2025 (7) TMI 514 - AT - Income Tax

Denying benefits u/s 11 - procedural default - non-filing/belated filing of audit report in Form 10B despite availability of the said form at the time of such processing - CIT(A) dismissed the appeal of the assessee on the ground that despite issuance of various notices of hearing none appeared on behalf of the assessee to present it s case on merits - HELD THAT - It is a well settled law that delay in filing of Form 10B is a procedural default and if other conditions have been met then mere delay in filing of Form 10B should not disentitle the assessee from claiming exemption under Section 11 of the Act. In the case of Sarvodaya Charitable Trust 2021 (1) TMI 214 - GUJARAT HIGH COURT held that where assessee a public charitable trust registered u/s 12A of the Act had substantially satisfied condition for availing benefit of exemption as a trust it could not be denied exemption merely on bar of limitation in furnishing audit report in Form No. 10B. In the case of Association of Association of Indian Panelboard Manufacturer 2023 (3) TMI 1374 - GUJARAT HIGH COURT held that once the audit report in Form 12B is found to be available with the AO before conclusion of assessment proceedings the requirement of law is satisfied. Thus upheld the principle that delay in filing of Form 10B being a procedural default should not disentitle the assessee / applicant trust the denial of grant of exemption under Section 11 of the Act we are of the considered view that in the assessee s set of facts claim of exemption under Section 11 of the Act should not be denied only on account of delay in filing Audit Report in Form 10B within the stipulated time.

Summary

1. ISSUES PRESENTED and CONSIDERED

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

• Whether the denial of exemption under Section 11 of the Income Tax Act on account of non-filing or belated filing of the Audit Report in Form 10B along with the return of income under Section 139(1) is justified when the Audit Report was available with the Assessing Officer before the completion of assessment proceedings under Section 143(1).
• Whether the learned Commissioner of Income Tax (Appeals) was justified in dismissing the appeal ex-parte for alleged non-prosecution without providing a proper opportunity of hearing and without adjudicating the matter on merits.
• The legal effect of delay in filing Form 10B on the entitlement of exemption under Section 11, particularly whether such delay constitutes a substantive bar or merely a procedural default.
• The applicability and relevance of judicial precedents, including those of the jurisdictional High Court and the ITAT Ahmedabad bench, on the issue of delay in filing Form 10B and entitlement to exemption under Section 11.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Denial of exemption under Section 11 due to non-filing/belated filing of Form 10B

Relevant legal framework and precedents: Section 11 of the Income Tax Act provides exemption to charitable trusts subject to fulfillment of prescribed conditions, including filing an audit report in Form 10B along with the return of income as mandated under Rule 17B of the Income Tax Rules. The filing of Form 10B is a procedural requirement to substantiate the claim of exemption.

Judicial precedents cited include the decisions of the Gujarat High Court in Sarvodaya Charitable Trust v. ITO(E) and Association of Indian Panelboard Manufacturer v. Dy. CIT, where the courts held that delay in filing Form 10B is a procedural default and should not disentitle the assessee to exemption if the audit report is available before the completion of assessment proceedings. The courts emphasized that the substantive law requires availability of the audit report during assessment, and the mode or timing of filing is procedural.

Court's interpretation and reasoning: The Tribunal observed that the delay in filing Form 10B was admitted by the assessee and was due to a consultant's mistake. However, the Audit Report was filed on 01.04.2024 and was available with the Assessing Officer before the order under Section 143(1) was passed on 17.12.2024. The Tribunal relied on the principle established by the Gujarat High Court that the substantive requirement is the availability of the audit report before assessment, and mere delay in filing should not lead to denial of exemption.

Key evidence and findings: The assessee filed Form 10B belatedly but before the completion of the assessment. The Assessing Officer processed the return under Section 143(1) denying exemption solely on the ground of non-filing of Form 10B along with the return. The Tribunal noted the availability of the audit report with the Assessing Officer at the time of processing.

Application of law to facts: Applying the legal principle that filing of Form 10B is procedural and that substantial compliance suffices, the Tribunal held that the assessee should not be denied exemption under Section 11 merely due to delay in filing Form 10B, especially when the audit report was available before the assessment order.

Treatment of competing arguments: The Revenue relied on the Assessing Officer's and CIT(A)'s orders denying exemption on procedural grounds. The Tribunal distinguished this by citing binding judicial precedents that delay in filing is not a substantive bar. The Revenue's reliance on procedural non-compliance was outweighed by the principle of substantial compliance and availability of the audit report during assessment.

Conclusions: The Tribunal concluded that the denial of exemption under Section 11 solely on the ground of delay in filing Form 10B was not justified. The assessee's claim of exemption should not be denied on this procedural default.

Issue 2: Dismissal of appeal by CIT(A) on ground of non-prosecution without hearing

Relevant legal framework and precedents: The principles of natural justice require that an appellant be given a fair opportunity of hearing before dismissal of appeal. The Supreme Court and High Courts have held that dismissal for default or non-prosecution is permissible only if the appellant fails to pursue the appeal despite opportunities.

Court's interpretation and reasoning: The CIT(A) dismissed the appeal ex-parte on the ground that the assessee did not appear or file submissions despite multiple notices. CIT(A) relied on judicial precedents that an appeal must be effectively pursued or it can be dismissed for want of prosecution.

Key evidence and findings: The record showed that the assessee did not appear for hearing before CIT(A) and did not file written submissions despite multiple notices sent through the ITBA system to the registered e-mail ID.

Application of law to facts: The Tribunal noted the CIT(A)'s observations but also considered that the assessee's counsel appeared before the Tribunal and explained the delay in filing Form 10B. The Tribunal did not find fault with the CIT(A)'s dismissal on procedural grounds but emphasized that the merits of the exemption claim should be adjudicated when the audit report was available before assessment.

Treatment of competing arguments: The Revenue supported the CIT(A)'s dismissal for non-prosecution. The assessee argued that the appeal was dismissed without adjudication on merits. The Tribunal balanced these views by allowing the appeal on the legal principle regarding Form 10B filing, effectively providing relief despite the procedural dismissal at CIT(A) level.

Conclusions: While upholding the procedural dismissal by CIT(A), the Tribunal allowed the appeal on substantive legal grounds, thereby effectively overruling the denial of exemption.

3. SIGNIFICANT HOLDINGS

The Tribunal crystallized the following core principles and final determinations:

• "Delay in filing of Form 10B is a procedural default and if other conditions have been met, then mere delay in filing of Form 10B should not disentitle the assessee from claiming exemption under Section 11 of the Act."
• "Once Form 10B has been filed by the assessee and the same is available with the Department before passing of order/intimation under Section 143(1) of the Act, then in view of the decisions of Jurisdictional High Court, the claim of exemption under Section 11 of the Act cannot be denied only on account of delay in filing of Form 10B before the due stipulated date."
• The Tribunal relied on the observations of the Gujarat High Court in Sarvodaya Charitable Trust that "an assessee, a public charitable trust past 30 years who substantially satisfies the condition for availing such exemption, should not be denied the same merely on the bar of limitation especially when the legislature has conferred wide discretionary powers to condone such delay on the authorities concerned."
• It was held that the procedural requirement of filing Form 10B is directory in nature, and substantial compliance suffices, referencing the decision in CIT v. Gujarat Oil and Allied Industries Ltd.
• The Tribunal allowed the appeal of the assessee despite the ex-parte dismissal by CIT(A), emphasizing the overriding legal principle favoring substantial compliance and availability of audit report during assessment proceedings.