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Facts
The assessee, a trust running a school, filed its return for AY 2021-22 declaring nil income. The AO processed it u/s.143(1) determining total income at Rs.4,23,28,596/-, denying exemption u/s.11 because the audit report in Form 10B was not filed within the due date.
Held
The Tribunal held that filing of the audit report in Form 10B is a procedural requirement, not mandatory. Since the substantive conditions for claiming exemption u/s.11 were fulfilled, the delay in filing Form 10B should not be a bar to granting the exemption.
Key Issues
Whether the delay in filing the audit report in Form 10B can be a ground for denial of exemption u/s.11 of the Income Tax Act, 1961.
Sections Cited
11, 12AA, 139(1), 143(1), 234B, 234C, 250, 12A(1)(b)
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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 : These two appeals filed by the assessee are directed against separate orders passed by the learned Commissioner of Income Tax, Appeal, ADDL/JCIT (A), Kochi, both dated 18.01.2025 for assessment years 2021-22 and 2022-23 respectively. Since, facts are identical and issues are common, for the sake of convenience, these appeals filed by the assessee are being heard together and disposed of by this consolidated order.
& 938/Chny/2025 2. At the outset, we find that there is a delay of 1 day in appeals filed by the assessee. After hearing both the parties, we find that there is a reasonable cause for the assessee in not filing appeals on or before the due date prescribed under the law and thus, in the interests of justice, we condone delay in filing of appeals and admit appeals filed by the assessee for adjudication. 3. The assessee has raised the following common grounds of appeal:-
For that the order of the Commissioner of Income Tax (Appeals) is contrary to law, facts, and circumstances of the case and at any rate is opposed to the principles of equity, natural justice and fair play.
2. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the order of the Assessing Officer is without jurisdiction. Denial of exemption u/s.11 3. For that the Commissioner of Income Tax (Appeals) erred in denying the exemption claimed by the appellant under section 11 for the reason that audit report in Form No. 10B was not filed within the due date prescribed under the Income Tax Act. 4. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the appellant had reasonable cause for non-filing of audit report in Form No. 10B within the prescribed due date. 5. For that the Commissioner of Income Tax (Appeals) failed to appreciate that filing of Form 10B is procedural and not mandatory. 6. For that, without prejudice to the above, the Commissioner of Income Tax (Appeals) failed to appreciate that the Deputy Director of Income Tax erred in taxing the appellant at Maximum Marginal Rate as against the slab rates. Levy of interest u/s.234B and 234C 7. For that the appellant objects to the levy of interest under sections 234B and 234C.
The brief facts of the case are that the assessee is a trust registered u/s.12AA of the Income Tax Act, 1961 (in Short ‘the Act’) running a school with a view to provide better educational facilities to the children of the employees of the Madras Port and Dock Educational Trust Higher Secondary School and to the under privileged children who are residing near the vicinity of the school.
The assessee filed its return of income on 15.03.2022 for the assessment year 2021-22 declaring nil income and the same was processed u/s.143(1) on 23.08.2022 determining the total income of the assessee at Rs.4,23,28,596/-, & 938/Chny/2025 whereby exemption u/s.11 was denied for the reason that audit report in Form No.10B was not filed within the due date prescribed under the Act read with rule 12A(1)(b), thereby assessing the entire gross receipts of Rs.4,23,28,596/- at maximum marginal rate without considering expenditure of Rs.4,20,85,504/- incurred during the previous year relevant to assessment year 2021-22.
6. Aggrieved, the assessee filed an appeal before the Ld. CIT(A). The Ld.CIT(A) vide order u/s.250 dated 18.01.2025 while holding that he had no power to condone the delay in filing Form 10B, went on to hold that the requirement to file Form 10B before the prescribed due date was a mandatory requirement. The Ld.CIT(A), however also observed as follows: “However, as the total receipts of the assessee cannot be termed as its income, the AO is directed to duly verify the expenses claimed by the assessee, after giving opportunity to the assessee, and allow the allowable expenses as per provisions of the Act while giving the appeal effect to this order.”
7. Aggrieved by the order of the Ld. CIT(A), the assessee has filed the instant appeal before this Tribunal.
8. At the outset, it was the vehemently contended by the Ld.AR that the assessee is rightly eligible to claim exemption u/s.11 for the following reasons: 1. Provision regarding furnishing of audit report along with the return of income has been held in plethora of cases to be a procedural provision. It has been held that furnishing of audit report is directory and not mandatory in nature and its substantial compliance would suffice.
In the instant case, the date of audit report was 15.02.2022 and therefore the audit report was actually obtained within the specified time limit i.e., one month before the extended due date u/s.139(1) for the impugned assessment year and therefore the condition for claiming exemption u/s.11 was satisfied.
As regards the contention raised by the Ld.AR in respect of filing of audit report being directory and not mandatory in nature, our attention was drawn to the decision of the Hon’ble Gujarat High Court in the case of CIT(E) v Shri Laxmanarayan Dev Shrishan Seva Khendra 2024 (10) TMI 99 wherein the Hon’ble & 938/Chny/2025 High Court after considering the decision of the Apex Court in Wipro Limited (supra) held as follows:
“5. Reliance placed by the learned Senior Standing Counsel Ms.Maithili Mehta for the assessee on the decision of the Hon’ble Supreme Court in case of The Principal Commissioner of Income Tax-III and Others versus M/s. Wipro Limited in Civil Appeal No.1499 of 2022 would not be applicable in the facts of the case, as in the facts of the present case, the assessee has claimed the exemption under Section 11 read with Section 12A (1) (b) of the Act which required the assessee to file Audit Report in Form of 10B of the Act which has nothing to do with claiming 100% exemption of total income in respect of newly established 100% Export Oriented Undertakings under Section 10B of the Act. Section 10B (8) of the Act requires the assessee to file an undertaking before the due date of furnishing of return of income under sub-section (1) of Section 139 of the Act before the Assessing Officer in writing that the provision of Section 10B of the Act may not be made applicable to him, otherwise the provision of this Section shall not apply to him for any of the relevant assessment year.
Considering the language of the provision of Section 10B (8) of the Act, the Hon’ble Supreme Court held that it was mandatory on part of the assessee to file declaration before the due date of filing of return under Sub-section (1) of Section 139 of the Act, whereas, in the facts of the said case the assessee filed such undertaking along with the revised return under Sub-section (5) of Section 139 of the Act and in such facts, the Hon’ble Supreme Court held that the twin conditions prescribed under Section 10B (8) of the Act was mandatory to be fulfilled and it cannot be said that though the declaration is mandatory, the filing of such declaration within the due date of filing of return under Sub-section (1) of Section 139 of the Act would be directory.
Reference to the aforesaid decision has no connection whatsoever remotely to the facts of the present case and therefore, in the facts of the present case, the Tribunal has rightly followed the decision of this Court in case of Sarvodaya Charitable Trust v. Income Tax Officer (Exemption) in Special Civil Application No. 6097 of 2020 decided on 09th December, 2020 as well as the decision in case of Social Security Scheme of GICEA (supra) to uphold the decision of the CIT (Appeals), wherein this Court has held that the approach of the authority in such type of cases should be equitable, balancing and judicious. In the facts of the case, when the assessee has already filed the audit report in Form 10B electronically on 27.02.2021 during pendency of appellate proceedings along with copy of audited financial statements, delay in filing the said form is rightly condoned by CIT(A) and the Tribunal.
In such circumstances, we are of the opinion that the Tribunal has not committed any error by not following the decision in case of M/s.Wipro Limited (supra) as referred to and relied upon by learned advocate for the assessee-Revenue, and has rightly followed the decision of this Court in case of Social Security Scheme of GICEA (supra).
& 938/Chny/2025 9. In view of the foregoing reasons, we are of the opinion that no question of law much less any substantial question of law arises from the impugned order of the Tribunal. The Appeal is accordingly dismissed.”
The Ld. AR further drew our attention to the decision rendered by the Hon’ble Gujarat High Court in Sarvodaya Charitable Trust v ITO [2021] 125 taxmann.com 75 (Guj) where it was held that benefit of exemption could not be denied merely on bar of limitation in furnishing audit report in Form No.10B. Further, the Ld. AR had also relied upon the decision of the Jurisdictional High Court in the case of Chandraprabhuji Maharaj Jain v DCIT [2019] 110 taxmann.com 11 (Mad) wherein it was held that when the assessee was entitled to a statutory benefit, it would be incumbent upon the concerned authority to examine the admissibility of the benefit than to foreclose the assessee on technicalities.
The Ld. AR also drew our attention to the decisions of the coordinate bench of this Tribunal in the case of The Shakti Foundation v ITO in and Kaakkum Karangal v ITO in wherein similar issues regarding delay in filing Form 10B were subject matter of consideration and the coordinate bench was of the view that the filing of Form 10B was only directory in nature and not mandatory.
In view of the above, the Ld.AR prayed that the assessee be granted exemption u/s.11 since the filing of Form 10B is only directory and not mandatory in nature and that the substantive conditions for claiming exemption were fulfilled in the instant case.
On the other hand, the Ld.DR of the Revenue objected to the submissions of the Ld.AR and relied on the findings of the Ld. CIT(A).
We have heard the rival contentions and perused all the material available on record before us and the judicial precedents relied on. We observe that the assessee has to comply with certain conditions failing which the assessee will lose the benefit of claiming exemption u/s.11, one of them being filing of Form 10B one month prior to the due date of filing the return of income u/s.139(1). On consideration of the plethora of cases cited before us, the moot principle coming out of all the said & 938/Chny/2025 decisions is that the filing of audit report in Form 10B is only directory and not mandatory in nature and thus we are of the considered view that denial of exemption u/s.11 merely on pretext of a delay that has occurred in filing of audit report in Form 10B which is only a procedural irregularity cannot become an impediment in law in claiming the exemption.
In addition to the cases cited by the Ld.AR, we note that there are other decisions in which it has been clearly held that filing of Form 10B is only directory and not mandatory in nature, few of which have been stated as under:
Association of Indian Panelboard Manufacturer v DCIT [2023] 157 taxmann.com 550 (Guj) CIT v Xavier Kelavani Mandal (P.) Ltd. [2014] 41 taxmann.com 184 (Guj) M/s.Alternative India for Development v ITO in / Chny / 2024 – Chennai ITAT Puran Chand Arora Charitable Trust v ITO [2025] 172 taxmann.com 161 (Del. Trib) 16. We also note that the Delhi Bench of the Hon’ble Income Tax Appellate Tribunal in the case of Trilok Singh Bhandari Charitable Trust v ITO [2025] 174 taxmann.com 737 (Del. Trib) relying on the decision of the Hon’ble Madras High Court in the case of Chandraprabhuji Maharaj Jain (supra) held that the requirement of filing audit report in Form 10B before the due date as per Rule 12A(1)(b) is directory in nature and not mandatory.
We further note that the decision of the Ahmedabad Bench of the Hon’ble Income Tax Appellate Tribunal in Association of Indian Panelboard Manufacturer v DCIT [2022] 143 taxmann.com 418 (Ahmedabad Trib.) referred to by the Ld. CIT(A) stands reversed by the decision of the Hon’ble Gujarat High Court in the case of Association of Indian Panelboard Manufacturer v DCIT [2023] 157 taxmann.com 550 (Guj) and that the decision of the Hon’ble Supreme Court in Wipro Limited (supra) relied upon by the Ld. CIT(A) has clearly been distinguished by the Hon’ble Gujarat High Court in the case of CIT(E) v Shri Laxmanarayan Dev Shrishan Seva Khendra (supra).
& 938/Chny/2025 18. In view of the above, we are of the opinion that filing of Form 10B is only a procedural-cum-directory requirement and therefore, once the conditions for claiming exemption u/s.11 has been substantively fulfilled, the bar of limitation on furnishing of such audit report would not result in grave consequence of denial of exemption u/s.11 of the Act and thus we direct the AO to grant exemption as claimed by the assessee u/s.11 of the Act.
ITA No.938/Chny/2025 for the A.Y.2022-23:
Since the facts and issue involved and the arguments advanced are similar for the A.Y.2022-23, our adjudication and direction given to the AO for the A.Y.2021- 22 in (supra) is applicable mutatis mutandis for this appeal also. We order accordingly.