2025 (5) TMI 1954 - AT - Income Tax

Denial of exemption - appellant has not filed its audit report in form 10-B within the due date as per section 139(1) - HELD THAT - As in the case Shahzedanand Charity Trust 1997 (8) TMI 72 - PUNJAB AND HARYANA HIGH COURT has clarified that the exemption available u/s 11 of the Act may not be denied merely on account of delay in furnishing the auditor s report. The word shall occurring in section 12A of the Act cannot under the circumstances be read as a must making it mandatory for the trust to furnish the auditor s report along with the ITR. If for certain unavoidable circumstances the assessee is unable to furnish the auditor s report along with the ITR then the same can be furnished at a later date. We are of the considered opinion that failure to file/upload Form 10B along with ITRs on the part of the assessee in both years is justified and such defect itself cannot result in denial of exemptions to the assessee u/s 11 and 12 of the Act. Accordingly we set aside both impugned orders and delete the additions made by the AO in both years. Consequentially the assessee gets relief.

Summary

The core legal questions considered by the Tribunal in these appeals pertain to the mandatory or directory nature of the requirement to file the audit report in Form 10B along with the Income Tax Return (ITR) for claiming exemption under sections 11 and 12 of the Income Tax Act, 1961 (the Act). Specifically, the issues are:

1. Whether the failure to file the audit report in Form 10B within the due date prescribed under section 139(1) of the Act results in denial of exemption under sections 11 and 12 of the Act.

2. Whether the proviso to section 12(1)(b) of the Act read with Rule 12(2) of the Income Tax Rules mandates the filing of Form 10B along with the ITR within a prescribed time limit prior to the amendment introduced from 01.04.2018.

3. Whether the Income Tax Return filed without the audit report in Form 10B should be treated as defective under section 139(9) of the Act, thereby requiring issuance of notice to cure the defect.

4. The applicability and effect of the amendments introduced by section 12(1)(ba) of the Act from 01.04.2018 and related CBDT clarifications and circulars on the filing requirements for Form 10B and ITR.

Issue-wise Detailed Analysis

Issue 1: Mandatory or Directory Nature of Filing Form 10B Along with ITR for Claiming Exemption under Sections 11 and 12

The Tribunal examined the statutory provisions, the legislative intent, and relevant judicial precedents to determine whether the filing of Form 10B along with the ITR is a mandatory condition for claiming exemption under sections 11 and 12 or merely a procedural/formal requirement.

The relevant legal framework includes section 12(1)(b) of the Act and Rule 12(2) of the Income Tax Rules, which require the audit report in Form 10B to be filed electronically along with the ITR. However, prior to the amendment introduced by section 12(1)(ba) effective 01.04.2018, the Act did not prescribe any explicit time limit for filing the audit report or the ITR under section 139(4A).

The Tribunal relied on the CBDT Clarification dated 23.04.2019, which clarified that the amendment from 01.04.2018 brought clarity that the return is to be filed within the time allowed under section 139. This indicated that before this amendment, no such time limit was prescribed.

Several judicial precedents were considered, including decisions of the Calcutta High Court, Gujarat High Court, and Punjab & Haryana High Court, which uniformly held that the requirement to file the audit report along with the ITR is procedural and directory rather than mandatory. For instance, the Calcutta High Court in Rai Bahadur Bissesswarlal Motilal Malwasie Trust (1992) held that exemption cannot be denied if the audit report is available to the Assessing Officer, even if not filed along with the return. Similarly, the Gujarat High Court in Gujarat Oil & Allied Industries (1993) and the Punjab & Haryana High Court in Shahzedanand Charity Trust (1997) emphasized the directory nature of the provision and allowed filing of the audit report at a later date.

The Tribunal also noted the CBDT Circular No. 7/2018 dated 20.12.2018, which authorized Commissioners of Income Tax to admit belated applications for filing certain forms if reasonable cause was shown, indicating a procedural and curable nature of such requirements.

Based on these authorities and clarifications, the Tribunal concluded that failure to file/upload Form 10B along with the ITR does not automatically result in denial of exemption under sections 11 and 12, as the requirement is procedural and directory.

Issue 2: Applicability of Time Limits for Filing ITR and Audit Report Prior to Amendment from 01.04.2018

The Tribunal analyzed the effect of the amendment introduced by section 12(1)(ba) of the Act effective from 01.04.2018, which for the first time prescribed the time limit for filing the ITR for persons eligible under section 139(4A). Prior to this amendment, no such time limit was explicitly prescribed.

The CBDT Clarification dated 23.04.2019 was pivotal in this analysis, as it clarified that the amendment was clarificatory and prospective in nature, applying from 01.04.2018 onwards. The Circular No. 2/2018 dated 15.02.2018 also supported this position by prescribing filing requirements only for returns where income exceeded the maximum non-taxable amount, but without clarity on time limits before the amendment.

The Tribunal accepted the argument that since no time limit was prescribed prior to 01.04.2018, the filing of the audit report in Form 10B along with the ITR within the due date under section 139(1) was not mandatory for AYs 2013-14 and 2014-15. Hence, the delay or belated filing of Form 10B did not constitute a default warranting denial of exemption.

Issue 3: Treatment of ITRs Filed Without Form 10B as Defective Under Section 139(9)

The appellant contended that had the Assessing Officer treated the ITRs as defective under section 139(9) and issued notices to cure the defect by filing Form 10B, the assessee would have complied. The failure to provide such opportunity rendered the processing of ITRs under section 143(1) void ab initio.

The Tribunal acknowledged the merit in this argument but refrained from expressing a definitive view, as the appeals were allowed on other grounds. This issue was noted as a procedural lapse by the AO-CPC in not following due process but was not decided conclusively.

Issue 4: Effect of CBDT Circulars and Clarifications on Filing Requirements

The Tribunal examined CBDT Circular No. 7/2018, CBDT Circular No. 2/2018, and the 1978 circular (F. No. 1/1148-CBDT F. No. 267/482/77-IT (Part)) which collectively indicated that the filing of audit reports and related forms is procedural and directory. These circulars empowered Commissioners of Income Tax to admit belated filings upon showing reasonable cause, reinforcing the notion that such requirements are not mandatory preconditions for exemption.

The Tribunal interpreted these circulars as legislative intent to provide flexibility and avoid harsh consequences for procedural lapses, particularly when the substantive rights and exemptions are not prejudiced.

Significant Holdings

The Tribunal held that the requirement of submission of Form 10B along with the ITR for claiming exemption under sections 11 and 12 of the Act is procedural and directory, not mandatory. The failure to file the audit report within the prescribed time prior to the amendment from 01.04.2018 does not justify denial of exemption.

It was stated: "we are of the considered opinion that the auditor's report in Form 10B along with the ITR is also procedural and not directory in nature and by showing sufficient cause, the auditor's report can be produced at any later stage either before the AO or the appellate authority."

The Tribunal further emphasized that the absence of a prescribed time limit for filing the ITR and audit report prior to 01.04.2018 precluded denial of exemption on the ground of delayed filing.

Drawing upon judicial precedents, the Tribunal reiterated that exemption under sections 11 and 12 should not be denied merely due to procedural lapses in filing audit reports, provided the report is ultimately available to the Assessing Officer.

Consequently, the Tribunal set aside the impugned orders denying exemption and deleted the additions made by the Assessing Officer for both assessment years, thereby allowing the appeals.