2025 (5) TMI 2134 - AT - Income Tax

Denial of exemption claimed u/s 11 - Audit Report in Form 10BB was not filed within due date - HELD THAT - As submitted before us by the Ld. AR that the due date for filing the return of income had been extended to 30/11/2023 and the audit report was required to be filed a month earlier. The same was filed belatedly but was available at the time of processing of the return of income and therefore the claim of exemption should not have been denied. Hence after examining the facts of the case we deem it appropriate to set aside the order of the CIT(A) as well as the intimation of the Ld. AO and and remit the matter back to the AO for considering the claim of the assessee afresh as the audit report on the new format was available at the time of processing of the return of income and therefore the claim of exemption u/s 11 of the Act has to be allowed. Appeal of the assessee is allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

(a) Whether the denial of exemption under section 11 of the Income Tax Act, 1961 on the ground of delayed filing of the audit report in Form No. 10BB is justifiedRs.

(b) Whether the filing of the audit report in Form No. 10B/10BB is a mandatory condition precedent for claiming exemption under section 11 or is it merely procedural and directory in natureRs.

(c) Whether the Assessing Officer (AO) or the Commissioner of Income Tax (Exemptions) has the power to condone the delay in filing the audit report beyond the due date, and if so, whether such power was exercised or ought to have been exercised in the present caseRs.

(d) Whether the exemption claim under section 11 can be allowed if the audit report was filed belatedly but was available at the time of processing of the return of income under section 143(1)Rs.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Legality of denial of exemption under section 11 due to delayed filing of audit report in Form 10BB

The relevant legal framework involves section 11 of the Income Tax Act, which provides exemption to income derived from property held for charitable or religious purposes, subject to compliance with procedural requirements including filing of audit reports under section 12A(1)(b). The audit report is required to be filed in Form No. 10B or the updated Form No. 10BB. The due date for filing such audit reports is prescribed, and failure to file within the due date has been a ground for denial of exemption by the AO.

The Tribunal examined whether the filing of the audit report within the due date is a mandatory condition for claiming exemption or a procedural requirement that can be treated as directory. The Tribunal referred to judicial precedents, including a decision of the Hon'ble High Court of Calcutta in Commissioner of Income Tax (Exemptions), Kolkata vs Indian Sugar Mills Association, which held that filing of the auditor's report along with the return of income is procedural and directory in nature. The Court in that case emphasized that the delay in filing Form 10B should not result in denial of exemption if the audit report is eventually filed.

The Tribunal also noted reliance on a decision by the High Court of Gujarat which similarly held that the filing of the auditor's report is a procedural provision and therefore directory in nature.

In the present case, the assessee had filed the audit report in the old format (Form 10B) on 30/10/2023 and subsequently filed the audit report in the new format (Form 10BB) on 04/04/2024, which was after the due date. The AO denied exemption on the ground that the audit report was not filed within the due date. The CIT(A) upheld this denial, holding that either the audit report must be filed within the due date or the delay must be condoned by the CIT(Exemptions).

The Tribunal disagreed with the mechanical denial of exemption on the ground of delay, considering the procedural nature of the requirement and the availability of the audit report at the time of processing the return.

Issue (c): Power to condone delay in filing Form 10B/10BB

The Tribunal analyzed the power of the CIT(Exemptions) to condone delay under section 119(2)(b) of the Act, which empowers the Central Board of Direct Taxes (CBDT) to delegate authority to condone delays in filing statutory documents. The Tribunal referred to Circular No. 16 of 2022 dated 19-07-2022, which extended the power of the Principal Chief Commissioner/Commissioner of Income Tax to condone delay in filing Form 10B beyond 365 days up to 3 years from assessment year 2018-19 onwards.

The Tribunal noted that the CIT(Exemptions) had earlier rejected the assessee's application for condonation relying on a prior circular which allowed condonation only up to 365 days. The Tribunal observed that the revenue had not disputed the applicability of the later circular which expanded the condonation period, nor had it produced any material to disprove its applicability.

Therefore, the Tribunal concluded that the power to condone delay exists and ought to be exercised in appropriate cases, and the AO cannot deny exemption solely on the ground of delay without considering such condonation.

Issue (d): Allowance of exemption where audit report filed belatedly but available at time of processing of return

The Tribunal considered the facts that the audit report in the new format was filed on 04/04/2024 but was available at the time of processing the return under section 143(1) on 13/12/2024. The Tribunal accepted the submission that the delay was a procedural lapse and not substantive non-compliance.

The Tribunal relied on a coordinate bench order in Salt Movement Area Revival Trust vs Dy. Director, CPC, Bengaluru, which held that the claim of exemption should not be denied if the audit report was filed belatedly but available at the time of processing the return.

Applying this principle, the Tribunal held that the claim for exemption under section 11 should not have been denied merely due to delay in filing the audit report, especially when the audit report was available before completion of assessment.

The Tribunal accordingly set aside the orders of the CIT(A) and AO and remitted the matter back to the AO for fresh consideration of the exemption claim, directing that the assessee be given reasonable opportunity to make submissions and that unnecessary adjournments be avoided.

3. SIGNIFICANT HOLDINGS

The Tribunal's crucial legal reasoning is encapsulated in the following verbatim extract from the cited High Court of Calcutta judgment:

"The filing of the auditor's report along with the return of income has to be treated as a procedural provision and therefore, directory in nature."

The Tribunal established the core principle that the delay in filing Form 10B/10BB audit report should not lead to automatic denial of exemption under section 11 if the report is eventually filed and available at the time of assessment or return processing.

The Tribunal held that the power to condone delay under section 119(2)(b) read with Circular No. 16 of 2022 is applicable and must be considered by the CIT(Exemptions) or AO before denying exemption.

Final determinations on each issue are as follows:

(a) The denial of exemption solely on the ground of delayed filing of Form 10BB is not justified.

(b) Filing of the audit report is a procedural requirement and directory, not a mandatory condition precedent for exemption under section 11.

(c) The CIT(Exemptions) has the power to condone delay in filing Form 10B/10BB beyond the due date, and this power must be exercised judiciously.

(d) Where the audit report is filed belatedly but available at the time of processing the return, the exemption claim under section 11 cannot be denied on that ground alone.

Accordingly, the Tribunal allowed the appeal for statistical purposes, set aside the orders of the CIT(A) and AO, and remitted the matter for fresh consideration consistent with the above principles.