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2025 (5) TMI 1498 - AT - Income TaxDenial of exemption u/s 11 - Form 10B was not filed along with return as per the provisions of law - HELD THAT - Filing of Form 10B is procedural lapse on the part of the assessee which was duly filed during the course of assessment proceedings itself and filing of Form 10B cannot be a ground for denying the legitimate exemption u/s 11(2) of the Act when all the conditions precedent for allowing such exemption have been fulfilled by the assessee and the activities of the trust are not in doubt and therefore the exemption u/s 11(2) of the Act could not be denied on technicalities. We also place reliance to the decision of Gujarat Oil and Allied Industries Ltd 1992 (9) TMI 67 - GUJARAT HIGH COURT wherein it is held that the provision regarding furnishing of audit report with the return has to be treated as a procedural proviso. It is directory in nature and its substantial compliance would suffice. Small delay in uploading the Form 10B is condonable and the assessee cannot be denied benefit of exemption on such technical ground. Appeal of the assessee is allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal in this appeal are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Nature of filing Form 10B - Procedural or Substantive Compliance Relevant legal framework and precedents: Section 11 of the Income Tax Act grants exemption to charitable trusts subject to fulfillment of certain conditions, including the filing of an audit report in Form 10B as mandated under the Act. Section 139(1) requires filing of the return of income and associated documents within prescribed timelines. The question arises whether failure to file Form 10B along with the return is a substantive non-compliance or merely a procedural lapse. Precedents considered include the Gujarat High Court decision in CIT vs. Gujarat Oil and Allied Industries Ltd. (1993), which held that filing the auditor's report along with the return is a procedural provision and directory in nature. The jurisdictional Calcutta High Court in CIT vs. Indian Sugar Mills Association reaffirmed this view, emphasizing that filing of Form 10B is procedural and that delay in filing can be condoned under section 119(2)(b). Court's interpretation and reasoning: The Tribunal noted that the audit report in Form 10B was indeed filed on 28.09.2022 and uploaded on 11.10.2022, whereas the prescribed timeline required uploading on or before 07.10.2022. This delay of three days was held to be a minor procedural lapse. The Tribunal emphasized that the delay did not go to the root of the assessee's eligibility for exemption under section 11, as the substantive conditions for exemption were fulfilled and the trust's activities were not in doubt. Key evidence and findings: The audit report was filed before the due date of return filing and was eventually uploaded, albeit with a slight delay. The assessee demonstrated bona fide belief and prompt corrective action upon identifying the lapse. No evidence was brought forth by the Department to challenge the substantive compliance of the trust with exemption conditions. Application of law to facts: The Tribunal applied the principle that procedural provisions are directory and substantial compliance suffices. It relied on binding precedents to conclude that denial of exemption on such technical grounds would be unjustified. Treatment of competing arguments: The Department argued for strict compliance and supported denial of exemption due to non-filing of Form 10B with the return. The Tribunal rejected this, finding no binding precedent or circular to support the Department's strict stance and noting the procedural nature of the lapse. Conclusions: The Tribunal held that the failure to upload Form 10B along with the return is a procedural lapse and does not justify denial of exemption under section 11. Issue 2: Power to condone delay under section 119(2)(b) and applicability of Board circulars Relevant legal framework and precedents: Section 119(2)(b) empowers the Central Government or delegated authorities to condone delay in compliance of procedural requirements under the Act. Circular No. 16 of 2022 dated 19-07-2022 expands the power to condone delay in filing Form 10B beyond 365 days up to three years from the relevant assessment year. The Calcutta High Court in CIT vs. Indian Sugar Mills Association applied this circular to condone delay and held that denial of exemption on such grounds was not justified. The earlier Circular No. 2 of 2020 allowed condonation of delay up to 365 days. Court's interpretation and reasoning: The Tribunal noted that the Department failed to place any material to discredit the applicability of Circular No. 16 of 2022 in the present case. The Tribunal observed that the CIT(A) had suggested filing a condonation petition under section 119(2)(b), but the Tribunal itself found the delay to be minor and condonable without formal petition, given the procedural nature of the requirement. Key evidence and findings: The delay of three days in uploading Form 10B was well within reasonable limits and was rectified before the return filing due date. The Board's circulars provide explicit authority to condone such delay. Application of law to facts: The Tribunal applied the circulars and section 119(2)(b) to hold that the delay in uploading Form 10B was condonable and should not result in denial of exemption. Treatment of competing arguments: The Department did not counter the applicability of the circulars or the power to condone delay. The Tribunal found no justification for strict denial on technical grounds. Conclusions: The Tribunal concluded that the delay in uploading Form 10B is condonable under section 119(2)(b) and the relevant Board circulars. Issue 3: Effect of technical lapse on substantive exemption claim under section 11 Relevant legal framework and precedents: Section 11(2) of the Act provides exemption to charitable trusts subject to fulfillment of conditions including audit report filing. The jurisprudence establishes that procedural lapses should not defeat substantive rights unless they go to the root of eligibility. Court's interpretation and reasoning: The Tribunal held that since all substantive conditions for exemption were met and the trust's activities were bona fide, the minor procedural lapse of delayed Form 10B upload does not justify denial of exemption. It relied on the Gujarat High Court decision which held that substantial compliance is sufficient and delay in furnishing audit report should not defeat exemption. Key evidence and findings: The assessee's activities and compliance were not questioned. The audit report was filed and uploaded, only delayed by a few days. The exemption claim was legitimate. Application of law to facts: The Tribunal applied the principle that exemption cannot be denied on technical grounds when substantive compliance is established. Treatment of competing arguments: The Department's insistence on strict compliance was rejected as disproportionate and unsupported by binding precedents. Conclusions: The Tribunal held that exemption under section 11(2) cannot be denied on account of such technical procedural lapses. 3. SIGNIFICANT HOLDINGS The Tribunal's crucial legal reasoning is encapsulated in the following verbatim excerpts:
Core principles established include:
Final determinations on each issue are:
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