2025 (6) TMI 1487 - AT - Income Tax

Exemption u/s 11 - delay of 14 days in filing the audit report in Form 10B - assessee submitted that the assessee had duly e-filed Audit Report in Form 10B much prior to intimation order passed u/s 143(1) - HELD THAT - Grant of exemption u/s 11 of the Act cannot be denied to the assessee only on account of a minor delay in filing of Form 10B especially keeping into light the fact that the said form was available with the Income Tax Department prior to issue of notice u/s 143(1) of the Act None of the facts which have been stated before us by the Counsel for the assessee have been verified by the Income Tax Department at any stage of proceedings regarding the precise date of filing of Audit Report etc. owing to non-compliance by the assessee before the Tax Authorities. Accordingly in the interest of justice the matter is hereby set-aside to the file of Ld. CIT(A) for necessary verification and if it is found that the assessee had filed Form 10B before issuance of notice under Section 143(1) of the Act then appropriate relief may be granted to the assessee. Ground No. 1 of the assessee s appeal is allowed for statistical purposes. Denial of exemption u/s 11 - details of registration u/s 12A of the Act provided in the return of income were not matching with the information as per Form 10AC - As assessee submitted that admittedly there was an error in part of the tax consultant of the assessee/applicant trust but it was submitted before us that mere mismatch in the details as per ITR and Form 10AC should not lead to withdrawal of grant of exemption under Section 11 of the Act especially when Form 10AC is accessible to the AO and he can verify that the trust is registered u/s 12A of the Act and hence eligible for claiming exemption u/s 11 of the Act. On going through the instant facts in the interest of justice the matter is set-aside to the file of Ld. CIT(A) for carrying out necessary verification and thereafter pass appropriate orders in accordance with law.

Summary

1. ISSUES PRESENTED and CONSIDERED

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

(a) Whether the exemption claimed under Section 11 of the Income Tax Act can be denied solely on the ground of delay in filing the audit report in Form 10B, when such delay is procedural and the audit report was filed before the issuance of the intimation under Section 143(1) of the Act?

(b) Whether the adjustment of Rs. 2,34,78,541/- under Section 143(1) of the Act, by withdrawing exemption under Section 11, was justified in view of the delay and procedural lapses?

(c) Whether an inadvertent error in entering registration details in Form 10AC, causing mismatch between the return of income and Form 10AC, can justify denial of exemption under Section 11 of the Act?

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Denial of exemption under Section 11 due to delay in filing Form 10B audit report

Relevant legal framework and precedents: Section 11 of the Income Tax Act provides exemption to charitable trusts on their income applied for charitable purposes. The audit report in Form 10B is a statutory requirement to claim such exemption. However, the timing of filing this report is procedural. Judicial precedents have consistently held that delay in filing Form 10B, if procedural and not affecting substantive compliance, should not result in denial of exemption.

Key precedents relied upon include:

• Social Security Scheme of GICEA vs. CIT (Gujarat High Court): Held that exemption cannot be denied merely on the ground of delay in filing Form 10B, especially when the trust has a long-standing history of compliance and the legislature confers discretionary powers to condone such delay.
• JCIT vs. Gujarat Energy Development Agency (ITAT Ahmedabad): Held that filing Form 10B during assessment proceedings entitles the assessee to exemption; denial on ground of non-filing along with return is not justified.
• Sarvodaya Charitable Trust vs. ITO (Gujarat High Court): Held that substantial fulfillment of exemption conditions cannot be negated by limitation in furnishing audit report.
• CIT vs. Gujarat Oil & Allied Industries (Gujarat High Court): Held that filing audit report before completion of assessment entitles assessee to deduction/exemption.
• Shiksha Foundation vs. ITO (ITAT Ahmedabad): Held that exemption cannot be denied solely due to omission in filing Form 10B along with return when it was submitted before issuance of intimation under Section 143(1).

Court's interpretation and reasoning: The Tribunal observed that the delay of 14 days in filing Form 10B was procedural and the audit report was filed before the issuance of the intimation under Section 143(1). The Tribunal emphasized that denial of exemption on such procedural ground would be unjust, especially when the substantive conditions for exemption under Section 11 were met. The Tribunal noted that the Income Tax Department had not verified the precise date of filing of the audit report due to non-cooperation by the assessee, and thus, in the interest of justice, the matter was remanded to the CIT(A) for verification of the filing date and grant of relief if the audit report was indeed filed before the notice under Section 143(1).

Application of law to facts: The assessee had filed the audit report with a delay of 14 days after the due date but before the issuance of the intimation under Section 143(1). The Tribunal applied the precedents to hold that such delay cannot be a ground for denial of exemption. It also considered that the assessee's failure to respond to notices and appear before CIT(A) had hindered verification but did not justify outright denial.

Treatment of competing arguments: The Revenue argued that the assessee had multiple opportunities to present its case and failed to do so, justifying denial of exemption. The Tribunal acknowledged this but prioritized substantive compliance over procedural lapses, directing verification to ensure fairness.

Conclusion: The Tribunal allowed the ground relating to denial of exemption due to delay in filing Form 10B for statistical purposes and remanded the matter for verification and appropriate relief.

Issue (b): Confirmation of adjustment under Section 143(1) withdrawing exemption

This issue is intertwined with the first issue, as the adjustment under Section 143(1) was based on denial of exemption under Section 11 due to the delay in filing Form 10B. The Tribunal's analysis under Issue (a) applies here as well.

The Tribunal found that the adjustment was premature and unjustified without verifying the actual date of filing of the audit report. The procedural delay alone was insufficient to confirm the adjustment. Therefore, the Tribunal remanded the matter for verification and reconsideration.

Issue (c): Effect of inadvertent error in Form 10AC registration details on exemption under Section 11

Relevant legal framework: Form 10AC contains registration details of the trust under relevant sections such as 12A and 80G. Correct registration details are essential for claiming exemptions under Sections 11 and 12A. However, errors in filing forms, if inadvertent and not affecting substantive eligibility, should not lead to denial of exemption.

Court's interpretation and reasoning: The Tribunal noted that the assessee's tax consultant mistakenly entered registration details pertaining to Section 80G instead of Section 12A in Form 10AC, resulting in mismatch with the return of income. The Tribunal held that such a mismatch should not lead to denial of exemption under Section 11, especially since the Assessing Officer has access to Form 10AC and can verify the trust's valid registration under Section 12A.

Application of law to facts: The error was inadvertent and procedural. The assessee was registered under Section 12A and thus eligible for exemption. The Tribunal emphasized that mere mismatch in forms should not override substantive eligibility.

Treatment of competing arguments: The Revenue's position was not explicitly detailed, but the Tribunal implicitly rejected any strict approach that would deny exemption on mere formality errors.

Conclusion: The Tribunal remanded the matter to CIT(A) for verification and passing of appropriate orders in accordance with law, ensuring that the inadvertent error does not unjustly prejudice the assessee.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"Accordingly, in view of the judicial precedents referred to above, we are of the considered view that grant of exemption under Section 11 of the Act cannot be denied to the assessee only on account of a minor delay in filing of Form 10B, especially keeping into light the fact that the said form was available with the Income Tax Department prior to issue of notice under Section 143(1) of the Act."

"...mere mismatch in the details as per ITR and Form 10AC should not lead to withdrawal of grant of exemption under Section 11 of the Act, especially when Form 10AC is accessible to the Assessing Officer and he can verify that the trust is registered under Section 12A of the Act and hence eligible for claiming exemption under Section 11 of the Act."

Core principles established include:

• Procedural delays in filing statutory audit reports (Form 10B) should not result in denial of exemption under Section 11 if substantive conditions are met and the report is filed before issuance of intimation under Section 143(1).
• Inadvertent errors in filing forms related to registration details, causing mismatches, should not override the substantive eligibility for exemption.
• Revenue authorities must verify facts and allow opportunity to the assessee before denying exemption on procedural grounds.
• Judicial precedents support a liberal and substantive approach in granting exemptions to charitable trusts, emphasizing the purpose of the law over technicalities.

Final determinations:

Ground No. 1 (denial of exemption due to delay in Form 10B) was allowed for statistical purposes and remanded for verification.

The adjustment under Section 143(1) was set aside pending verification.

The issue of mismatch in Form 10AC was also remanded for verification and appropriate orders.

Overall, the appeal was allowed for statistical purposes, with directions for the CIT(A) to verify facts and pass orders in accordance with law, ensuring that procedural lapses do not unjustly deny substantive exemption rights of the assessee.