SNEHASADAN ,MUMBAI vs. INCOME TAX OFFICER EXEMPTION WARD 2(3), MUMBAI

The learned CIT(Appeals) and the learned Assessing Officer failed to appreciate that the time limits prescribed for filing the Audit Report is only declaratory and not mandatory. The lower authorities failed to appreciate that delay in filing the Audit Report is only a procedural lapse and the same cannot be fatal leading to denial of exemption/benefits under Section 11 of the Act particularly when the said Audit Report was available on record when the Return of Income was processed under Section 143(1) of the Act.

The learned CIT (Appeals) failed to appreciate the explanations/submissions furnished by the Appellant and the legal position emerging from the decisions of various High Courts/Income-tax Appellate Tribunals dealing with amended provisions of Section 12A(b) of the Act.

It is submitted that the denial of exemption under Section 11 of the Act, as discussed above, has led to denial of deductions of the following amounts resulting into huge demand of Rs.46,02,570/- after adjusting the TDS refund of Rs.4,50,209/- against the Appellant

1. A sum of Rs.63,96,856/- under section 11(1)(a) of the Act being the amount accumulated or set apart for application to charitable or religious purposes or for the stated objects of the trust to the extent it does not exceed 15 per cent of the income;;

2. A sum of Rs.45,00,000/- being the amount deemed to have been applied as per clause 2 of Explanation to section 11(1) of the Act.

3. A sum of Rs.11,17,256/- under section 11 read with Section 11(6) of the Act being the amount of capital expenditure incurred to be allowed as application of income.

It is submitted that on the facts and in the circumstances of the case and in law, the learned CIT(Appeals) erred in confirming the adjustments resorted to by the learned Assessing Officer while processing the Return of Income under Section 143(1) of the Act. 6. It is submitted that the basic issue leading to denial of exemption under Section 11 of the Act viz. delay in filing the Audit Report in Form 10B, itself is a highly debatable question of law and the same cannot be the ground for adjustment/additions/disallowances under Section 143(1)(a)/143(1) of the Act.

The learned Assessing Officer has resorted to the adjustments without complying with the provisions of Section 143(1) of the Act.”

The assessee is a public trust registered under Maharashtra Public Trust Act, 1950 and also under section 12AB of the Act. The assessee filed the return of income for AY 2023-24 on 30.11.2023 declaring a total income of Rs. 1,13,693/-. The return was processed by CPC by issuing intimation under section 143(1) dated 19.11.2024 wherein adjustment of Rs. 1,20,14,112/- was made denying the exemption claimed under section 11 of the Act towards application of funds. The reason for denial of the exemptions claimed under section 11 is that the assessee has not filed Form-10B within the due date as specified. Aggrieved the assessee filed further appeal before the CIT(A). The assessee submitted before the CIT(A) that Form 10B was filed along with the return of income filed on 30.11.2023 and the delay being a procedural non-compliance cannot be the only ground for denying the exemption under section 11 of the Act. The CIT(A) dismissed the appeal by holding that for claiming exemption under section 11 it is mandatory on the part of the assessee to file the Form-10B within the specified due dates or get the delay condoned from CIT(E). Aggrieved the assessee is in appeal before the Tribunal.

We heard the parties and perused the material on record. We notice that the assessee is a registered Trust since 1963 under the Maharashtra Public Trust Act, 1950. The reason for denying the benefit of exemption under section 11 of the Act is that the assessee has not filed the Form-10B within the due date as specified i.e. one month prior to the date of filing the return of income under section139(1) of the Act. For the AY 2023-24 the due date for filing the return of income under section 139(1) was extended to 30.11.2023 and the claim of the Department is that the assessee should have filed Form-10B on or before 31.10.2023. Since the assessee filed the Form-10B along with the return of income on 30.11.2023 the exemption claimed under section 11 towards application of funds was denied to the assessee. It is a settled legal position that filing of Form-10B is a procedural requirement and any delay in filing the Form cannot be the only reason for denying the benefit under section 11 of the Act. In other words, the assessee which is a registered charitable trust if substantially satisfied condition for availing benefit of exemption under section 11 the same could not be denied the exemption, merely on bar of limitation in furnishing audit report in Form 10B. Further in assessee's case Form-10B was submitted along with the return of income and the same was available at the time of processing the return under section 143(1) of the Act. We notice that inspite of the Form-10B being available in the intimation under section 143(1), the application of funds towards charitable purposes have been considered merely for the reason that there is delay in filing Form-10B. We further notice that in assessee's own case for AY 2022-23 a similar issue has been considered where it has been held that “2. It emerges at the outset that the assessee’s sole substantive grievance raised in the instant appeal challenges correctness of both the learned lower authorities action disallowing sec.11 exemption on account of it’s failure in uploading the relevant audit report in Form-10B in the course of CPC “processing” dated 08.03.2022 as upheld in the Addl/JCIT’s lower appellate discussion as under :

For the above reasons, the grounds raised by the assessee are hereby rejected and the additional grounds raised by the assessee is found not relevant to the facts and circumstances of the case, therefore the same is also rejected."

In the result, the appeal is Dismissed.”

Suffice to say, both the parties vehemently reiterated their respective stands before us. Learned counsel submits case law M/s. Social Security Scheme of GICEA vs. CIT(E) [2023] 147 taxmann.com 283 (Guj.) in light of the admitted factual position that the assessee had filed it’s return on 07.11.2022 than within the “due date” on 07.10.2022. And that the said return filed was also accompanied by Form-10B as it is clear from the lower appellate discussion. It is accordingly claimed that the foregoing return was well within the due date once the CBDT had extended time limitation in the impugned assessment year. It is lastly stated be that as it may, various judicial precedents; more particularly, in case of M/s. Social Security Scheme of GICEA vs. CIT(E) (supra) already settle the issue that such a compliance of uploading Form 10B is only a directory than a mandatory provision.

Learned DR has drawn strong support from the above extracted lower appellate discussion forming the CPC’s “processing” denying sec.11 exemption to the assessee.

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 [or 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 othewords. 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.” 4. Considering the facts and circumstances of the case and respectfully following the above judicial precedents, we hold that the exemption claimed under section 11 of the Act cannot be denied merely for the reason that the assessee has not filed the Form-10B within the specified date but has filed along with the return of income. Accordingly, we remit the issue back to the AO to consider the Form- 10B filed by the assessee along with the return of income and allow the exemption under section 11 of the Act considering the issue on merits in accordance with law. Needless to say that the assessee be given a reasonable opportunity of being heard. It is ordered accordingly.

In result, appeal of the assessee is allowed for statistical purposes.