Loading judgment…
Facts
The assessee, a charitable trust, filed its income tax return for AY 2022-23 and declared income. The CPC processed the return under Section 143(1) and made additions by disallowing exemption under Section 11, citing the delay in filing the audit report in Form 10B.
Held
The Tribunal held that the adjustment under Section 143(1) could not have been made without providing a mandatory opportunity of hearing. On merits, it was held that the delay in filing the audit report is a procedural omission and not an impediment to claiming exemption, especially when the report was available at the time of processing.
Key Issues
Whether denial of exemption under Section 11 solely due to delayed filing of audit report (Form 10B) is justified, and whether adjustment under Section 143(1) is valid without affording an opportunity of hearing.
Sections Cited
11, 12A(1)(b), 143(1), 139(1), 119(2)(b), 44AB
AI-generated summary — verify with the full judgment below
Before: SHRI ANIKESH BANERJEE & SMT. RENU JAUHRI
आदेश / O R D E R PER RENU JAUHRI [A.M.] :- This appeal is filed by the assessee against the order of the Commissioner of Income Tax (Appeal)/ADDL/JCIT (A)-5, Kolkata [CIT(A)] dated 20.11.2024 passed u/s. 250 of the Income-tax Act, 1961 [hereinafter referred to as “Act”] for Assessment Year: 2022-23.
The assessee has raised the following grounds in these appeals. “I. Denial of Benefits of Section 11 of the Act: 1.1. On the facts and in the circumstances of the case and in law, the Learned Additional/Joint Commissioner of Income Tax (appeals)-5, Kolkata Ay 2022
23. ST Thomas Church [hereinafter referred to as CIT(Appeals)] erred in confirming the denial of benefits of Section 11 in the case of the Appellant by the Deputy Director of Income tax, Centralized Processing Centre, Bangalore (herein after referred to as the AO) on the grounds that the Appellant did not furnish Audit Report in Form 10-B within the prescribed time. 1.2. The learned CIT(Appeals) failed to appreciate that mere delayed filing of the Aduit Report in Form 10-B cannot be fatal in as much as the benefits of section 11 cannot be denied on this solitary ground. The learned CIT(Appeals) failed to appreciate the ratio of various judicial pronouncements in this behalf. 1.3. The learned CIT(Appeals) failed to appreciate that the requirement prescribed under section 12A(1)(b) of the Act is merely procedural and hence declaratory in nature. It is submitted that the Appellant has complied with the relevant provisions by furnishing the audit report in Form No. 10B on 05.11.2022. The e-Return of Income had been filed on 07.11.2022 i.e. within the extended due date as per the CBDT circular No. 20/2022 dated 26.10.2022. Accordingly, the benefits of section 11 of the Act cannot be denied only on account of alleged delay in filing the said Audit Report. Alternatively, such small delay may kindly be condoned and the benefits of section 11 be granted to the Appellant. 1.4. It is submitted that the said Audit Report in Form 10B was available on record when the e-Return of income was processed under section 143(1) of the Act. Hence, the delayed filing of the said Audit Report cannot be fatal so as to lead to such huge additions and demand against the Appellant. II. Adjustment made under Section 143(1) of the Act is invalid: 2.1. Without prejudice to the above, it is submitted that on the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the adjustments resorted to by the learned AO while processing the return of income under section 143(1) of the Act. 2.2. The learned AO erred in making huge adjustments aggregating to Rs. 1,82,21,411/- under the intimation issued under section 143(1) of the Act resulting into a huge tax demand of Rs. 72,62,660/- (including interest) after adjusting the tax refund of Rs. 3,36,157/- without giving and opportunity of being heard to the appellant trust and thereby violating the principles of natural justice. The Appellant prays that the additions made to the income of the appellant may kindly be deleted as the name is unwarranted, unjustified and contrary to the law and the principles of natural justice and the benefits of section 11 be restored. The Appellant hereby craves the leave to add to, alter or modify the aforesaid grounds of appeal, which are independent of each other, as and when the need arises at the time of hearing.”
Ay 2022-23 ST Thomas Church 3. Brief facts of the case are that the assessee is a charitable trust registered under the Maharashtra Public Trust Act, 1950 vide certificate dated 15.06.1955. The assessee is also registered u/s. 12A(1)(ac)(i) of the Income Tax Act vide certificate dated 23.09.2021 valid for A.Ys 2022-23 to 2026-27. The assessee filed return declaring income of Rs. 54,392/- for AY 2022-23 on 07.11.2022. The Centralised Processing Centre, Bangalore (CPC) issued intimation u/s. 143(1) dated 19.07.2023 making addition by disallowing the entire amount of Rs. 1,48,21,411/- being amount applied/set aside u/s. 11 of the Act. CPC also added Rs. 34,00,000/- being amount accumulated u/s. 11(2) of the Act, on the ground that it had not filed the Form 10B within the prescribed time limit. The assessee had e-filed Form 10B on 07.11.2022 before filling its return of income in ITR-7 for AY 2022-23 by the extended due date i.e. on 07.11.2022. The CPC after observing that the Form 10B had not been filed 30 days prior to the filing of return as required under the provisions of Section 12A, proceeded to make the impugned adjustment without giving the assessee any opportunity of being heard. Aggrieved with the action of the CPC, the assessee preferred an appeal before Ld. CIT(A). Ld. CIT(A) however dismissed assessee’s appeal with the following observations: “5. DECISION:- 5.1 I have carefully gone through the Intimation u/s 143(1), the grounds of appeal
and submission made by the appellant in this regard. Briefly stating facts of the case is that the appellant filed return of income which was processed u/s 143(1) by CPC making certain adjustments over and above the returned income. The only issue involved in this case is that while processing the return of income, CPC disallowed exemption claimed by appellant u/s 11 of the Act due to not filing audit report in Form 108 within the prescribed date. 5.2 In this regard, it is to be stated that as per section 12A(1)(b) of the Act, read with Explanation (ii) below section 44AB of the Act, an assessee who is claiming deduction Ay 2022-23 ST Thomas Church u/s 11 of the Act is required to e-file audit report in Form 10B one month prior to the due date of filing return of income u/s 139(1) of the Act. In this case, the extended due date of filing return of income was 07.11.2022 and therefore the appellant was required to e-file Form 10B on or before 07.10.2022. But it had filed the same on 07.11.2022. Therefore there was delay of one month in filing the Form 10B and AO, CPC was fully justified in disallowing exemption u/s 11. The appellant has also raised ground of appeal that the entire receipts instead of income over expenditure was taxed and that the benefit of accumulation of income for application in a subsequent year u/s 11(2) of the Act was also denied. In this regard, it is to be stated that several High Courts have given judgement that gross receipts and not the income over expenditure shall be taxed when a Trust or Institution claiming exemption u/s 11 violates any of the provisions mentioned in the said section. Moreover, when benefit of section 11 itself is denied, the question of allowing benefit u/s 11(2) also does not arise. 5.3 The appellant was required to file petition before the jurisdictional Commissioner for condonation of delay in fling Form 10B and get the delay condoned by such authority. The appellant in its submission stated that although it had filed such petition before the Commissioner, but whether or not the delay was condoned by him or not is not mentioned by it. In view of the same, appellant's grounds of appeal are rejected and the appeal is dismissed.”
3.1. Aggrieved with the order to the Ld. CIT(A) the assessee has filed an appeal before the Tribunal.
Before us, Ld. AR has argued that the adjustment u/s. 143(1) of the Act was made without giving due opportunity to the assessee of being heard as mandated under the Act. Further, even on merits the decision of the Ld. CIT(A) was not justified as the assessee had furnished audit report before filing of the return within the extended due date as per CBDT Circular No. 20/2022 dated 26.10.2022. As such, the said audit report in prescribed Form 10B was available on record at the time of processing of return u/s. 143(1) of the Act.
4.1. Ld. AR has cited several decisions of the Hon’ble High Courts as well as co-ordinate benches wherein it has been held that the requirement of furnishing the audit report by the due date is merely procedure and the benefits of Section Ay 2022-23 ST Thomas Church 11 cannot be denied only on account of the delay in filling of the said audit report, especially when such report was available at the time of processing/assessment.
In support of his contentions Ld. AR has placed reliance on several decisions some of which are as under: (i) Hari Gyan Pracharak Trust vs. DCIT in wherein under similar facts and circumstances, the co-ordinate bench has held as under: “7. We have carefully considered the order passed by the authorities below and the judgment passed by the Hon'ble Jurisdictional High Court in case of Association of Indian Panelboard Manufacturer (supra) on the issue involved. While passing order in favour of the assessee, the Hon'ble Jurisdictional High Court has been pleased to observe as follows: 5.6 The Tribunal further committed an error in appreciating the import of Section 1192(b) of the Act inasmuch as the application contemplated hereunder is only a remedy for the assessee which could not be said to be compulsorily resorted to by the assessee. The circular No 7/18 dated 20.12.2018 issued under Section 119 of the Act could not be, therefore said to have taken away the appellate remedy. 5.7. The tribunal misdirected itself in yet another way when it observed that The Finance Act, 2015 with effect from 1.4.2016, that is from assessment year 2016-17 changed the legal position. There is no such change which could be said to have altered the legal position. The only change is with regard to compulsory filing of audit report in Form 10B in electronically form which is made mandatory under Rule 12(2) of the Income Tax Rules, 1962 but there is no change with regard to the substantive law about fling of audit report as stated above.
The moot aspect that centres around to the requirement of the availability of the audit report when the assessment was undertaken by the Assessing Officer even though the same may not have been filed along with the return of income. Filing of audit report held to be substantive requirement but not the mode and stage of filing, which is procedural. Once the audit report in Form 12B is filed to be available with the Assessing Officer before assessment proceedings take place, the requirement of law is satisfied. in that view the Income Tax Tribunal was not justified in dismissing the appeal of the assessee. 6.1. The appellant assessee has to be held to be eligible and entitled to exemptions under Section 11(1) and 1(12) of the Act and the alleged ground of non-filing of audit report along with return of income which was at the best procedural omission, could never to an impediment in law in claiming the exemption.
Ay 2022-23 ST Thomas Church 6.2. Accordingly, the substantial questions of law have to be decided in favour of the appellant.
7. They are accordingly decided. The appeal is allowed."
8. In view of the ratio laid down by the Hon'ble Jurisdictional High Court holding that non filing of Audit Report along with return of income is a procedural omission and cannot be an impediment in law in claiming the exemption, we allow this appeal condoning the delay in filing the Audit Report in Form No. 10B. However, we also upon condoning the delay, restore the matter to the file of the Ld. CIT(A) to pass order in regard to the exemption claimed by the assessee strictly in accordance with law.
9. In the result, assessee's appeal is allowed for statistical purposes."
(ii) National Sodality Centre vs ITO, Exemption, Ward -2(3) in wherein under similar fact and circumstances, it was held that the assessee’s claim of exemption u/s. 11 should be allowed as per law, after taking into account the audit report filed in Form 10B on 07.11.2022 along with return of income in the light of the decision of the coordinate bench in the case of Snehasadan Vs. ITO in wherein it was held as under: “5. We find force in assessee's foregoing sole substantive grievance in principle. This is for the precise reason that not only there is no denial from the Revenue side that the due date of filing return had been extended for the assessee's return itself is not time barred) but also the relevant Form-10B audit report stood uploaded well with the return and indeed during the course of processing itself. We accordingly conclude in light of the foregoing judicial precedent that the assessee could not have been declined the impugned exemption for this precise reason in other words. We accordingly deem it appropriate to accept the assessee's instant sole substantive grievance and direct the learned Addl./JCIT(A)-3, Bengaluru to examine it's case on merits afresh as per law. Ordered accordingly.”
(iii) Lokumal Kishinchand Charity Trust V. ITO, Exemption, Ward -1(4), Mumbai dated 28.05.2025. (iv) R.C. Church of St. Josephs V. ITO, Exemption, Ward-2(2), Mumbai TA No. 1268/Mum/2025 dated 17.06.2026.
Ay 2022-23 ST Thomas Church (v) R.C. School o St. Teresas V, ITO, Exemption, Ward-2(2), Mumbai dated 17.06.2025. In all the above cases under similar facts and circumstances , the issue stands decided in favour of the assessee.
6. On the other hand, Ld. DR has relied on the orders of the lower authorities. It has been argued that Ld. CIT(A) was justified in upholding the action of CPC as there was a delay of nearly one month in filing the Form 10B. Only recourse available to the assessee was to file a petition before the jurisdictional CIT for condonation of delay in filing Form 10B. As the petition for condonation had been rejected by the CIT(E), Ld. CIT(A) had no power to condone the delay and, therefore, the decision of Ld. CIT(A) deserved to be upheld.
We have heard the rival submissions and perused the material placed before us. Undisputedly, the assessee is a charitable trust enjoying benefit of registration u/s. 12A of the Act since last several years the latest registration being for AY 2022-23 to AY 2026-27 granted vide Form 10AC dated 23.09.2021. The assessee filed Form 10B on 07.11.2022 while filing the income tax return on same date being the last date for filing of return as per the extended time line. Subsequently, the assessee filed a petition for condonation of delay u/s. 119(2)(b) of the Act on 16.03.2023. The CPC issued the intimation u/s. 143(1) on 19.07.2023 making impugned adjustments, against which the assessee preferred an appeal before Ld. CIT(A). The appellate order dismissing the Ay 2022-23 ST Thomas Church assessee’s appeal was passed on 20.11.2024 and the petition for condonation of delay was rejected by the CIT(E) on 30.01.2025. Accordingly, the assessee preferred an appeal before the ITAT on 16.01.2025. From the above chronology, it is clear that the audit report was available at the time of processing of return. However, the CPC made the impugned additions after holding that the form has been filed beyond the prescribed date. Further, mandatory opportunity of hearing was also not granted to the assessee at the time of making impugned adjustment u/s. 143(1) of the Act. On this ground alone, the adjustment made by the CPC deserves to be deleted. Subsequently, the assessee filed an application for condonation of delay before Ld. CIT(E) for condoning the delay of 31 days in furnishing the audit report in Form 10B explaining the reasons for delay. The assessee explained with the help of supporting documentary evidences that the lady staff handling accounting work of the petitioner suffered miscarriage in the month of August 2022 and was on medical leave due to which there was delay in finalising the accounts as well as the audit report resulting in the delay in filing Form 10B. However, Ld. CIT(E) rejected that assessee’s application for condonation vide order dated 30.01.2025.
7.1. As pointed out by the Ld. AR, there are numerous decisions of Hon’ble High Courts and Co-ordinate benches on the issue wherein it has been held that non-filing of audit report by the prescribed due date was at best a procedural omission which deserves to be condoned and benefit of exemption should not been denied merely on the ground that the report has been filled after the due date especially when the same was available at the time of processing and also Ay 2022-23 ST Thomas Church keeping in view the fact that the legislature has Conferred Code discretionary powers on the concerned authorities to condone such delays.
Respectfully following the decisions of the coordinate benches cited hereinbefore, we hold that firstly the impugned adjustment could not have been made without providing the mandatory opportunity to the assessee u/s. 143(1) of the Act. Moreover on merits also, the assessee’s case is covered by the numerous decisions of the coordinate benches some which have been cited hereinabove and therefore, respectfully following the same, we hereby restore the matter to the Jurisdictional Assessing Officer for considering the Form 10B filed by the assessee and to decide the issue on merits after giving due opportunity to the assessee.
In the result, appeal of the assessee is allowed for the statistical purposes.