2025 (6) TMI 1625 - AT - Income Tax

Denial of exemption u/s 11 - audit report in Form No. 10B had not been filed within the specified date - procedural v/s mandatory provision - HELD THAT - We have considered the rival submissions. It is noted that Form No.10B had not been uploaded within the due date which is claimed to be unintentional on the part of the assessee. However it is noted that the same was available before the Ld. Assessing Officer at the time of processing of the return of income and was uploaded by the Chartered Accountant in time. The filing of Form No.10B has been held to be a procedural requirement and directive in nature and not mandatory. As decided in M/s Indian Sugar Mills Association 2024 (1) TMI 1445 - CALCUTTA HIGH COURT that the filing of the auditor s report along with the return of income has to be treated as a procedural provision and therefore directory in nature. We deem it appropriate to set aside the order of the Ld. CIT(A) as well as the intimation of the Ld. AO and remit the matter back to the Ld. AO for considering the claim of the assessee afresh as the audit report was available at the time of processing the return of income and therefore the claim of exemption u/s 11 of the Act had to be allowed - Appeal filed by the assessee is allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this appeal are:

• Whether the failure to accept the audit report in Form No. 10B within the prescribed due date, despite its timely filing by the Chartered Accountant, justifies denial of exemption under Section 11 of the Income Tax Act, 1961?
• Whether the filing of the audit report in Form No. 10B is a mandatory condition for claiming exemption under Sections 11 and 12A(1)(b) of the Income Tax Act, or whether it is merely a procedural/directory requirement?
• Whether the delay in acceptance of Form No. 10B by the assessee can be condoned, especially in light of CBDT Circular No. 16/2022 dated 19.07.2022 and relevant judicial precedents?
• Whether the Assessing Officer and the Commissioner of Income Tax (Appeals) erred in disallowing the exemption claimed by the assessee on account of corpus donation received during the year?
• Whether the Assessing Officer properly considered the response and submissions filed by the assessee under Section 143(1)(a) of the Act?

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Mandatory nature of filing and acceptance of Form No. 10B for claiming exemption under Section 11

Relevant legal framework and precedents: Section 12A(1)(b) read with Section 11(1)(d) of the Income Tax Act provides exemption to trusts on corpus donations, subject to compliance with prescribed procedural requirements including filing of audit report in Form No. 10B. The provisions require that the audit report be furnished at least one month prior to the due date for filing the return under Section 139(1). CBDT Circular No.16/2022 dated 19.07.2022 clarifies the power of the Commissioner to condone delay in filing Form 10B. Judicial precedents such as Commissioner of Income Tax vs Rai Bahadur Bissesswarlal Motilal Malwasie Trust (1992) 195 ITR 825 (Calcutta HC) and Smt. Sneh Lata Jain vs CIT [2001] 140 Taxman 156 (J&K HC) have held that filing of the audit report is a procedural requirement and the exemption cannot be denied on mere technicalities. The decision of the Hon'ble Calcutta High Court in Commissioner of Income Tax (Exemptions) Kolkata vs Indian Sugar Mills Association (ITAT/270/2023) further supports the directory nature of the filing requirement.

Court's interpretation and reasoning: The Tribunal observed that although the assessee failed to accept Form 10B within the due date, the report was duly filed electronically by the Chartered Accountant within the prescribed time. The failure to accept was inadvertent and curable. The Tribunal emphasized that the audit report filing is procedural and not mandatory in the strict sense. The Tribunal relied on the cited judicial precedents and CBDT Circular No.16/2022 to hold that the delay in acceptance should not result in denial of exemption.

Key evidence and findings: The audit report in Form No. 10B was electronically filed on 28.09.2022, within the stipulated time (one month prior to the due date for return filing). The assessee accepted the Form only on 14.02.2023, beyond the due date of 07.10.2022. The return of income was filed on 31.10.2022, within the extended due date of 07.11.2022. The audit report was available to the Assessing Officer at the time of processing the return.

Application of law to facts: Given the procedural nature of the filing requirement, the Tribunal held that the exemption under Section 11 should not be denied merely because of delayed acceptance, especially when the report was timely filed and available to the Assessing Officer. The Tribunal found the Assessing Officer's and CIT(A)'s denial of exemption based on this technicality to be unsustainable.

Treatment of competing arguments: The Revenue contended that the audit report was not filed within the due date and hence exemption was rightly denied, relying on the strict interpretation of Section 12A and the decision in Pr. CIT v Wipro Ltd. The Tribunal distinguished this case by emphasizing the procedural nature of the filing and the availability of the audit report at the time of assessment. The Revenue's failure to address the CBDT Circular No.16/2022 and relevant High Court decisions was noted.

Conclusion: The Tribunal concluded that the delay in acceptance of Form No. 10B was a curable defect and did not justify denial of exemption. The exemption claim under Section 11 was to be allowed subject to proper consideration by the Assessing Officer.

Issue 2: Denial of exemption on corpus donation received during the year

Relevant legal framework and precedents: Section 11(1)(d) of the Income Tax Act exempts income derived from the corpus of a trust. The assessee claimed exemption of Rs. 9,00,000 as corpus donation. The procedural compliance under Section 12A(1)(b) and audit report filing are conditions precedent for exemption.

Court's interpretation and reasoning: The Tribunal noted that the corpus donation was genuine and the audit report was filed in time by the CA. The denial of exemption was linked to the technicality regarding acceptance of Form 10B. Since the Tribunal found the filing requirement procedural, the denial of exemption on this ground was not justified.

Key evidence and findings: The corpus donation amount was clearly disclosed and supported by audit report. The Assessing Officer and CIT(A) denied exemption solely on procedural grounds.

Application of law to facts: The Tribunal held that the assessee was entitled to exemption on corpus donation as per Section 11(1)(d), subject to fulfillment of procedural requirements, which were substantially complied with.

Treatment of competing arguments: Revenue's argument was based on strict compliance with procedural timelines. Tribunal rejected this in light of the procedural nature of the requirement and availability of audit report.

Conclusion: The exemption on corpus donation was to be allowed.

Issue 3: Consideration of the assessee's response under Section 143(1)(a) and adherence to principles of natural justice

Relevant legal framework and precedents: Section 143(1)(a) allows the Assessing Officer to seek clarification or additional information before processing the return. Principles of natural justice require that the assessee's submissions be duly considered.

Court's interpretation and reasoning: The Tribunal observed that the Assessing Officer and CIT(A) failed to properly consider the response filed by the assessee regarding the acceptance of Form 10B and the claim of exemption. The Tribunal noted that the assessee was not given adequate opportunity to explain or rectify the procedural lapse.

Key evidence and findings: The assessee submitted explanations and requested condonation of delay upon receipt of the show cause notice, but these were not properly considered.

Application of law to facts: The Tribunal held that failure to consider the assessee's response violated principles of natural justice and warranted remand for fresh consideration.

Treatment of competing arguments: Revenue did not dispute the procedural lapse but relied on strict timelines. Tribunal emphasized fairness and opportunity to be heard.

Conclusion: The matter was remanded to the Assessing Officer for fresh consideration after providing the assessee a reasonable opportunity of being heard.

3. SIGNIFICANT HOLDINGS

"The filing of Form No.10B has been held to be a procedural requirement and directive in nature and not mandatory."

"The requirement of filing the audit report with the return is merely a procedural requirement and that the exemption cannot be denied so long as the report is available with the Assessing Officer before the completion of assessment."

"When the substantive law confers a benefit on the assessee under the statute, it cannot be taken away by the adjudicating authority on mere technicalities."

"The delay in acceptance of Form No. 10B being an inadvertent and curable defect, the claim of exemption under section 11 of the Act had to be allowed."

"The Assessing Officer and the Commissioner of Income Tax (Appeals) erred in denying exemption on the ground of non-acceptance of Form 10B within the due date, without properly considering the assessee's response and the availability of the audit report."

"The matter is remanded to the Assessing Officer for fresh consideration, with the direction that the assessee shall be given reasonable opportunity of being heard and unnecessary adjournments shall be avoided."