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Facts
The assessee, a charitable society, claimed exemption under section 11 of the Income Tax Act for AY 2018-19, 2019-20, and 2020-21. The CPC disallowed this exemption, citing non-filing of the audit report in Form 10B within the due date. The assessee argued that the delay was due to procedural ignorance and the demise of key persons and had filed applications for condonation of delay.
Held
The Tribunal noted that the issue of condonation of delay was pending before the higher authorities. It also observed that in a preceding year (2017-18), the exemption was allowed after condonation of delay. Therefore, the Tribunal set aside the orders and restored the matter to the AO to await the outcome of the condonation applications.
Key Issues
Whether the disallowance of exemption under section 11 due to delayed filing of audit report is valid without considering the pending application for condonation of delay and the principle of natural justice.
Sections Cited
12A, 11, 143(1), 44AB, 139, 154
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Income Tax Appellate Tribunal, LUCKNOW BENCH “B”, LUCKNOW
Before: SHRI. SUDHANSHU SRIVASTAVA & SHRI NIKHIL CHOUDHARY
2.0 Since the facts and the issues involved in the above captioned appeals are almost identical, therefore, they were taken up together for hearing and are being disposed of through this common order for the sake of convenience.
4.0 The brief facts are that the assessee was a charitable society registered under section 12A of the Income Tax Act, 1961 (hereinafter called “the Act’) since 08.05.2008 and was engaged in providing medical education, medical treatment to the poor and also engaged in other cultural and social activities since past fifteen years from the year under consideration. The assessee filed its return of income for the year under consideration on 06.10.2018 declaring Nil income, after claiming the gross receipts during the year under consideration as exempt under section 11 of the Act. The Centralized Processing Centre (CPC), Bangalore processed the return under section 143(1) of the Act on 26.09.2009 determining the total income of the assessee at Rs.91,80,402/- by disallowing the entire deduction claimed by the assessee.
4.1 In other assessment years too, i.e., assessment years 2019-20 and 2020-21, similar exemption claimed by the assessee-society under section 11 of the Act has been disallowed by the CPC, Bangalore.
4.2 In assessment year 2019-20, the assessee filed the return of income on 06.09.2019 declaring Nil income after claiming the entire receipts as exempt under section 11 of the Act. The CPC, Bangalore, vide intimation dated 04.06.2020 under section 143(1) of the Act, disallowed the entire claim of Rs.88,55,890/- made by the assessee-society under section 11 of the Act.
4.3 In assessment year 2020-21, the assessee filed the return of income declaring a total income of Rs.1,10,240/- after claiming entire receipts as exempt under section 11 of the Act. The CPC, Bangalore, vide intimation dated 24.12.2021 under section 143(1) of the Act made the disallowance to the extent of Rs.89,77,590/- by disallowing the claim made by the assessee- society under section 11 of the Act.
4.4 Aggrieved by the orders of the CPC, Bangalore, the assessee preferred appeals for these three years, i.e., assessment years 2018-19, 2019-20 and 2020-21, before the Ld. First Appellate Authority. The submission of the assessee before the Ld. First Appellate Authority was that the reason for not allowing the exemption under section 11 of the Act by the CPC, Bangalore was that the Audit Report in Form 10B was not filed by the assessee before the due date and that the reason for not filing the Audit Report within the due date was procedural ignorance of the Counsel and also due to the demise of the key persons of the Society. However, the Ld. First Appellate Authority dismissed the appeals of the assessee and confirmed the orders passed by the CPC, Bangalore under section 143(1) of the Act.
4.5 Now, the assessee has approached this Tribunal challenging the orders of the Addl/JCIT(A), Mysore, by raising the following grounds of appeal:
1. BECAUSE the Id."Addl./JCIT(A)" has erred in law and on facts in confirming the dis-allowance of exemption u/s 11 of the "Act", amounting to Rs.91,80,402/-made by CPC, Bengaluru by way of adjustment u/s 143(1)(a)(ii) in the intimation order passed u/s 143(1) of the "Act" on the ground that the audit report u/s 44AB was not filed by the assessee within the prescribed due date. 1.2. BECAUSE the ld. "Addl,/JCIT(A)" has grossly erred in confirming the dis-allowance of exemption u/s 11 of the "Act" on a wholly wrong premise that the assessee had not submitted the audit report u/s 44AB of the "Act", whereas as per the material and information on record the provisions of Section 44AB of the Act are not applicable to the assessee, it being a society registered u/s 12A of the "Act".
2. BECAUSE the Id "Addl./JCIT(A)" has erred in law and on facts in upholding the action of CPC in making dis-allowance by way of adjustment u/s 143(1)(a)(ii) of the "Act", whereas on the facts and in the circumstances of the case, such an adjustment was not permissible under the relevant provisions of law and CBDT instructions.
3. BECAUSE the ld."Addl./JCIT" has grossly erred in confirming the dis-allowance of exemption u/s 11 of the Act" made by CPC, Bengaluru in the intimation order passed u/s 143(1) of the "Act" even though no in-correct claim was apparent from any information provided in the return of income filed by the assessee.
4. BECAUSE, without prejudice to the grounds herein-fore, the return of income filed by the assessee without furnishing requisite audit report was a defective return for which the Assessing Officer ought to have provided the opportunity to the assessee to rectify the defect, as provided in sub-section (9) of section 139, and such an opportunity having not been given to the assessee, no adjustment under section 143(1)(a) (ii) of the "Act" could have been made by the CPC/sustained by "CIT(A)".
5. BECAUSE, without prejudice to the grounds hereinfore, while confirming the dis-allowance of exemption claimed u/s 11 of the Act, the ld."Addl./JCIT(A)" failed to appreciate that there was sufficient and reasonable cause for not filing the requisite audit report under section 12A of the "ACT" within the prescribed due date.
BECAUSE issue of allowability/dis-allowability of claim of exemption u/s 11 of the "Act" due to non-filing of audit report within the prescribed due date, being debatable, was beyond the scope of permissible adjustments u/s 143(1)(a) of the "Act" and consequently the "Addl./JCIT(A)" ought to have deleted the addition made by CPC by way of adjustment under section 143(1)(a) (ii) of the "Act".
7. BECAUSE, without prejudice to the aforesaid grounds, even in the case of dis-allowance of claim of exemption u/s 11 of the "Act", the expenses incurred by the assessee for earning the gross receipts were liable to be deducted from the gross receipts, and only the surplus of Rs.98,023/- 1.e., the excess of income over the expenditure, could have been subjected to taxation instead of taxing the entire gross receipt Rs.91,80,402/-.
8. BECAUSE, as per the scheme of taxation under the Income Tax Act, only real income, i.e., the income as reduced by the expenditure incurred to earn the income, can be taxed and the authorities below have grossly erred in not allowing the deduction of expenses so incurred even though the relevant information of the expenses incurred by the assessee was available on record.
9. BECAUSE the impugned order is in violation of principles of natural justice as the opportunity of personal hearing sought by the assessee was not granted by the "ld. Addl/JCIT(A)".
10. BECAUSE the order appealed against is contrary to facts, law and principles of natural justice.
11. BECAUSE each ground taken in appeal is mutually exclusive and without prejudice to each other.
12. The appellant craves leave to add, delete or modify any of the grounds before or at the time of hearing of appeal. GROUNDS IN ITA NO.652/LKW/2024(A.Y. 2019-20):
1. BECAUSE the ld."Addl./JCIT(A)" has erred in law and on facts in confirming the dis-allowance of exemption u/s 11 of the "Act", amounting to Rs.88,55,890/-made by CPC, Bengaluru by way of adjustment u/s 143(1)(a)(ii) in the intimation order passed u/s 143(1) of the "Act" on the ground that the audit report u/s 44AB was not filed by the assessee within the prescribed due date. 1.2. BECAUSE the ld. "Addl./JCIT(A)" has grossly erred in confirming the dis-allowance of exemption u/s 11 of the "Act" on a wholly wrong premise that the assessee had not submitted the audit report u/s 44AB of the "Act", whereas as per the material and information on record the provisions of Section 44AB of the Act are not applicable to the assessee, it being a society registered u/s 12A of the "Act".
2. BECAUSE the Id "Addl./JCIT(A)" has erred in law and on facts in upholding the action of CPC in making dis-allowance by way of adjustment u/s 143(1)(a)(ii) of the "Act", whereas on the facts and in the circumstances of the case, such an adjustment was not permissible under the relevant provisions of law and CBDT instructions.
3. BECAUSE the Id."Addl/JCIT" has grossly erred in confirming the dis-allowance of exemption u/s 11 of the Act" made by CPC, Bengaluru in the intimation order passed u/s 143(1) of the "Act" even though no in-correct claim was apparent from any information provided in the return of income filed by the assessee. 4 BECAUSE, without prejudice to the grounds herein-fore, the return of income filed by the assessee without furnishing requisite audit report was a defective return for which the Assessing Officer ought to have provided the opportunity to the assessee to rectify the defect, as provided in sub-section (9) of section 139, and such an opportunity having not been given to the assessee, no adjustment under section 143(1)(a) (ii) of the "Act" could have been made by the CPC/sustained by "CIT(A)".
5. BECAUSE, without prejudice to the grounds hereinfore, while confirming the dis-allowance of exemption claimed u/s 11 of the Act, the Id."Addl/JCIT(A)" failed to appreciate that there was sufficient and reasonable cause for not filing the requisite audit report under section 12A of the "ACT" within the prescribed due date.
6. BECAUSE issue of allowability/dis-allowability of claim of exemption u/s 11 of the "Act" due to non-filing of audit report within the prescribed due date, being debatable, was beyond the scope of permissible adjustments u/s 143(1)(a) of the "Act" and consequently the "Addl./JCIT(A)" ought to have deleted the addition made by CPC by way of adjustment under section 143(1)(a)(ii) of the "Act".
7. BECAUSE, without prejudice to the aforesaid grounds, even in the case of dis-allowance of claim of exemption u/s 11 of the "Act", the expenses incurred by the assessee for earning the gross receipts were liable to be deducted from the gross receipts, and the (loss) of Rs.3,19,167/- i.e., the excess of expenditure over the income, could have been subjected to taxation instead of taxing the entire gross receipt Rs.88,55,890/- 8. BECAUSE, as per the scheme of taxation under the Income Tax Act, only real income, i.e., the income as reduced by the expenditure incurred to earn the income, can be taxed and the authorities below have grossly erred in not allowing the deduction of expenses so incurred even though the relevant information of the expenses incurred by the assessee was available on record.
9. BECAUSE the impugned order is in violation of principles of natural justice as the opportunity of personal hearing sought by the assessee was not granted by the "ld. Addl/JCIT(A)".
BECAUSE the order appealed against is contrary to facts, law and principles of natural justice.
11. BECAUSE each ground taken in appeal is mutually exclusive and without prejudice to each other.
The appellant craves leave to add, delete or modify any of the grounds before or at the time of hearing of appeal. GROUNDS IN ITA NO.653/LKW/2024(A.Y. 2020-21):
BECAUSE the Id. "Addl/JCIT" has grossly erred in law and on facts in up-holding the validity of the intimation order u/s 143(1) dated 24.12.2021 passed by CPC, Bengaluru, wherein the latter made an adjustment of Rs.89,77,590/-, even though no statutory notice u/s 143(1)(a) read with First proviso to sub section (1) thereof was given to the assessee before making the impugned adjustment.
BECAUSE non affording the opportunity to the assessee, as provided in First proviso to sub-section (1) of section 143, is fatal to the survival of intimation order u/s 143(1) dated 24.12.2021 and consequently the "Addl./JCIT" ought to have quashed the said intimation order passed by CPC, Bengaluru u/s 143(1) of the "Act".
3.1. BECAUSE the Id." Addl/JCIT(A)" has erred in law and on facts in confirming the dis-allowance of exemption u/s 11 of the "Act", amounting to Rs.89,77,590/-made by CPC, Bengaluru by way of adjustment u/s 143(1)(a)(ii) in the intimation order passed u/s 143(1) of the "Act" on the ground that the audit report u/s 44AB was not filed by the assessee within the prescribed due date. 3.2. BECAUSE the Id. "AddI/JCIT(A)" has grossly erred in confirming the dis-allowance of exemption u/s 11 of the "Act" on a wholly wrong premise that the assessee had not submitted the audit report u/s 44AB of the "Act", whereas as per the material and information on record the provisions of Section 44AB of the Act are not applicable to the assessee, it being a society registered u/s 12A of the "Act".
BECAUSE the ld "Addl/JCIT(A)" has erred in law and on facts in upholding the action of CPC in making dis-allowance by way of adjustment u/s 143(1)(a)(ii) of the "Act", whereas on the facts and in the circumstances of the case, such an adjustment was not permissible under the relevant provisions of law and CBDT instructions.
BECAUSE the Id."Addl./JCIT" has grossly erred in confirming the dis-allowance of exemption u/s 11 of the Act" made by CPC, Bengaluru in the intimation order passed u/s 143(1) of the "Act" even though no in-correct claim was apparent from any information provided in the return of income filed by the assessee.
6. BECAUSE, without prejudice to the grounds herein-fore, the return of income filed by the assessee without furnishing requisite audit report was a defective return for which the Assessing Officer ought to have provided the opportunity to the assessee to rectify the defect, as provided in sub-section (9) of section 139, and such an opportunity having not been given to the assessee, no adjustment under section 143(1)(a) (ii) of the "Act" could have been made by the CPC/sustained by "CIT(A)".
BECAUSE, without prejudice to the grounds hereinfore, while confirming the dis-allowance of exemption claimed u/s 11 of the Act, the ld."Addl/JCIT(A)" failed to appreciate that there was sufficient and reasonable cause for not filing the requisite audit report under section 12A of the "ACT" within the prescribed due date.
BECAUSE issue of allowability/dis-allowability of claim of exemption u/s 11 of the "Act" due to non-filing of audit report within the prescribed due date, being debatable, was beyond the scope of permissible adjustments u/s 143(1)(a) of the "Act" and consequently the "AddI/JCIT(A)" ought to have deleted the addition made by CPC by way of adjustment under section 143(1)(a) (ii) of the "Act". 9 BECAUSE, without prejudice to the aforesaid grounds, even in the case of dis-allowance of claim of exemption u/s 11 of the "Act", the expenses incurred by the assessee for earning the gross receipts were liable to be deducted from the gross receipts, and only the surplus of Rs. 2,64,515/- i.e., the excess of income over the expenditure, could have been subjected to taxation instead of taxing the entire gross receipt Rs.89,77,590/- 10. BECAUSE, as per the scheme of taxation under the Income Tax Act, only real income, i.e., the income as reduced by the expenditure incurred to earn the income, can be taxed and the authorities below have grossly erred in not allowing the deduction of expenses so incurred even though the relevant information of the expenses incurred by the assessee was available on record.
BECAUSE the impugned order is in violation of principles of natural justice as the opportunity of personal hearing sought by the assessee was not granted by the "ld. Addl./JCIT(A)". 12, BECAUSE the order appealed against is contrary to facts, law and principles of natural justice.
BECAUSE each ground taken in appeal is mutually exclusive and without prejudice to each other.
The appellant craves leave to add, delete or modify any of the grounds before or at the time of hearing of appeal. 5.0 The Ld. Authorized Representative for the assessee (Ld. A.R.) submitted before us that the CPC, Bangalore has erred in taxing the gross receipts of the assessee-society, ignoring the status of the assessee that the income of the assessee was exempt under section 11 of the Act. It was further submitted that the sole reason for disallowing the exemption claimed by the assessee under section 11 of the Act was that the requisite form, i.e., Form 10B was filed after the due date. It was submitted that the assessee had filed applications for condonation of delay in filing the Audit Report in Form 10B before the CIT (Exemption). However, the CPC, Bangalore, without condoning the delay, had disallowed the claim made by the assessee. The Ld. A.R. also submitted that in assessment year 2017-18, the intimation of the CPC, Bangalore under section 143(1) of the Act was rectified, vide order dated 05.02.2025 passed under section 154 of the Act, whereby the AO, Exemption Ward has allowed the exemption claimed by the assessee under section 11 of the Act after the delay having been condoned by the Ld. CIT(Exemption). The copy of the order of AO, Exemption Ward, Kanpur, in this regard, is placed on record. The Ld. A.R. prayed that in this view of the matter, the matter in the years under consideration may be restored to the file of the AO with a direction to await the directions for condonation of delay in filing the Audit Report in Form 10B since the issue of condonation of delay was now pending before the Ld. Principal Chief Commissioner of Income Tax (Exemption), New Delhi on the applications having been transferred to him by the Ld. CIT (Exemption), Lucknow.
6.0 Per contra, the Ld. Sr. D.R., placing reliance on the orders of the authorities below, submitted that the CPC, Bangalore was justified in disallowing the claim made by the assessee under section 11 of the Act, as the assessee had failed to file the requisite Audit Report in Form 10B within the prescribed period and, therefore, the appeals of the assessee deserved to be dismissed.
7.0 We have heard the rival submissions and have also perused the material on record. It is an admitted fact that the assessee- society had failed to file the Audit Reports in Form 10B for the years under consideration within the due date and for this reason alone the CPC, Bangalore disallowed the exemption claimed by the assessee under section 11 of the Act for all the years under consideration. It is also a fact that in preceding assessment year, i.e., assessment year 2017-18, the AO, Exemption Ward has rectified the intimation under section 143(1) of the Act of the CPC, Bangalore, vide order dated 05.02.2025 passed under section 154 of the Act on delay having been condoned by the Ld. CIT (Exemption), Lucknow. We note that the assessee has filed applications for condonation of delay in filing the Audit Report in Form 10B before the Ld. CIT(Exemption) for assessment years 2018-19, 2019-20 and 2020-21, all dated 14.10.2024, but the same are pending consideration before the Ld. Principal Chief Commissioner of Income Tax, New Delhi. Considering the request of the assessee, we set aside the orders of the Addl/JCIT(A), Mysore and restore the matter to the AO, Exemption Ward with a direction to await the outcome of the applications filed by the assessee for all the three assessment years under consideration and, thereafter, pass the orders in accordance with law. The Assessee shall produce all the documents, as sought for by the AO, before the AO during the course of set aside proceedings.
8.0 In the result, all the three appeals of the Assessee stand allowed for statistical purposes.
Order pronounced in the open Court on 31/12/2025.