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Facts
The assessee, Ash Education Trust, filed its return for AY 2013-14 declaring a loss. The return was processed under Section 143(1) disallowing exemption claimed under Section 11 due to a belated filing of Form 10B (audit report). The assessee's rectification application and subsequent appeal were rejected by the Assessing Officer and CIT(A) respectively.
Held
The Tribunal held that the delay in filing Form 10B is a procedural defect and, especially when condoned by the jurisdictional CIT(E) with retroactive effect, it should not disentitle the assessee from claiming exemption under Section 11. Relying on judicial precedents, the Tribunal found the CIT(A)'s order to be erroneous.
Key Issues
Whether denial of exemption under Section 11 for belated filing of Form 10B is justified, especially when the delay was condoned by the jurisdictional CIT(E).
Sections Cited
143(1), 154, 11, 119(2)(b), 12A, 12AA
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Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD
Before: SHRI SIDDHARTHA NAUTIYAL & SHRI MAKARAND V. MAHADEOKAR
O R D E R
PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER:
Both appeals have been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi vide orders dated 22.08.2024 passed for A.Ys. 2013-14 & 2014-15. Since common facts and issues for consideration are involved for both the years under consideration, both appeals filed by the assessee are being taken up together.
2. The assessee has raised the following grounds of appeal:
(A.Y. 2013-14) “1. Ld. Commissioner of Income Tax (Appeals), Income Tax Department erred in law and on facts while passing the impugned Order and dismissing the appeal filed by the Appellant. 2. Ld. Commissioner of Income Tax (Appeals), Income Tax Department was not justified in deciding that there was no mistake in processing of the return of income despite of fact that the return of income was processed without granting exemption available under section 11 of the Act.
&1831/Ahd/2024 Ash Education Trust vs. DCIT Asst. Years –2013-14 & 2014-15 - 2– 3. Ld. Commissioner of Income Tax (Appeals), Income Tax Department committed serious error of law inasmuch he failed to appreciate that condonation of delay in filing of Form 10B subsequently by the competent authority shall have retroactive effect as if the Form 10B was filed as on the date of filing of return and therefore the reason for denial of exemption becomes non est.
4. Ld. Commissioner of Income Tax (Appeals), Income Tax Department ought to have decided that the expenses of Rs. 6,03,14,738 which were incurred for the receipt of Rs. 5,31,40,660 were required to be allowed and adjusted before determination of total income irrespective of and regardless of the availability of exemption under the Act.
5. The Appellant prays to add, alter or delete any of the grounds at the time of hearing.”
(A.Y. 2014-15) “1. Ld. Commissioner of Income Tax (Appeals), Income Tax Department erred in law and on facts while passing the impugned Order and dismissing the appeal filed by the Appellant.
Ld. Commissioner of Income Tax (Appeals), Income Tax Department was not justified in deciding that there was no mistake in processing of the return of income despite of fact that the return of income was processed without granting exemption available under section 11 of the Act.
3. Ld. Commissioner of Income Tax (Appeals), Income Tax Department committed serious error of law inasmuch he failed to appreciate that condonation of delay in filing of Form 10B subsequently by the competent authority shall have retroactive effect as if the Form 10B was filed as on the date of filing of return and therefore the reason for denial of exemption becomes non est.
Ld. Commissioner of Income Tax (Appeals), Income Tax Department ought to have decided that the expenses of Rs. 6,24,91,703 which were incurred for the receipt of Rs. 6,12,39,960 were required to be allowed and adjusted before determination of total income irrespective of and regardless of the availability of exemption under the Act.
The Appellant prays to add, alter or delete any of the grounds at the time of hearing.”
The brief facts of the case are that the assessee “Ash Education Trust” is a trust and return of income was filed by the assessee / trust for A.Y. 2013-14 on 25.03.2015 declaring loss of Rs. 71,74,077/-. The return of income of the assessee trust was processed under Section 143(1) of the Act, disallowing the exemption claimed by the assessee under Section 11 of the Act, amounting to Rs. 6,03,14,738/-. The assessee filed rectification &1831/Ahd/2024 Ash Education Trust vs. DCIT Asst. Years –2013-14 & 2014-15 - 3– application before the Assessing Officer requesting to accept the return of income filed by the assessee. On verification of details during rectification proceedings, the Assessing Officer noticed that the assessee filed the Audit Report in Form 10B belatedly, after more than four years of filing the return of income, which was otherwise required to be filed alongwith the return of income. Accordingly, the Assessing Officer dismissed the rectification application by observing / holding that there is no alleged mistake apparent from the record. Accordingly, the Assessing Officer rejected the rectification application under Section 154 of the Act filed by the assessee and assessed the total income at Rs. 5,31,40,660/-.
4. In appeal Ld. CIT(A) dismissed the appeal of the assessee by observing that though the assessee had approached the jurisdictional CIT(E) for condonation of delay in filing Form 10B which has been accepted vide order dated 27.06.2022. However, so far as appeal against the rectification order passed under Section 154 of the Act was concerned, since at the relevant time of passing of the rectification order under Section 154 of the Act, the delay in filing Form 10B had not been condoned by Ld. CIT(Exemptions), there was no mistake apparent in the order passed by the Assessing Officer or CPC. While passing the order, Ld. CIT(A) made the following observations:
“6. On perusal of the facts and grounds of the case, order passed u/s 154 of the Act and the evidences placed on record, it is evident that the appellant trust filed its return of income for the year under consideration on 25/03/2015 declaring total income of Rs. (-)71,74,077/- and the CPC processed the return u/s 143(1) of the Act on 16/03/2016 by making adjustment, wherein, disallowance of exemptions claimed of Rs. 6,03,14,738/- u/s 11 of the Act was made. A rectification application in this regard was filed before the AO. However, on verification of the details during the rectification proceedings, it is observed by the AO that the appellant had mentioned in the Part A-GEN of the ITR that it was not registered u/s 12A/12AA of the Act and filed the audit report in Form 10B belatedly after more than 4 years of filing the return of income which is otherwise required to file along with the return of income. Upon careful consideration and examination of the submissions made by the appellant, the AO observed that the alleged mistake was &1831/Ahd/2024 Ash Education Trust vs. DCIT Asst. Years –2013-14 & 2014-15 - 4– not apparent from the record and accordingly, the rectification application u/s 154 of the Act filed by the appellant was rejected. Thus, it is evident that the main reason for not allowing the exemptions u/s 11 of the Act by the CPC was that Form 10B was not filed within the due date as is also admitted by the appellant trust and accordingly the rectification application was also rejected by the AO as there was no mistake apparent from the records. Subsequently, the appellant approached to jurisdictional CIT(Exemption) for condonation of the delay in filing Form 10B which has been accepted and accordingly the Ld. CIT(Exemption), Ahmedabad vide letter No. CIT(E) / ABD / 119(2)(b) / ASHET/2022-23 dated 27/06/2022 passed an order u/s 119(2)(b) of the Act condoning the aforesaid delay. Since, the instant appeal has been preferred by the appellant against the 154 order and also there is no mistake apparent from mistake committed by the AO or the CPC in 154/143(1) order/intimation, therefore, this appeal deserves to be dismissed. In view of this, grounds of appeal are dismissed. However, the appellant trust may file the Form 10B and apply again for the rectification before its jurisdictional AO and also explore subsequent appeals if required. In the result, the appeal is treated as Dismissed.” 6.
5. The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(A). The Counsel for the assessee submitted that firstly, it is a well settled law that delay in filing of Form 10B is a procedural default and on this basis alone, claim of exemption under Section 11 of the Act cannot be denied to the assessee. Secondly, in this case it was submitted that Ld. CIT(E), vide order dated 27.06.2022 had condoned the delay in filing of Form 10B, accordingly, the exemption could not have been denied to the assessee trust.
6. In response, Ld. D.R. placed reliance on the observation made by Ld. CIT(A) in the appellate order.
We have heard the rival contentions and perused the material on record.
In the instant case, we observe that admittedly there was a delay of four years in filing of Form 10B by the assessee trust. It was on this basis &1831/Ahd/2024 Ash Education Trust vs. DCIT Asst. Years –2013-14 & 2014-15 - 5– that the CPC as well as the Assessing Officer had upheld the denial of exemption under Section 11 of the Act. However, we also observe that Ld. CIT(E), Ahmedabad vide letter dated 27.06.2022 passed an order under Section 119(2)(b) of the Act, condoning the delay in filing of Form 10B. Such grant of approval condoning the delay in filing Form 10B was also submitted by the assessee trust before Ld. CIT(A) during the course of hearing before him. However, Ld. CIT(A) upheld the denial of exemption under Section 11 of the Act on the ground that at the time of processing of return of income under Section143(1) of the Act as well as at the time of passing of rectification order under Section 154 of the Act, since the approval for condonation of delay had not been granted by the Ld. CIT(A), apparently there was no mistake in the order passed by Assessing Officer under Section 143(1) of the Act / 154 of the Act, so as to call for any interference. However, on going through the facts of the case, we are of the considered view that the order passed by Ld. CIT(A) is erroneous on various counts.
8.1 Firstly, 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 vs. ITO(E) 125 taxmann.com 75 (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:
&1831/Ahd/2024 Ash Education Trust vs. DCIT Asst. Years –2013-14 & 2014-15 - 6– “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.” 8.2. In the case of Association of Indian Panelboard Manufacturing vs. DCIT in R/Tax Appeal No. 655 of 2022 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.
&1831/Ahd/2024 Ash Education Trust vs. DCIT Asst. Years –2013-14 & 2014-15 - 7– 6. 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.” 8.3 Accordingly, in view of the decision of the Hon’ble Gujarat High Court in this issue as well as various judicial precedent which have upheld the principle that mere delay in filing of Form 10B, being a procedural default, should not disentitle the assessee / applicant trust from denial of grant of exemption under Section 11 of the Act. We are of the view that Ld. CIT(A) erred in dismissing the appeal of the assessee. Further, in the instant case, we observe that exemption under Section 11 has been granted to the assessee for various years under consideration including A.Ys. 2015-16, 2016-17, 2017-18, 2018-19, 2019-20, 2020-21, 2021-22, 2022- 23 and 2023-24. Accordingly, it may be seen that evidently the assessee has been carrying out genuine activities in the field of education and has been consistently granted exemption under Section 11 of the Act right from A.Ys. 2015-16 to 2023-24. Further, we note that during the course of appellate proceedings before Ld. CIT(A), the assessee had also filed approval which had been granted by Ld. CIT(E) condoning the delay in filing of Form 10B, which was filed by the assessee trust before the conclusion of appellate proceeding before Ld. CIT(A). Therefore, in view of the judicial precedents on the subject referred to above and also the fact that delay in filing of Form 10B had been condoned by the jurisdictional CIT(E), exemption under Section 11 of the Act should not have been denied to the assessee. In our considered view, Ld. CIT(A) should have taken a judicial approach, looking into the assessee’s set of facts and ought not to have denied grant of exemption under Section 11 of the Act.
&1831/Ahd/2024 Ash Education Trust vs. DCIT Asst. Years –2013-14 & 2014-15 - 8– 9. We also note that it is a well settled proposition of law that once delay in filing a statutory form is condoned under Section 119(2)(b) by the appropriate authority, such condonation relates back to the original date of filing of the return and cures the technical defect ab initio by giving it retroactive effect. The effect of condonation is to treat the procedural lapse as if it had never occurred, thereby restoring the claim of exemption as valid right from inception. In order to support above principle, attention is drawn on the maxim ratihabitio mandato aequiparatur, which is explained by Hon’ble Supreme Court in case of National Institute of Technology vs. Pannalal Choudhary – 2015 (7) TMI 1238, relevant part of which is reproduced hereinafter:
“35) The expression “Ratification” means “the making valid of an act already done”. This principle is derived from the Latin maxim “ratihabitio mandato aequiparatur” meaning thereby “a subsequent ratification of an act is equivalent to a prior authority to perform such act”. It is for this reason; the ratification assumes an invalid act, which is retrospectively validated.” 9.1 Following above proposition of law, the act of condoning the delay in Form 10B, shall for all the matters, aspects and respects, result into effect of having committed no delay. In view of the above, even from this perspective, once the delay in filing of Form 10B had been condoned by Ld. CIT(E) and all these details had been submitted by the Ld. CIT(A), in our considered view there was no justification in upholding the order of Assessing Officer denying grant of exemption under Section 11 of the Act, when such delay had been condoned, resulting into the effect of not having committed any delay in filing of Form 10AB, in light of judicial precedents highlighted above.
In view of the above observations, the appeal of the assessee is allowed.
&1831/Ahd/2024 Ash Education Trust vs. DCIT Asst. Years –2013-14 & 2014-15 - 9–
We observe that since the facts for A.Y. 2013-14 are identical to A.Y. 2014-15, both the appeal filed by the assessee are hereby allowed.
In the combined result, both the appeals filed by the assessee are allowed. This Order pronounced in Open Court on 10/06/2025
Sd/- Sd/- (MAKARAND V. MAHADEOKAR) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 10/06/2025 TANMAY, Sr. PS TRUE COPY आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��थ� / The Respondent. 3. संबंिधत आयकर आयु� / Concerned CIT 4. आयकर आयु�(अपील) / The CIT(A)- 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,