EFFORT FOUDATION (N.G.O),DELHI vs. ITO , DELHI

Section 12A(1)(ba) of the Act provides that the provisions of section 11 and 12 shall apply in relation to income of any trust or institution if the person in receipt of the income has furnished the return of income for the previous year in accordance with the provisions of sub- section (4A) of section 139 i.e. within the time allowed under that section. Now, since reference has been made to section 139(4A) of the Act and the same is reproduced below:

Now, going through the provisions to section 139(4A) of the Act shows that the assessee is required to file the return as per the provisions of section 139(1) of the Act. Now, perusal of section 139(1) shows that in the case of the assessee which is required to get its account audited, the due date is 30.09.2018 and for A.Y 2018-19 this date was further extended to 31.10.2018 vide CBDT's order dated 24.09.2018. Now, since the assessee has filed the return on 15.11.2018, it is a belated return. Thus, there remains no dispute to the fact that the return of income filed by the assessee is a belated return which as per section 139(5) of the Act could have been filed latest by 31.03.2019. Now, at this stage, we would like to refer to Circular issued by CBDT on 23.04.2019 giving clarification with regard to time allowed for filing of return of income subsequent to insertion of clause (ba) in sub-section 1 of section 12A of the Act and the same is reproduced below: F.No. 173/193/2019-ITA-I Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes New Delhi, Dated: 23 April, 2019 To, The Pr. DGIT (Systems), New Delhi. Subject: Clarification with regard to the time allowed for filing of return of income subsequent to the Effort Foundation (N.G.O.) insertion of Clause (ba) in subsection 1 of section 12A of the income-tax Act, 1961. Sir, Undersigned is directed to refer to the representation (s) received on above mentioned subject stating that while processing of ITR-7 for the A.Y. 2018-19, in respect of the belated returns filed u/s 139(4) of the Income Tax Act, 1961 (Act), the following is being communicated u/s 143(1)(a) of the Act:- "As per section 12A(1)(ba) of the Income tax Act, 1961 the person in receipt of the income has furnished the return of income for the previous year in accordance with the provisions of sub-section (4A) of section 139, within the time allowed under that section. Otherwise the exemption u/s-11 ie. sr. no 4(i) and 4 viii in schedule Part BTI is not allowed." Based on this, exemption u/s 11 of the Act has been denied to otherwise eligible trust, thereby creating huge demand.

In the matter, the memorandum explaining the relevant provisions of the Finance Bill, 2017 reads as under: "as per the existing provisions of said section, the entities registered under section 12AA are required to file return of income under subsection (4A) of section 139, if the total income without giving effect to 05 Standards & Norms, Legal Series Vol. XII, Issue 1, April 2019 CBDT CLARIFICATION ON PENALTIES FOR DELAYED FILING OF RETURN IN ITR-7 the provisions of sections 11 and 12 exceeds the maximum amount which is not chargeable to income-tax. However, there is no clarity as to whether the said return of income is to be filed within time allowed u/s 139 of the Act or otherwise. In order to provide clarity in this regard, it is proposed to further amend section 12A so as to provide for further condition that the person in receipt of the income chargeable to income tax shall furnish the return of income within the time allowed under section 139 of the Act. These amendments are clarificatory in nature. These amendments will take effect from 1st April, 2018 and will, accordingly, apply in relation to assessment year 2018-19 and subsequent years."

Thus, for a trust registered U/s 12AA of the Act to avail the benefit of exemption u/s 11 shall inter-alia file its return of income within the time allowed u/s 139 of the Act. Accordingly, orders u/s 143(1)(a) in those cases in which demand has been raised on this issue may please be rectified. This issues with the approval of Chairman (CBDT). (Vinay Sheel Gautam) JCIT (OSD) (ITA-I) Telefax: 011-23093070 E-mail: vinaysheel.gautam@gov.in 11. From perusal of the above referred circular, we find that in Para 3 of the said circular specifically states that a trust registered u/s 12AA of the Act, benefit of section 11 shall be available if the return of income is filed within the time allowed u/s 139 of the Act. It further states that orders u/s 143(1)(a) of the Act in those cases in which demand has been raised on this issue may please be rectified. From the circular, we note that an amendment was brought in by insertion of clause (ba) of section 12A(1) of the Act from 2018-19 onwards through which one of the requirements for claiming the benefit u/s 11 and 12 of the Act was to file the return of income within time allowed u/s 139(4A) of the Act. It seems that specially for A.Y 2018-19, when the Form ITR-7 was being processed and for such belated return, demand was raised, representations were received from various assessees on this issue. Taking note of this issue, the said CBDT Circular has issued and while dealing with this issue, the returns filed within the time allowed u/s 139 of the Act have been directed to be accepted for the purpose of considering benefit of deduction u/s 11 of the Effort Foundation (N.G.O.) Act. Now, since only section 139 of the Act has been mentioned and does not specify whether it is about u/s 139(1) of the Act or section 139(5) of the Act, the view beneficial to the assessee needs to be accepted and, since section 139(1) and section 139(5) are part of section 139 only and in this section 139 and sub-section (5) provides the mechanism to file a belated return, therefore, for A.Y 2018-19, even if the assessee files the return before the last date of filing of belated return the same should be treated as due compliance to section 12A(1)(ba) of the Act. For the year under appeal, the belated return could have been filed before 31.03.2019, and since the assessee has filed the return on 15.11.2018, therefore, considering the directions of CBDT Circular dated 23.04.2019, which are binding on the Revenue authorities, we are of the view that the assessee has fulfilled the conditions provided under sub- clause (ba) of section 12A(1) of the Act and has filed the return of income within the time allowed.

Now, the second reason for which lower authorities have denied the deduction u/s 11 of the Act is of filing the belated audit report on form 10B of the Act. Now, clause (b) of section 12A(1) of the Act provides for a condition that if the income of a trust exceeds a maximum amount which is not chargeable to tax in the previous year the account have to be audited and the person in receipt of such income furnishes the audit report before the specified date. In the case of the assessee, Form No.10B was to be filed and the relevant rule is rule 17B of the Income Tax Rules which provides that the report of audit of the accounts of a trust or institution which is required to be furnished under Clause (b) of section 12A, shall be in Form No. 10B.

Now, on perusal of the Form 10B, we notice that the same is required to be submitted electronically, one month prior to the due date of the filing of return of income. Admittedly, in the case in hand, the audit report on form 10B has been uploaded on 30.03.2019 which is even after the date of filing the return of income on 15.11.2018. Now, before us, it has been contended by the ld. counsel for the assessee that filing of audit report is directory in nature and even if report is submitted in time before the conclusion of the assessment proceedings, the same needs to be considered. Though the assessee referred to the various decisions, we find it pertinent to refer to the judgment of the Hon'ble Gujarat High Court in the case of Sarvodaya Charitable Trust us. ITO(Exemption) (supra) wherein Para 32 of the said judgment reads as follows:

In the above judgment, Hon'ble Court has held that filing of audit report is directory in nature and its substantial compliance would suffice. The Id. Departmental Representative failed to place before us any other binding precedents of Hon'ble Jurisdictional High Court or the Hon'ble Apex Court. Therefore, considering the ratio laid down in the Hon'ble Gujarat High Court in the case of Sarvodaya Charitable Trust us. ITO(Exemption) (supra), we find that though the audit report has been uploaded after the filing of return of income but the said report has been signed by the auditor on 28.10.2018 and the copy of this report is placed at 40-41 of paper book and the date of audit report is prior to the filing of the return of income, therefore, it is presumed that conducting of audit for preparation of audit report is before e-filing of the return of income but as claimed by the assessee due to technical glitches, the report was uploaded after filing the return of income.

Though the Hon'ble Court holds that the report should be considered even filed in the course of assessment proceedings, or before in appellate authority, however, we notice that in the instant case, the case of the assessee was not selected for scrutiny assessment and it was mere processing of return by the computer with the set program. Had it been the case of scrutiny proceeding u/s 143(3) of the Act, the case could have been different. The ld. A.O may had an opportunity to go through the audit report. But still when the issue came before ld. CIT(A) who also possesses co-terminus power with that of A.O and as per section 251(1)(a) of the Act, the Id. CIT(A) in disposing the appeal against order of assessment has the power to confirm, reduce, enhance or annul the Effort Foundation (N.G.O.) assessment, therefore, though, it was not possible to entertain the audit report while processing the return u/s 143(1)(a) of the Act, but the ld. CIT(A) was well within its power to have entertained the said report and examined the same as could have been done by the A.O.

We, therefore, in the given facts and circumstances and respectfully following the judgment of Hon'ble Gujarat High Court in the case Sarvodaya Charitable Trust us. ITO(Exemption) (supra) , we are of the considered view that since the case of assessee is for A.Y 2018-19 and CBDT came up with a circular dated 23.04.2019 specially for A.Y 201819 providing that return of income to be filed within the time allowed u/s 139 of the Act, the assessee has complied with the conditions provided in sub-clause (b) and (ba) to section 12 and there is no dispute at the end of the revenue authorities that the assessee is carrying on charitable activities, for which it has been granted registration u/s 12A of the Act, the benefit of section 11 and 12 should be given to the assessee and deductions claimed by the assessee are, therefore, allowed. Thus, Ground Nos. 1 to 4 of the assessee are allowed.

So far as alternate plea praying that only the net income should have been subjected to tax rather than gross receipts, since we have already allowed the deduction u/s 11 and 12 of the Act to the assessee, this alternate plea becomes academic in nature. Other grounds are general in nature which needs no adjudication.”

The above decision has subsequently been followed in the case of Debendra and Rohini Memorial Trust (supra) adjudicating similar issue. So far as delay in filing of the Audit Report if available before the Assessing Authority same needs to be considered. For this proposition, we would like to quote the decision of this Coordinate Bench in the case of Sahaj Seva Trust Vs. ITO in order dated 06.05.2025. Ld. Departmental Representative failed to controvert the ratio laid down in the above decision by placing any other binding precedent in favour of the Revenue. We therefore respectfully following the decision in the case of Bangarh Educational Welfare Trust (supra) and Sahaj Seva Trust (supra) are inclined to hold that exemption u/s.11 claimed by the assessee deserved to be allowed. Accordingly, effective grounds of appeal raised on merits of the case are allowed.”