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Facts
The assessee trust filed its return declaring 'Nil' income claiming exemption under Section 11. The CPC denied exemption, stating the Audit Report (Form 10B) was not filed within the due date. Consequently, an intimation order was passed raising a demand and disallowing accumulated income.
Held
The Tribunal held that a delay in filing Form 10B is a procedural default and should not disentitle the assessee from claiming exemption under Section 11, especially when the form was available with the Assessing Officer before the intimation order was passed.
Key Issues
Whether denial of exemption under Section 11 solely on account of delay in filing Form 10B is justified, when the form was available before the intimation order?
Sections Cited
11, 143(1), 139(1), 250, 12A
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Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD
Before: DR. BRR KUMAR & SHRI SIDDHARTHA NAUTIYAL
(Assessment Year: 2023-24) Institute of Defence Studies and Vs. Income Tax Officer Research Foundation(IDSRF), (Exemption), GUSEC West Wing, Nr. Ward-1, Department of Botany University, Ahmedabad Ahmedabad-380009 [PAN No.AAFCI7447D] (Appellant) .. (Respondent) Appellant by : Ms. Devina Patel, AR Respondent by: Shri Pratik Sharma, Sr. DR 05.08.2025 Date of Hearing Date of Pronouncement 13.08.2025 O R D E R
PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER:
This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), ADDL/JCIT (A)-2, Chennai vide order dated 12.03.2025 passed for A.Y. 2023-24.
The assessee has raised the following grounds of appeal:
“1. The learned ADDL/JCIT (A)-2, Chennai, erred in dismissing the appeal of the Appellant ex-parte by failing to appreciate that the Appellant was interested in pursuing the appeal filed by him before the CIT(A).
2. The learned ADDL/JCIT(A)-2, Chennai, erred in confirming the action of the CPC, Bangalore by failing to appreciate that the action of CPC, Bangalore in making adjustments to the returned income of the appellant by way of intimation u/s 143(1) of the Act and in denying the benefit of Sec. 13 to the appellant was not a case of permissible prima facie adjustment u/s 143(1) of the Act.
Institute of Defence Studies and Research Foundation(IDSRF) vs. ITO(E) Asst. Year –2023-24 - 2– 3. The learned ADDL/JCIT (A)-2, Chennai, erred in confirming the action of the CPC, Bangalore in not giving deduction of Rs. 8,75,850/- claimed by the appellant u/s 11(1)(a) of the Act.
The learned ADDL/JCIT (A)-2, Chennai, erred in not considering audit report in Form 10BB filed by the Appellant before filing of first appeal.
The appellant craves leave to add, amend, alter and withdrawal any ground of appeal
anytime up to the hearing of this appeal.”
3. The brief facts of the case are that the assessee trust had filed its return of income on 30.12.2023 declaring “Nil” income and claiming exemption under section 11 of the Income Tax Act, 1961 (Act). However, the CPC denied the exemption and passed the order on 29.10.2024, on the ground that the Audit Report was not filed within the due date prescribed under the Act (which was due to be filed one month prior to the date of filing of return of income). Accordingly, an Intimation Order was passed under section 143(1) of the Act for Assessment Year 2023-24, in the case the assessee trust, in which a demand of ₹1,19,000/- was raised and an addition of ₹8,75,850/- was made by disallowing the amount accumulated or set apart up to 15% under section 11 of the Act.
4. In appeal, before CIT(Appeals), notices under section 250 were duly served to the assessee via registered email, but no response or appearance was made by the assessee. As a result, the appeal was decided ex-parte. Upon examination of the assessment records, CIT(Appeals) observed that the application of income amounting to ₹1,64,23,770/- had been disallowed on the grounds of delay in filing of the Audit Report, which was submitted on 30.12.2023 instead of the prescribed due date, i.e., one month before the return filing deadline under section 139(1) of the Act. The CIT(Appeals) further noted that no order condoning the delay in filing the audit report was Institute of Defence Studies and Research Foundation(IDSRF) vs. ITO(E) Asst. Year –2023-24 - 3– presented before him during the course of appellate proceedings, nor was any record available showing such condonation. Since, as per law and CBDT circulars, only the jurisdictional CIT (Exemptions) has the authority to condone such delay, and the assessee had not taken such steps, CIT(Appeals) held that the assessee was not eligible for exemption under section 11 of the Act at the time of processing the return. Accordingly, the appeal was dismissed.
5. The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(A), dismissing the appeal of the assessee. Before us, the Counsel for the assessee submitted that though admittedly the Audit Report was not filed one month prior to the due date of filing of return of income, however, such Audit Report had been duly filed on 30.12.2023 which was prior to the intimation order passed under section 143(1) of the Act dated 29.10.2024. Before us, the Counsel for the assessee placed reliance on the case of ITAT Ahmedabad in the case of Shree Bhakt Samaj Vikas Education Trust vs. Assistant Commissioner of Income-tax (Exemption) 175 taxmann.com 1076 (Ahmedabad-Tribunal), in which the Tribunal held that where assessee trust had filed Form 10B and same was available with Department before passing of order/intimation under section 143(1), claim of exemption under section 11 could not be denied only on account of delay in filing of Form 10B before due stipulated date.
6. On going through the facts of the instant case and judicial precedents on the subject, we agree with the contention of the assessee that delay in filing of Form 10B, being a procedural default should not disentitle the assessee for claiming exemption under section 11 of the Act. In the instant case, we note Institute of Defence Studies and Research Foundation(IDSRF) vs. ITO(E) Asst. Year –2023-24 - 4– that the assessee trust had filed Form 10B on 30.12.2023 and the same was available with the Assessing Officer before passing of order / intimation under section 143(1) of the Act, on 28.10.2024 and therefore, claim of exemption under section 11 of the Act cannot be denied only on account of delay in filing of Form 10B before due stipulated date. In this case, it would be useful to reproduce the relevant extract on the order of ITAT, Ahmedabad Tribunal in the case of Shree Bhakt Samaj Vikas Education Trust vs. Assistant Commissioner of Income-tax (Exemption) 175 taxmann.com 1076 (Ahmedabad-Tribunal) for ready reference:
9. We observe that admittedly there was a delay on filing Form 10B by the assessee trust. It was on this basis that AO, CPC denied the claim of exemption under Section 11 of the Act. Ld. CIT(A) upheld the denial of exemption under Section 11 of the Act on the ground that despite issuance of multiple notices of hearing, none appeared on behalf of the assessee to present it's case during the course of appellate proceedings. However, we note that it is a well settled law that delay in filing of Form 10B is a procedural default and if other conditions have been met, then mere delay in filing of Form 10B should not disentitle the assessee from claiming exemption under Section 11 of the Act. In the case of Sarvodaya Charitable Trust v. ITO(E) [2021] 125 taxmann.com 75/278 Taxman 148 (Gujarat), the Hon'ble Gujarat High Court held that where assessee, a public charitable trust registered under Section 12A of the Act had substantially satisfied condition for availing benefit of exemption as a trust, it could not be denied exemption merely on bar of limitation in furnishing audit report in Form No. 10B. While passing the order the Hon'ble Gujarat High Court made the following observations:
31. Having given our due consideration to all the relevant aspects of the matter, we are of the view that the approach in the cases of the present type should be equitious, balancing and judicious. Technically, strictly and liberally speaking, the respondent no. 2 might be justified in denying the exemption under section 12 of the Act by rejecting such condonation application, but an assessee, a public charitable trust past 30 years who substantially satisfies the condition for availing such exemption, should not be denied the same merely on the bar of limitation especially when the legislature has conferred wide discretionary powers to condone such delay on the authorities concerned.
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 before the Income-tax Officer or before the appellate authority by assigning sufficient cause.
In view of the above, this writ-application succeeds and is hereby allowed. The impugned order passed by the respondent no. 2 dated 19th August 2019 (Annexure-A to this writ-application) is hereby quashed and set aside. The impugned rectification order at page-13 of the paper-book dated 12th February 2020 is also hereby quashed and set aside. The delay condonation application filed by the writ-applicant before the respondent no. 2 is hereby allowed."
In the case of Association of Indian Panelboard Manufacturer (supra) vide order dated 21.03.2023 the Gujarat High Court held that once the audit report in Form 12B is found to be available with the Assessing Officer before conclusion of assessment proceedings, the requirement of law is satisfied. While passing the order the Hon'ble Gujarat High Court made the following observations: "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 filing of audit report as stated above.
The moot aspect thus 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 is 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."
Accordingly, in view of the decision of the Hon'ble Gujarat High Court in this issue, as well as various other judicial precedents which have upheld the principle that delay in filing of Form 10B being a procedural default should not disentitle the assessee / applicant trust the denial of grant of exemption under Section 11 of the Act, we are of the considered view that in the assessee's set of facts, claim of exemption under Section 11 of the Act should not be denied only on account of delay in filing Audit Report in Form 10B, within the stipulated time. However, we make it clear that we are not making any observations with regard to the merits of the claim of exemption under Section 11 of the Act, but are only allowing the appeal on the legal principle what once Form 10B has been filed by the assessee and the same is available with the Department before passing of order / intimation under Section 143(1) of the Act, then in view of the decisions of Jurisdictional High Court referred to above, the claim of exemption under Section 11 of the Act cannot be denied only on account of delay in filing of Form 10B before the due stipulated date.
In the result, the appeal of the assessee is allowed.
Accordingly, in light of the above facts and the judicial precedent cited above, which allowed the appeal of the assessee on identical set of facts, the appeal of the assessee is allowed.
In the result, the appeal of the assessee is allowed. This Order pronounced in Open Court on 13/08/2025