2025 (6) TMI 403 - AT - Income Tax

Denial of exemption u/s 11 - due to delay in filing of Form 10B - HELD THAT -Conditions of filing the Form 10B was relaxed by the CBDT in the earlier assessment years therefore it clearly shows that it is only directory in nature and not mandatory since it is in compliance with Rules framed for availing the benefit under the provisions of Section 11 and it is held that to be directory in nature. See Shri Chandraprabhuji Maharaj Jain Juna Mandir Trust 2019 (8) TMI 363 - MADRAS HIGH COURT as held when the assessee was entitled to a statutory benefit it would be incumbent upon the concerned authority to examine the admissibility of the benefit than to foreclose the assessee on technicalities. Assessee appeal allowed.

Summary

The core legal questions considered in this appeal revolve around the denial of exemption under section 11 of the Income Tax Act due to the delay in filing Form 10B, the jurisdiction of the appellate authority under the Faceless Appeal Scheme, the validity of the addition made to the income of the trust, and the liability to pay interest on the tax demand raised. Specifically, the issues are:

1. Whether the denial of exemption of Rs. 26,35,000/- under section 11 solely due to delay in filing Form 10B is legally sustainable.

2. Whether the Learned Addl/JCIT (Appeals), functioning under the Faceless Appeal Scheme, had jurisdiction to pass an order under section 250 of the Income Tax Act.

3. Whether the addition of Rs. 26,35,000/- to the total income of the trust and consequent tax demand is arbitrary and unjust.

4. Whether the assessee is liable to pay interest amounting to Rs. 1,06,921/-.

Issue 1: Denial of exemption under section 11 due to delay in filing Form 10B

The legal framework pertinent to this issue involves section 11 of the Income Tax Act, which grants exemption to charitable trusts on income applied for charitable purposes, subject to compliance with prescribed conditions, including filing of audit reports in Form 10B as mandated by Rule 12A(1)(b). The question is whether the delay in filing Form 10B is mandatory and fatal to the claim of exemption.

The Court examined precedents including decisions of the ITAT and various High Courts. The assessee relied on ITAT decisions which held that the conditions relating to filing Form 10B are directory and not mandatory, and a mere delay should not bar the exemption. The Court noted that the assessee filed the tax audit report with a delay of one day beyond the extended due date, and the Form 10B was filed before the return of income.

The Court distinguished the facts from the Supreme Court decision in CIT v. Wipro Ltd., which involved a strict interpretation of a different provision (Section 10B) and was not applicable to the facts of this case. The Court further relied on the Gujarat High Court's decision in CIT v. Laxmanarayan Dev Shrishan Seva Khendra, which emphasized an equitable and balanced approach in cases of delay in filing Form 10B for exemption under section 11.

Further, the Court referred to the Madras High Court decision in Shri Chandraprabhuji Maharaj Jain Juna Mandir Trust, which held that procedural lapses should not defeat substantive statutory benefits, especially when the audit report and necessary forms were eventually filed and the assessment was not completed under section 143(3). Similarly, the Gujarat High Court in CIT v. Xavier Kelavani Mandal held that furnishing the audit report is a procedural provision and substantial compliance suffices.

The Court observed that the CBDT had previously relaxed the conditions for filing Form 10B in earlier assessment years, indicating the directory nature of the requirement. The Court found no dispute that the audit report was obtained prior to filing the return and that the delay was minimal and technical in nature.

On these grounds, the Court held that the denial of exemption solely on account of delay in filing Form 10B was not justified. The Court directed the Assessing Officer to allow the exemption claim under sections 11 and 12 of the Act.

Issue 2: Jurisdiction of the appellate authority under the Faceless Appeal Scheme

The assessee contended that the Learned Addl/JCIT (Appeals) had no jurisdiction to pass the order under section 250 of the Act pursuant to the Faceless Appeal Scheme. However, the judgment does not record any substantive argument or contrary view from the Revenue on this point.

The Court did not specifically elaborate on this issue in its reasoning, implying acceptance of the appellate authority's jurisdiction or that the issue was not pressed with sufficient force. Consequently, no adverse finding was made against the appellate authority's jurisdiction.

Issue 3: Validity of the addition of Rs. 26,35,000/- and consequent tax demand

This issue is intrinsically linked to the first issue concerning the denial of exemption. Since the Court held that the delay in filing Form 10B was not a valid ground to deny exemption, the addition of the said amount to the total income was consequently unjustified.

The Court found the addition arbitrary and unjust, as it was based solely on a procedural delay which had been condoned in light of the legal precedents and facts. The Court thus set aside the addition and directed that the exemption be allowed.

Issue 4: Liability to pay interest on the tax demand

The assessee denied liability to pay interest amounting to Rs. 1,06,921/-. The Court did not directly address this issue in detail, but since the tax demand itself was set aside by allowing the exemption, the question of interest on a non-existent demand became moot.

Significant holdings and core principles established:

"The conditions of filing the Form 10B was relaxed by the CBDT in the earlier assessment years, therefore, it clearly shows that it is only directory in nature and not mandatory, since, it is in compliance with Rules framed for availing the benefit under the provisions of Section 11 and it is held that to be directory in nature."

"When the assessee was entitled to a statutory benefit, it would be incumbent upon the concerned authority to examine the admissibility of the benefit than to foreclose the assessee on technicalities."

"The provision regarding furnishing of audit report along with the return has to be treated as a procedural provision, It is directory in nature and its substantial compliance would suffice."

"The benefit of exemption should not be denied merely on account of delay in furnishing the same, and it is permissible for the assessee to produce the audit report at a later stage either before the Income Tax Officer or before the appellate authority by showing a sufficient cause."

Based on these principles, the Court concluded that the assessee's exemption claim under section 11 cannot be denied solely due to a one-day delay in filing Form 10B, especially when the form was filed before the return and the delay was technical and minimal.

The Court directed the Assessing Officer to allow the exemption claim and set aside the addition and tax demand raised on that basis. The appeal was allowed accordingly.