2025 (6) TMI 1320 - AT - Income Tax

Denial of exemption u/s 11 - return filed belatedly and Audit Report on Form No.10B not furnished - HELD THAT - Admittedly the due date for filing the return for impugned assessment year is 31.12.2021. Return has been filed on 16.02.2022. Last date to file the belated return u/s. 139(4) of the Act in 31.03.2022. Thus assessee has filed valid belated return. Under similar set of facts and circumstances where a belated return has been filed u/s. 139(4) of the Act and Audit Report has been furnished after the due date in the case of Bangarh Educational Welfare Trust 2023 (1) TMI 1456 - ITAT KOLKATA has examined the issue in detail and granted relief to the assessee since the case of assessee is for A.Y 2018-19 and CBDT came up with a circular dated 23.04.2019 specially for A.Y 2018- 19 providing that return of income to be filed within the time allowed u/s 139 of the Act the assessee has complied with the conditions provided in sub-clause (b) and (ba) to section 12 and there is no dispute at the end of the revenue authorities that the assessee is carrying on charitable activities for which it has been granted registration u/s 12A of the Act the benefit of section 11 and 12 should be given to the assessee and deductions claimed by the assessee are therefore allowed. Delay in filing of the Audit Report if available before the Assessing Authority same needs to be considered. For this proposition we would like to quote the decision of Sahaj Seva Trust Vs. ITO 2025 (5) TMI 1312 - ITAT PUNE Ld. Departmental Representative failed to controvert the ratio laid down in the above decision by placing any other binding precedent in favour of the Revenue. We therefore are inclined to hold that exemption u/s. 11 claimed by the assessee deserved to be allowed. Accordingly effective grounds of appeal raised on merits of the case are allowed.

Summary

The core legal questions considered in this appeal pertain to the entitlement of a charitable trust to claim exemption under section 11 of the Income-tax Act, 1961, in light of delays in filing the income tax return and the audit report in Form 10B. Specifically, the issues are:

1. Whether the assessee trust is entitled to claim exemption under section 11 despite delay in filing Form 10B and the return of income.

2. Whether the filing of the return of income and audit report after the due date but before the intimation order affects the claim of exemption under section 11.

3. Whether a small delay in filing the return and audit report should lead to denial of exemption, given that the documents were ultimately filed.

4. Whether the addition of Rs. 17,60,362/- representing amount set apart for future use should be retained or deleted.

Issue 1 and Issue 2: Delay in Filing Return and Audit Report and Its Impact on Exemption under Section 11

The relevant legal framework includes sections 11, 12, 12A, and 139 of the Income-tax Act, 1961, along with Rule 17B of the Income Tax Rules. Section 11 provides exemption to income derived from property held under trust for charitable or religious purposes, subject to conditions laid down in section 12A. Section 12A(1)(b) and (ba) impose conditions for applicability of sections 11 and 12, requiring that the accounts be audited and the audit report in Form 10B be furnished before the specified date, and that the return of income be filed within the time allowed under section 139(4A).

Section 139(4A) mandates that a person in receipt of income from a charitable trust must furnish a return of income in the prescribed manner, with all provisions of the Act applying as if it were a return under section 139(1). Section 139(1) provides the due date for filing returns, and section 139(5) allows filing of belated returns up to a specified date.

The Court relied heavily on a Coordinate Bench decision in Bangarh Educational Welfare Trust, which examined a similar factual matrix. That decision interpreted the provisions of section 12A(1)(ba) in light of CBDT Circular dated 23.04.2019, which clarified that a trust registered under section 12AA would be entitled to claim exemption under section 11 if the return of income is filed within the time allowed under section 139 of the Act. The circular emphasized that this includes belated returns filed under section 139(5), provided they are filed before the last date allowed for such filing.

The Court noted that for the assessment year in question, the due date for filing the return was 31.12.2021, and the belated return could be filed up to 31.03.2022. The assessee filed the return on 16.02.2022, which is a valid belated return under section 139(5). Therefore, the Court held that the assessee complied with the conditions of section 12A(1)(ba) and was entitled to claim exemption under section 11.

Regarding the audit report in Form 10B, section 12A(1)(b) requires that the audit report be furnished before the specified date. Rule 17B prescribes that the audit report be submitted electronically one month prior to the due date of filing the return. The audit report in the instant case was filed on 16.02.2022, after the return was filed.

The Court referred to the judgment of the Hon'ble Gujarat High Court in Sarvodaya Charitable Trust v. ITO, which held that the furnishing of the audit report is directory in nature and substantial compliance would suffice. The Court emphasized that the audit report was signed by the auditor prior to the filing of the return, and the delay in uploading was due to technical glitches. The Court further noted that the assessee's case was not selected for scrutiny assessment, so the processing center could not consider the audit report at the time of processing, but the appellate authority had the power to consider it.

On this basis, the Court held that the delay in filing the audit report did not disentitle the assessee from claiming exemption under section 11.

Issue 3: Effect of Small Delay in Filing

The Court recognized that even if there was a small delay in filing the return and audit report, the fact that the documents were ultimately filed should not lead to denial of exemption. The Court relied on the aforementioned decisions and the CBDT Circular to hold that the beneficial view favorable to the assessee must be accepted, especially since the delay was within the period allowed for belated filing under the Act.

Issue 4: Addition of Rs. 17,60,362/- Representing Amount Set Apart for Future Use

The assessee contended that the addition made by the CPC of Rs. 17,60,362/- was unwarranted as it represented an amount set apart for future use in the current financial year. Since the Court allowed the exemption under section 11, this alternate plea became academic and did not require adjudication.

Competing Arguments and Treatment

The Revenue relied on the statutory requirement of timely filing of the return and audit report and supported the orders of the lower authorities denying exemption on the ground of delay. However, the Departmental Representative failed to place any binding precedent from the jurisdictional High Court or Supreme Court to counter the assessee's reliance on the Coordinate Bench decisions and the CBDT Circular.

The Court gave significant weight to the CBDT Circular dated 23.04.2019, which was binding on the Revenue authorities, and to the judicial precedents holding that filing of the audit report is directory and substantial compliance suffices. The Court also emphasized the principle of construing provisions beneficially to the assessee in cases of ambiguity.

Significant Holdings and Core Principles Established

"For a trust registered under section 12AA of the Act to avail the benefit of exemption under section 11, it shall inter alia file its return of income within the time allowed under section 139 of the Act. This includes belated returns filed under section 139(5), provided they are filed before the last date allowed for such filing."

"The furnishing of the audit report in Form 10B is directory in nature and substantial compliance would suffice. Delay in uploading the audit report, if rectified before the conclusion of assessment or appellate proceedings, should not disentitle the assessee from claiming exemption."

"The CBDT Circular dated 23.04.2019 clarifies that demands raised solely on the ground of delay in filing return or audit report should be rectified, and returns filed within the time allowed under section 139 should be accepted for the purpose of exemption under section 11."

"In the absence of binding contrary precedents, the beneficial view favorable to the assessee must be accepted."

Final Determinations

The Court allowed the appeal of the assessee, holding that:

- The assessee's return of income, though belated, was filed within the time allowed under section 139(5) and thus complied with section 12A(1)(ba).

- The audit report in Form 10B, though filed after the return, was signed before the return filing and its delayed uploading was due to technical glitches; it was to be treated as substantial compliance.

- The denial of exemption under section 11 on grounds of delay in filing return and audit report was erroneous and is set aside.

- The addition of Rs. 17,60,362/- is rendered academic as exemption under section 11 is allowed.