2025 (7) TMI 248 - AT - Income Tax

Denial of exemption u/s 11 - not filing the audit report in Form No.10BB on or before the due date i.e. on 31/10/2023 - said audit report was made available to the AO before he passed order u/s 143(1) of the Act on 19/11/2024 - appellant is a religious institution under the management and administrative control of Endowment Department of the Govt. of Telangana HELD THAT - The due date for filing the audit report for the year under consideration was 31/10/2023. whereas the appellant has filed the audit report on 28/11/2023. Admittedly there is a delay of 28 days in filing Form 10BB. But the said audit report was filed before the AO passed the assessment order u/s 143(1) on 19/11/2024. No doubt the assessee needs to file audit report on or before the due date in order to get the benefit of exemption u/s 11 of the Act. However in a case where the assessee has filed the audit report with a small delay of 28 days and further when such audit report was filed before the AO who passed the assessment order in our considered view the Assessing Officer ought to have taken a lenient view going by the facts of the case to consider the claim of the assessee for exemption u/s 11 of the I.T. Act 1961. As in the case of Sardeivatha Education Trust vs Income Tax Officer (Exemptions) 2024 (10) TMI 81 - ITAT BANGALORE wherein it was held that filing of Form 10BB was not mandatory but directory and that when audit report was available while passing intimation u/s 143(1) of the Act and requirement of law were complied with exemption u/s 11 should not be denied to the assessee. In the present case admittedly the assessee has filed return of income on or before the due date on 28/11/2023 and also filed audit report in Form 10BB on the very same day i.e. on 28/11/2023. Although there is a small delay of 28 days in filing the audit report but such audit report was made available to the Assessing Officer when he passed order u/s 143(1) on 19/11/2024. Therefore in our considered view the AO ought not to have denied exemption u/s 11 of the Act. Appeal filed by the assessee is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this appeal are:

• Whether the exemption under section 11 of the Income Tax Act, 1961 can be denied solely on the ground of delay in filing the audit report in Form No. 10BB beyond the prescribed due date.
• Whether the filing of the audit report in Form No. 10BB is mandatory and must be strictly complied with before the due date to claim exemption under section 11.
• Whether a delay in filing Form No. 10BB, but its availability before the Assessing Officer passes the assessment order under section 143(1), can justify granting exemption under section 11.
• The applicability and interpretation of judicial precedents, including the Supreme Court decision in Pr. CIT vs. Wipro Ltd and Tribunal and High Court decisions relating to the mandatory or directory nature of filing Form No. 10BB.
• The extent of discretion available to the Assessing Officer and appellate authorities in condoning delay and granting exemption under section 11 in such circumstances.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Mandatory nature of filing audit report in Form No. 10BB within due date for claiming exemption under section 11

Relevant legal framework and precedents: Section 11 of the Income Tax Act provides exemption to charitable or religious trusts subject to certain conditions, including furnishing an audit report in Form No. 10BB within the prescribed time limit. The Supreme Court in Pr. CIT vs. Wipro Ltd held that filing declarations within prescribed timelines is mandatory as per the language of the statute. The CIT (A) relied on this decision to uphold denial of exemption due to delay.

Court's interpretation and reasoning: The Assessing Officer and CIT (A) took a strict view that non-filing of Form No. 10BB by the due date (31/10/2023) disentitles the assessee from claiming exemption under section 11. They held that the statutory requirement is mandatory and non-compliance results in denial of exemption.

Key evidence and findings: The assessee admitted filing the audit report on 28/11/2023, 28 days after the due date, but before the assessment order dated 19/11/2024.

Application of law to facts: The authorities below applied the mandatory filing principle strictly, ignoring the fact that the audit report was available before the assessment order.

Treatment of competing arguments: The Revenue stressed the mandatory nature of the timeline as per Supreme Court ruling, while the assessee argued for a liberal interpretation based on availability of the audit report before assessment.

Conclusions: The authorities below denied exemption due to delay, relying on the mandatory filing principle.

Issue 2: Whether delay in filing Form No. 10BB but availability before assessment order justifies exemption under section 11

Relevant legal framework and precedents: The Tribunal Bangalore Bench in Sardeivatha Education Trust vs. ITO (Exemptions) held that filing Form No. 10BB is directory, not mandatory, and if the audit report is available before passing the assessment order, exemption under section 11 should not be denied. Similarly, the Telangana High Court in Shilparamam Arts, Crafts and Cultural Society held that condonation of delay should be decided liberally where the audit report is filed belatedly but before assessment.

Court's interpretation and reasoning: The Tribunal in the present case considered these precedents and noted that although there was a 28-day delay, the audit report was filed before the assessment order under section 143(1) was passed. The Tribunal reasoned that given the small delay and availability of the report before assessment, a lenient and liberal approach is warranted rather than a strict denial of exemption.

Key evidence and findings: The assessee is a religious institution registered under sections 12A and 12AA, filed return and audit report together on 28/11/2023, and the audit report was available before the assessment order dated 19/11/2024.

Application of law to facts: The Tribunal applied the principle of directory nature of filing Form No. 10BB and the liberal approach advocated by the Bangalore Bench and Telangana High Court, concluding that exemption should not be denied merely for a short delay.

Treatment of competing arguments: The Tribunal distinguished the strict mandatory approach of the Supreme Court ruling by emphasizing facts specific to the case, including the timely availability of audit report before assessment and small delay period.

Conclusions: The Tribunal set aside the CIT (A) order and directed the Assessing Officer to grant exemption under section 11.

Issue 3: Discretion of authorities in condoning delay and granting exemption

Relevant legal framework and precedents: The assessee had filed a petition for condonation of delay which was pending. The Tribunal referred to the Telangana High Court decision which held that condonation of delay in filing Form No. 10BB should be decided with a liberal approach, especially where the delay is not substantial and the audit report is available before assessment.

Court's interpretation and reasoning: The Tribunal observed that the Assessing Officer should have exercised discretion in favor of the assessee given the facts and allowed exemption rather than mechanically denying it.

Key evidence and findings: Delay was only 28 days; audit report was filed before assessment; petition for condonation was pending.

Application of law to facts: The Tribunal found that the Assessing Officer and CIT (A) failed to consider the facts and exercise discretion properly.

Treatment of competing arguments: Revenue argued for strict compliance; Tribunal favored a purposive and liberal construction of the law.

Conclusions: Delay should have been condoned and exemption granted.

3. SIGNIFICANT HOLDINGS

"The sum and substance of ratio laid down by the Hon'ble High Court of Telangana and the ITAT Bangalore Bench of the Tribunal that, if audit report in Form 10BB was made available to the Assessing Officer before he passes his assessment order, then merely for the reason of delay in filing the relevant report, exemption claimed u/s 11 of the Act cannot be denied."

"In our considered view, the Assessing Officer ought to have taken a lenient view going by the facts of the case to consider the claim of the assessee for exemption u/s 11 of the I.T. Act, 1961."

"Although, there is a small delay of 28 days in filing the audit report but, such audit report was made available to the Assessing Officer when he passed order u/s 143(1) on 19/11/2024. Therefore, in our considered view, the Assessing Officer ought not to have denied exemption u/s 11 of the Act."

The Tribunal established the principle that filing of Form No. 10BB is directory, not mandatory, and that exemption under section 11 should not be denied merely on the ground of delay in filing the audit report, provided it is filed before the assessment order is passed and the delay is not substantial.

The final determination was to set aside the order of the CIT (A), allow the appeal, and direct the Assessing Officer to grant exemption under section 11 and delete the additions.