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Facts
The assessee trust filed its return of income claiming tax exemption under Section 11 of the Act, supported by an audit report in Form No. 10B. The audit report was filed belatedly by 33 days. The CPC disallowed the entire claim for exemption based on this delay.
Held
The Tribunal held that the filing of the audit report in Form No. 10B, even if belated, was a procedural requirement. Since the report was available to the CPC before processing the return, the disallowance of the exemption claim was not justified.
Key Issues
Whether the belated filing of the audit report (Form No. 10B) can be a ground for disallowing the entire tax exemption claim under Section 11 of the Income Tax Act.
Sections Cited
143(1), 11, 12AA, 139(1), 119(2)(b), 12A(1)(b)(ii)
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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI GEORGE GEORGE K & SHRI S.R. RAGHUNATHA
आदेश /O R D E R
PER S. R. RAGHUNATHA, AM :
This appeal by the assessee is filed against the order of the Commissioner of Income Tax, Appeal, Addl. /JCIT (A) Panaji, for the assessment year 2022-23, vide order dated 25.03.2025.
The assessee has raised the following grounds of appeal:
1. The order of the NFAC, Delhi dated 25.03.2025 vide DIN & Order No. ITBA/APL/S/250/2024-25/1074981446(1) for the assessment year under consideration is contrary to law, facts and in the circumstances of the case.
2. The NFAC, Delhi erred in sustaining the adjustment made in terms of Section 143(1) of the Act in adding back a sum of Rs.63,53,306/- being the gross receipts as taxable total income of the appellant in the computation of taxable total income without assigning proper reasons and justification.
:-2-: ITA. No:946/Chny/2025
The NFAC, Delhi failed to appreciate that the disputed adjustment made was outside the purview of the scope of adjustment contemplated in Section 143(1) of the Act, there by vitiating the impugned adjustment made in the intimation order dated 02.06.2023.
4. The NFAC, Delhi failed to appreciate that in any event, the action in adding back the entire receipts earned / received during the assessment without taking into consideration the related expenditure incurred in relation to earning of such receipt, i.e. surplus / deficit as per the receipts and payments account, the consequential re-computation of taxable total income was wrong, erroneous, incorrect, invalid, unjustified and not sustainable both on facts and in law.
5. The NFAC, Delhi failed to appreciate that the presumption of non availability of tax exemption benefit was wholly unjustified and hence ought to have appreciated that the assessment of gross income should be considered as nullity in law. 6. The NFAC, Delhi failed to appreciate that the mere delay in filing of tax audit report in Form No. 10B within the stipulated time could not automatically result in taxation of the entire gross receipts, thereby vitiating the passing of the impugned order. 7. The NFAC, Delhi failed to appreciate that the conditions prescribed in relation to filing of tax audit report in Form No. 10B were only directory and not mandatory and further ought to have appreciated that the delay in filing the said Form was neither willful nor deliberate but due to reasons beyond the control of the appellant, there by vitiating the impugned order passed in its entirety. 8. The NFAC, Delhi failed to appreciate that in any event, the Form No. 10B was made available at the time the processing of the return of income, and hence ought to have appreciated that the action in disallowing the claim of tax exemption computation under Section 11 of the Act, which claim is otherwise eligible was wrong, erroneous, incorrect, invalid, unjustified and not sustainable both on facts and in law. 9. The NFAC, Delhi failed to appreciate that the entire computation of taxable total income was wrong, erroneous, incorrect, invalid, unjustified and not sustainable both on facts and in law. 10. The NFAC, Delhi failed to appreciate that having not adhered to the prescription of faceless regime, the consequential assessment passed should be reckoned as bad in law. 11. The NFAC, Delhi failed to appreciate that there was no proper opportunity given before passing of the impugned order and any order passed in violation of the principles natural justice would be nullity in law. 12. The Appellant craves leave to file additional grounds/arguments at the time of hearing.
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The brief facts of the case are that the assessee trust was constituted by way 3. of a trust deed dated 17.12.2003 in Document No. 993/IV of 2003. The assessee trust had filed Form No.10A on 30.03.2007 before the Director of Income Tax (Exemptions) and accordingly the order of registration was passed in terms of Section 12AA of the Act on 24.09.2007 by the Director of Income Tax (Exemptions) in registering the appellant trust in terms of Section 12AA of the Act with effect from 01.04.2006.
Thereafter, the assessee trust was provisionally registered in terms of Section 12(1)(ac)(vi) of the Act vide order of provisional registration dated 27.05.2021 having Provisional Registration Number: AABTV0115AE20206.
The assessee trust for the assessment year: 2022-23 had filed its return of income on 09.11.2022 vide Acknowledgement No.795847221091122 and the audit report in Form No.10B also on 09.11.2022 in Acknowledgement No.796015270091122, wherein the assessee trust had claimed a sum of Rs.63,53,306/- as tax exempt in terms of Section 11 of the Act while reporting the taxable total income at Rs.8,45,492/ -.
The said return of income filed for the assessment year under consideration was processed by the Centralized Processing Centre, Bengaluru (herein after referred to as CPC) u/s.143(1) of the Act, wherein the CPC had disallowed the entire claim of tax exemption u/s.11 of the Act forming part of the return of income filed amounting to Rs.63,53,306/ - vide intimation order dated 02.06.2023 having DIN: CPC/2223/ A7/326953674.
:-4-: ITA. No:946/Chny/2025 7. The said disallowance of the claim of tax exemption u/s.11 of the Act was on account of the assessee trust filing the audit report in Form No.10B belatedly for the A.Y.2022 - 23 on application of the provisions in Section 12A(1)(b)(ii) of the Act.
It was submitted that the due date for filing the return of income u/s.139(1) of the Act for A.Y. 2022-23 fell on 07.11.2022 and the due date for filing audit report in Form No.10B for A.Y. 2022-23 fell on 07.10.2022. However, the audit report in Form No.10B was filed belatedly on 09.11.2022 with a delay of 33 days in filing such audit report.
The assessee, being aggrieved by the intimation order passed by the CPC, had preferred an appeal before the FAA in filing Form No.35. The assessee, had parallelly also filed a petition for the condonation of delay in filing the audit report in Form No.10B for the A.Y. 2022-23 before the ld.CIT(Exemptions), Chennai in terms of Section 119(2)(b) of the Act.
The said condonation filed in terms of Section 119(2)(b) of the Act was disposed of by the CIT(Exemptions), Chennai dated 11.01.2025 in DIN & Order No. ITBA/COM/F/17/2024-25/1072095396(1) by rejecting the plea for condonation of delay in filing the audit report in Form No. 10B for the reasons stated thereon.
The assessee in the pending first appeal against the intimation order dated had assailed the adjustment of disallowance of entire claim of tax exemption in terms of Section 11 of the Act by the CPC, in the intimation order passed in terms of Section 143(1) of the Act on account of the same being beyond the scope of the adjustments permissible in terms of Section 143(1) of the Act.
:-5-: ITA. No:946/Chny/2025 12. However, the said submissions in the pending first appeal were rejected by the FAA vide the appellate order dated 25.03.2025, wherein the FAA had held as follows:
"12.1. Ground no. 2, 3 and 4 are related to the adjustment made towards denying the benefit claim u/s.11 of the Act in the order u/s.143(1) on account of not furnishing of audit report in Form 10B before due date. The appellant submitted that all the conditions for claiming the exemption was fulfilled. Simultaneously, the appellant also agreed for not filing of the statutory form Form No. 10B in time due to which disallowance / adjustment was made in the order u/s.143(1). 12.2 Impugned order u/s.143(1), statement of facts alongwith reply of the appellant was perused. It is imperative to mention that filing of Form 10B is statutory requirement for claiming deduction / exemption in the return of income. The appellant failed to do so. Therefore, I am in the conclusion that the action taken by the AO was correct and there is no room for interference. Hence, the grounds of appeal are dismissed."
The assessee being aggrieved further by the order of the FAA, the present appeal came to be filed challenging the same.
The Ld. AR. argued before us that the action of the CPC was not sustainable in law in disallowing the entire claim of tax exemption in terms of Section 11 of the Act merely on ground of belated filing of audit report in Form No.10B. It was argued that the filing of the audit report within the stipulated time limit prescribed under the Act was only directory and mandatory, that the lapse in filing such form within the time limit was only a procedural lapse and the same would not automatically lead to disallowance of entire claim of tax exemption in terms of Section 11 of the Act forming part of the return of income filed for the assessment year under consideration.
Furthermore, the ld. AR alternatively argued that the action of the CPC in adding back the entire gross receipt received / income without providing / allowing
:-6-: ITA. No:946/Chny/2025 the claim of expenditure incurred in relation to earning of such income cannot stand the test of law especially in view of the law declared by the Jurisdictional High Court in the case of Sree Venkateswara Educational Trust v. The Income Tax Officer, Exemptions Ward, Salem dated 02.09.2024 in T.C.A.Nos.168 and 169 of 2020.
Per contra, the ld. DR argued that the delay in filing the audit report in Form No.10B would disentitle the assessee’s claim of tax exemption u/s.11 of the Act and the same was rightfully disallowed by the CPC while processing the return of income u/s.143(1) of the Act. Furthermore it was argued that there was a mandate cast upon the tax payer to file the requisite form within the stipulated time limit prescribed under the various provisions of the Act in order to claim tax exemption / deduction as the case may be in view of the fact that such condition was a mandatory condition and not a directory and hence pleaded for confirming the order of the FAA in dismissing the appeal filed by the assessee.
We have heard the rival contentions perused the material available on record and gone through the orders of the lower authorities along with judicial precedents relied on. On perusal of the documentary evidences relied upon by the Ld. AR, it is an admitted fact that the audit report in Form No.10B for the assessment year under consideration was filed belatedly on 09.11.2022 as against the due date for filing the same u/s.139(1) of the Act being 07.10.2022, thus belatedly by 33 days.
However, the same was filed / was made available in the file of the CPC while processing the return of income in terms of Section 143(1) of the Act prior to the passing of the intimation order on 02.06.2023.
We find that the purpose of audit report in Form No.10B is to assist the Assessing Officer in determining the correct taxable total income inasmuch the audit
:-7-: ITA. No:946/Chny/2025 report is filed by the taxpayer in support of the claim of tax exemption in terms of Section 11 of the Act, which precisely is what has happened on the facts of the present case. The audit report in Form No. 10B filed belatedly on 09.11.2022 was very much made available in the file of the CPC while processing the return of income filed for the assessment year under consideration.
We find that it is nobody's case before us that the CPC find not have the benefit of the audit report in Form No.10B dated 09.11.2022 while processing the return of income in the intimation order dated 02.06.2023, while in contra, the said audit report in Form No.10B filed for the assessment year under consideration could be said to have been available in the file of the CPC while processing the same.
We draw the above conclusion by placing reliance upon the decision of the Hon'ble Supreme Court in the case of Commissioner of Income-tax, Maharashtra v. G. M. Knitting Industries (P.) Ltd, reported in 376 ITR 456, wherein the Hon'ble Supreme Court had held as follows:
"21 (a). It would be suffice to reproduce para 2 of the impugned order whereby action of Income Tax Appellate Tribunal was held to be justified in allowing additional depreciation as claimed by the respondent-assessee herein: - "Additional depreciation is denied to the assessee on the ground that the assessee has failed to furnish form 3AA along with the return of income. Admittedly, Form 3AA was submitted during the course of assessment proceedings and it is not in dispute that the assessee is entitled to the additional depreciation. In these circumstances, in the light of the judgment of this Court in the case of Commissioner of Income Tax v. Shivanand Electronics [1994] 209 ITR 63 (Bom.), we see no merit in this appeal. The appeal is accordingly dismissed with no order as to costs." 21 (b). We concur with the aforesaid view of the High Court and hold that even if Form 3AA was not filed along with return of income but the same was filed during the assessment proceedings and before the final order of the assessment was made that would amount to sufficient compliance. These appeals are, accordingly, dismissed."
:-8-: ITA. No:946/Chny/2025 22. The said ratio laid down by the Hon'ble Supreme Court although in the context of belated filing of Form 3AA in support of claim of additional depreciation by the said assessee, the ratio is equally applicable to the instance at hand, i.e. audit report in Form No.10B filed belatedly, however the same was made available before the passing of intimation order.
Thus, respectfully drawing an analogy from the decision of G.M.Knitting Industries (supra), we hold that intimation order passed by the CPC in terms of Section 143(1) of the Act in disallowing the claim of tax exemption u/s.11 of the Act on the facts of the present case was erroneous in view of the fact that the said report was very much made available while processing the same.
Furthermore, with regard to the question of whether the condition of filing of the audit report in Form No.10B within the time limit prescribed under the Act being either mandatory or directory, the Ld. AR had placed reliance on the decision of the Hon'ble Gujarat High Court in the case of CIT v. Xavier Kelavani Mandal (P.) Ltd, reported in 41 taxmann.com 184, wherein the Hon'ble High Court had held as follows:
24 (a). The question whether it is permissible to the assessee to produce the audit report at the appellate stage, has already been answered by this court in CIT v. Gujarat Oil & Allied Industries Ltd. [1993] 201 ITR 325 (Guj.), wherein it is held that the provision regarding furnishing of audit report along with the return has to be treated as a procedural provision. It is directory in nature and its substantial compliance would suffice. In that case, the assessee had not produced the audit report along with the return of income, but produced before completion of the assessment. The Punjab and Haryana High Court in CIT v. Shahzadanand Charity Trust [1997] 228 ITR 292/[1998] 96 Taxman 494 has reiterated the same principle holding that the benefit of exemption should not be denied merely on account of delay in furnishing the same, and it is permissible for the assessee to produce the audit report at a later stage either before the Income Tax Officer or before the appellate authority by showing a sufficient cause. This decision of Punjab & Haryana High Court has been relied on by the Tribunal."
:-9-: ITA. No:946/Chny/2025 25. Further, the Ld. AR had placed on decision of the Hon'ble Delhi High Court in the case of Associated Chambers of Commerce and Industry of India v. Deputy Commissioner of Income-tax, reported in 165 taxmann.com 510, wherein the Hon'ble Delhi High Court had held that filing of audit report within the time limit prescribed u/s.139(1) of the Act as not mandatory and the filing of the same before the completion of assessment / passing of the intimation order should be reckoned as full compliance to the provisions of the Act as well as the decision of the Hon'ble Gujarat High Court in the case of Sarvodaya Charitable Trust v. ITO (Exemption), reported in 125 taxmann.com 75, wherein the Hon'ble High Court had held as follows:
25 (a). We may also refer to the decision of this Court in CIT v. Gujarat Oil and Allied Industries Ltd. [1993] 201 ITR 325 (Guj.), wherein it is held that the provision regarding furnishing of audit report with the return has to be treated as a procedural proviso. It is directory in nature and its substantial compliance would suffice. In that case, the assessee had not produced the audit report along with the return of income but produced the same before the completion of the assessment. This Court took the view that the benefit of exemption should not be denied merely on account of delay in furnishing the same and it is permissible for the assessee to produce the audit report at a later stage either beore the Income-tax Officer or before the appellate authority by assigning sufficient cause."
Thus, we find that Hon'ble High Courts in the aforesaid decisions had held that the condition precedent of filing of the audit report in Form No.10B stipulated time limit prescribed was that of a directory one and not a mandatory one and the non-filing of the audit report in Form No.10B within the time prescribed u/s.139(1) of the Act would not automatically disentitle the tax payers' claim of tax exemption in terms of Section 11 of the Act.
The Departmental Representative during the course of hearing had argued that the assessee had sought for relief in terms of Section 119(2)(b) of the Act by filing a petition for the condonation of delay in filing Form No.10B for the assessment
:-10-: ITA. No:946/Chny/2025 year under consideration before the delegated authority / CIT(E), Chennai and the same was rejected by their order dated 11.01.2025 and as such the argument put forth by the Ld.AR before this Tribunal in the present case cannot be accepted and the same deserves to be rejected.
This argument of the ld.DR. is unable to be countenanced by the Tribunal in view of that the remedy provided for in terms of Section 119(2)(b) of the Act is an additional remedy available for a taxpayer to seek recourse for addressing its grievances on account of non- filing / belated filing of requisite form / return. However, the said remedy is not the only remedy available under the Act and would not close the appellate remedy.
This Tribunal draws support from the decision of the Hon'ble Gujarat High Court in the case of Association of Indian Panelboard Manufacturer v. Deputy Commissioner of Income-tax, reported in 157 taxmann.com 550, wherein the Hon'ble High Court had held as follows:
"(a). It is to be observed in the present case that the Form D-the audit report, though was not filed with the return of income, the same was available with the Assessing Officer when he processed the return of income under section 143(1) of the Act. The conditions for claiming exemption under section 11 was satisfied. Although the requirement of furnishing report was mandatory, filing thereof is a procedural aspect. Even though the Form 10B was filed at a later stage, when it was part of the record of the Assessing Officer in course of the processing of the return of income, the Assessing Officer could not have denied the exemption claimed by the assessee under sections 11(1) and 11(2) on the ground that the audit report was not filed. (b). The tribunal further committed an error in appreciating the import of section 119 2(b) of the Act inasmuch as the application contemplated thereunder is only additional 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."
:-11-: ITA. No:946/Chny/2025 30. Thus, it can be said that the mere rejection of the application filed in terms of Section 119(2)(b) of the Act by the delegated authority would not operate as a fetter upon the appellate proceedings before this Tribunal, a quasi-judicial authority / final fact-finding authority. The taxpayer can very much independently argue on the claim / disallowance of claim of tax exemption in terms of Section 11 of the Act even after the rejection of condonation petition in terms of Section 119(2)(b) of the Act by the competent authority in any appellate proceedings.
Hence, for all the reasons stated in the preceding paragraphs, the appeal filed by the assessee is allowed. The AO is directed to delete the disallowance of claim of exemption u/s.11 of the Act and to allow the same.
Accordingly, the appeal of the assessee is allowed.
Order pronounced in the court on 05th August, 2025 at Chennai.