasonable cause for failing to obtain the required audit report or filing the return. Therefore, the ITAT upheld the penalty imposed under Section 271B. The tribunal dismissed the appeal of the assessee. Filing Audit Report in Form 10CCB before filing ITR is only directory Not Mandatory: ITAT allows S.80IA Deduction  Sanjay Kukreja vs ACIT CITATION: 2024 TAXSCAN (ITAT) 557 The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has ruled that submitting the audit report in Form 10CCB before filing the Income Tax Return (ITR) is directory, not mandatory, for claiming deductions under Section 80IA of the Income Tax Act. The ITAT observed that the relevant assessment year predated the implementation of the e-filing mandate for audit reports.

Therefore, the Tribunal held that the timing of the Form 10CCB submission was not mandatory. Failure To file Audit Report along with return of income by Auditor: ITAT directs to allow exemption u/s 11 of the Income Tax Act Karma Falya Trust vs D.C.I.T CITATION: 2024 TAXSCAN (ITAT) 343 The Assessing officer disallowed the claimed exemption of Rs.15,37,255/- under Section 11 of the Income Tax Act. The disallowance is due to the Audit Report not filed by the assessee along with return of income. The Tribunal observed that the failure to submit the audit report with the income return should not lead to denial of exemption under Section 11 of the Income Tax Act. Therefore the tribunal directed the AO to grant exemption under section 11 of the Income Tax Act. Form 10B Audit Report Submission hinders due to Technical Glitches in Software, Revenue rejects Plea for Re-submission: ITAT deletes Addition  Asha Modern Educational Society vs ITO CITATION: 2024 TAXSCAN (ITAT) 436 In this case, the assessee is an educational trust filed income tax return claiming charitable status under section 12AA of Income Tax Act. The Assessing officer added Rs. 334 crore for delayed submission of the audit report.

The tribunal observed that there were technical glitches while submitting the audit report. The tribunal observed that the trust had complied with the requirements and submitted a letter for condonation after the glitch. Therefore, The tribunal held that the revenue should have allowed the exemption benefits and deleted the addition made by the Assessing officer. Failure to File Audit Report in Form 10CCB before ITR filing due date: ITAT disallows Deduction Claim u/s 80IC M/s Securico Electronics India Ltd vs ACIT CITATION: 2024 TAXSCAN (ITAT) 365 The Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) disallowed the claim under section 80IC of Income Tax Act, 1961 due to the failure to submit the audit report in Form 10CCB before Income Tax Return ( ITR ) filing. The disallowance was based on the assessee’s failure to file the mandatory audit report in Form 10CCB before the due date for filing the Income Tax Return (ITR). The ITAT upheld the disallowance, stating that procedural compliance is necessary to avail of tax benefits. The tribunal also held that the submission of Form 10CCB by the prescribed deadline is a statutory obligation, failure of which invalidates the deduction claim.

Non Filing Audit Report along with ITR is Procedural Omission: ITAT restores matter to allow Exemption u/s 11 of Income Tax Act Gyandeep Charitable Trust vs A.D.I.T CITATION: 2024 TAXSCAN (ITAT) 310 The assessee raised issue before the Ahmedabad Bench of Income Tax Appellate Tribunal (ITAT) is that the CIT(A) did not grant exemption under Section 11 of the Income Tax Act on the reasoning that there was a delay in filing Form 10B i.e. audit report. The tribunal led by Waseem Ahmed ( Accountant Member ) observed 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 and allowed appeal condoning the delay in filing the Audit Report in Form No. 10B. Benefit of Accumulation of Income u/s 11(2) shall be allowed when Audit Report in Form 10 is filed along with ITR: ITAT M/s. Shree Swami Samarth Seva Kendra vs Income Tax Officer CITATION: 2023 TAXSCAN (ITAT) 2714 The assessee is a trust registered under section 12A of the Income Tax Act, 1961. The Assessing Officer in this case assessed the income at Rs.31,84,320/- and stated the assessee is not entitled to benefit of the accumulation of income under Section 11(2) of the Income Tax Act.

The denial is due to delay in furnishing form No.10 beyond the due date of filing of income tax return as per Section 139(1) of the Income Tax Act. The tribunal held that filing of audit report in form No.10 by the assessee during the assessment proceedings was a valid and seeking benefit of Section 11 of Income Tax Act based on audit report was admissible under the law. Denial of benefit u/s 11 of Income Tax Act on Late Filing of Audit Report in Form 10B: Kerala HC directs Income Tax Commissioner to decide Matter THE KNANAYA MEDICAL MISSION MENATHOTTAM HOSPITAL vs THE INCOME TAX OFFICER CITATION: 2023 TAXSCAN (HC) 1442 Knanaya Medical Mission Menathottam Hospital, filed writ petition against order passed by the Income Tax Officer denying the benefit of Section 11 of the Income Tax Act to the petitioner on the ground of delay in filing the audit report in Form 10B.

The High court directed the Income Tax Commissioner to decide the matter of Condone Delay of delayed filing of the audit report in form 10B.

Deduction u/s 11 of Income Tax Act shall not be denied, if Audit Report filed along with Return of Income is available in during assessment proceedings: ITAT upholds Order of CIT(A) JCIT(OSD)(E) vs Gujarat Energy Development Agency CITATION: 2023 TAXSCAN (ITAT) 2054 The assessee filed a return of income for the assessment year 2018-19 along with showing business income and voluntary contribution. The CPC disallowed the claim of exemption stating that the audit report was not filed before the due date and also it was not filed with Income tax return. The commissioner deleted the additions made by the assessing officer (AO).

The tribunal held that Assessee did not furnish the audit report along with return of income, but filed during the assessment proceedings, and available even during the appellate proceedings. The tribunal also held that the assessee cannot be denied with benefit under section 11 of Income Tax Act. Delay in Filing Audit Report due to Dispute Between Director of Company is Mere Technical Breach and not Malafide Intention: ITAT Deletes Penalty u/s 271 B of Income Tax Act Encore Construction-Consortium Pvt. Ltd vs The Income Tax Officer CITATION: 2023 TAXSCAN (ITAT) 1685 The assessee M/s.Encore Construction Consortium Pvt. Ltd. is a Private Limited Company filed return of income which was assessed under Section 143(3) r.w.s.143(3A) & 143(3B) of the Income Tax Act, 1961. The assessing officer imposed a penalty on the assessee of Rs.1,50,000 stating the assessee has not been able to furnish any reasonable cause for delay for furnishing the audit report.

The tribunal observed that the delay was due to technical breach and there was no malafide intention on the part of the assessee. Non-filing of the Audit report along with Return of Income is a Procedural Omission and can’t be claimed as an Exception: ITAT Hari Gyan Pracharak Trust vs Deputy Commissioner of Income Tax CITATION: 2023 TAXSCAN (ITAT) 1600 The Centralized Processing Centre (CPC) made a disallowance to Rs.76,71,487/-, being the expenses/application of income claimed by the assessee and raised a demand of Rs.32,34,000/ by denying Form No.10B. The tribunal allowed the appeal condoning delay in filing the Audit Report in Form No. 10B.

The tribunal remanded the matter to the file of the Commissioner of Income Tax (Appeal) [CIT(A)] to pass an order in regard to the exemption claimed by the assessee strictly in accordance with the law. Failure to furnish Audit Report of Accounts Audited by Cooperative Department Auditor within specified date u/s 44AB of the Income Tax Act: ITAT Upholds Penalty Paravur Service Cooperative Bank Ltd vs ITO CITATION: 2023 TAXSCAN (ITAT) 1473 Paravur Service Cooperative Bank Ltd (assessee)is a Co-operative Society registered under the Kerala Cooperative Societies Act, 1969. The assessee filed the return of Income claiming deduction under Section 80P of Income Tax Act. The tribunal held that the assessee failed to provide reasonable cause for not furnishing audit report and therefore penalty can be levied under section 271B of the Income Tax Act. Late Filing of Audit Report due to Sufficient Cause u/s 273B of IT Act: ITAT deletes Penalty   Tarlok Singh vs The ITO CITATION: 2023 TAXSCAN (ITAT) 1302 Tarlok Singh, (assessee) appealed against the order passed by the Commissioner of Income Tax(Appeals) for confirming the penalty imposed by the assessing officer for the late filing of an audit report under section 44AB of the Income Tax Act, 1961. The counsel for assessee contended that the assessee was prevented by sufficient cause described under section 273B of the Income Tax Act for not filing the Audit Report in time. The tribunal observed that the delayed submission of the audit report is due to technical glitch and held that the penalty is liable to be deleted.

Exemption u/s 11 should not be Denied Merely on Account of Delay in Furnishing the Audit Report in Form No. 10B: ITAT The ITO vs Shri Laxmanarayan Dev Shrishan Seva Khendra CITATION: 2023 TAXSCAN (ITAT) 1264 Laxmanarayan Dev Shrishan Seva Khendra (assessee) was a Public Charitable Trust engaged in various educational activities and running of Schools and Yogashram. The assessee trust was registered as a charitable organization under Section 12AA of the Income Tax Act with effect.

The assessee did not upload the Audit Report in Form 10B along with the Return of Income. The tribunal dismissed the appeal filed by Revenue and held that the assessee was eligible for claim of exemption under Section 11 of the Income Tax Act. The tribunal also held that the exemption cannot be denied on the account of delayed submission of an audit report. Failure to file Audit Report through a Qualified CA: ITAT upholds Penalty u/s 271B of Income Tax Act Santosh Swarupchand Bhandari vs ITO CITATION: 2023 TAXSCAN (ITAT) 1129 The assessee in this case did not file an audit report.

The AO levied a penalty of Rs.1,29,919/- under Section 271B of the Income Tax Act. The assessee on appeal claimed that the book accounts were given to the Accountant. The tribunal observed that the accountant has not provided details that he is qualified Chartered Accountant. The tribunal also observed that only a qualified CA is permitted to Audit books of account as per provisions of the act. Therefore, the tribunal held that there was no valid reason for filing the audit report and  upheld the penalty levied by the AO. Rectification of Defects and Filing of Audit Report before Completion of Assessment: ITAT Allows Tax Exemption to Trust Shri ShyamCharanSewa Trust vs Dy. Commissioner of Income Tax CITATION: 2023 TAXSCAN (ITAT) 636 Assessee Shyam Charan Seva Trust (Assessee) filed a return of income and  claimed a deduction under section 11 Income Tax Act, 1961. The CPC disallowed the deduction claim and made an addition of Rs. 11, 46,800. The assessee had not filed the audit report in Form No. 10B with the return.

The return was treated as defective under section 139(9) Income Tax Act, 1961. The tribunal observed that the assessee rectified the defect within the time and the procedure for filing Audit Report was completed. Therefore the tribunal held that the  assessee is eligible for deduction under section 11 of Income Tax Act,1961. The tribunal also quashed the addition made by the AO. Audit Report u/s 44B furnished along with ITR before Completion of Assessment: ITAT deletes Penalty u/s 271B of Income Tax Act Shri Ramunaicker Raja vs Assistant Commissioner of Income Tax CITATION: 2023 TAXSCAN (ITAT) 532

The Assesee, Ramunaicker Raja has filed his return of income for the assessment year 2011-12. The assessee has not filed the return of income for the assessment year 2011-12 within the time and not filed audit report within prescribed time. The tribunal observed that the Assessee was required to get his accounts audited under section 44AB of the Act and filed within the due date. The assessee has not filed the tax audit report under section 44AB of the Act before the due date, therefore the Assessing Officer levied penalty of Rupees 83,680/- under section 271B of the Income Tax Act, 1961. However, in this case audit reports under section 44AB of the Income Tax Act,1961 were furnished along with the return of income before the completion of assessment.

Therefore, the tribunal deleted the penalty levied by the AO. Income Tax Deduction u/s 10AA of Income Tax Act cannot be Availed without Tax Audit Report: ITAT Mr.Mahendra Kumar Damani vs The Asst. Director of Income Tax CITATION: 2023 TAXSCAN (ITAT) 498 Mahendra Kumar Damani (assessee) filed his return of income for the AY 2016-17 declaring total income after claiming a deduction under Section 10AA of the Act Income Tax Act,1961. The AO disallowed deduction for non-filing of Audit Report in Form No.56F by an Accountant as required under Section 10AA(8) of the Act. The tribunal observed that the language used in provisions of the Act, is clear and unambiguous that the condition of filing an Audit Report in Form No.56F along with the return of income is mandatory for allowing any deduction. Therefore the tribunal held that deduction under Section 10AA of the Income Tax Act, 1961 could not be availed without filing a tax audit report. Income Tax Benefit to Trust u/s 11 cannot be Denied for Mere One Day Delay in filing of Audit Report: ITAT  Dy. CIT vs Nabajuga Educational And Charitable Trust CITATION: 2023 TAXSCAN (ITAT) 286 In this case, Nabajuga Educational And Charitable Trust (assessee) a charitable trust filed a income tax return for the relevant assessment year and the said return did not accompany the audit report under Form 10B of the Act. The audit report was filed one day after the due date. Therefore, the assessee was denied exemption u/s.11 of the Act in respect of excess income over expenditure.

The tribunal held that benefit under section 11 cannot be denied for mere one day delay in filing of audit report. Furnishing Audit Report along with Income Tax Return: ITAT allows Deduction u/s 11(1)(a) The Dadabhai Kavasji Tata School Trust vs ITO CITATION: 2022 TAXSCAN (ITAT) 1432 Dadabhai Kavasji Tata School Trust (assessee) is a charitable trust registered under Income Tax Act. The assessee filed its Income Tax Return belatedly along with the audit report. The AO rejected the claim for deduction under section 11 of the Act stating the reason that the audit report was filed belatedly beyond the due date prescribed provisions of the Income Tax Act. The tribunal observed that the assessee complied with the provisions of the act by filing an audit report along with income tax return. Therefore the tribunal set aside the order of CIT(A) and directed the AO to allow deduction under section 11 of the Income Tax Act.

Income Tax Exemption to Trust u/s 11 cannot be Denied Merely due to Delay in furnishing of Audit Report in Form 10B: ITAT M/s. Gangji Shamji Chedda (Prince Wala) Charitable Trust vs Dy. Commissioner of Income Tax CITATION: 2022 TAXSCAN (ITAT) 1800 M/s. Gangji Shamji Chedda (Prince Wala) Charitable Trust, the assessee trust, has claimed an exemption of Rs.34,00,000/- under sections 11 and 12 of the Act on the ground that the income derived has been fully applied to the charitable or religious purpose.

The assessee failed to attach form 10B which was to be filed electronically. The Assessing Officer disallowed the total deduction claimed by the assessee. The tribunal observed that the audit report was filed before the filing of the income tax return. The tribunal observed that the assessee has complied with the provisions of the Income Tax Act. The tribunal held that the deduction under section 11 cannot be denied merely on account of delay in furnishing the audit report in form 10B. The tribunal directed the AO to grant deduction claimed by the assessee.