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Facts
The assessee, a charitable society, filed its return for AY 2021-22 declaring NIL income, but processing u/s 143(1) determined a higher income after denying exemption u/s 11 due to a 235-day delayed filing of Form 10B. The auditors had initially believed the audit report was not required. The CIT(A) dismissed the appeal, asserting lack of jurisdiction to condone the delay.
Held
The Tribunal, relying on judicial precedent, ruled that the delayed filing of Form 10B is a procedural omission and cannot be a sole ground to deny exemption u/s 11. It condoned the delay in filing Form 10B and restored the matter back to the CIT(A) to allow the exemption in accordance with law.
Key Issues
Denial of exemption under Section 11 due to delayed filing of Form 10B; Jurisdiction of CIT(A) to condone such delay.
Sections Cited
Section 143(1), Section 11, Section 12, Section 143(1)(a), Section 139(1), Section 12A(1)(b), Section 119(2)(b), Section 12A, Section 12AA, Section 12AB
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Income Tax Appellate Tribunal, DELHI BENCH: ‘SMC’: NEW DELHI
Before: SHRI S RIFAUR RAHMAN & SHRI SUDHIR PAREEK
assessee against the order dated 18.10.2023 passed by the Learned Commissioner of Income Tax (Appeal) ADDL/JCIT(A)-1 Lucknow [hereinafter referred to as the “Ld. CIT(A)] arising in the matter of Assessment Order passed u/s 143(1) of the Income Tax Act, 1961
ITA No.- 3657/Del/2023 Bhagwant Kishore Memorial Educational Society. (hereinafter referred to as “the Act” ) relevant to the Assessment Year (A.Y.) 2021-22.
2. The solitary grievance raised by the assessee is that the Ld. CIT(A) erred in denying exemption u/s 11 of the Act on the reasoning that there was a delay in filing Form 10B i.e. Audit Report.
3. Facts of this case may be summarized as that the assessee / appellant is a charitable society registered under Societies Registration Act, 1860, filed its return of income for the A.Y. 2021- 22 on 23.12.2021 by declaring total income at NIL and the same was processed u/s 143(1) of the Act on 20.09.2022 by determining the total income of Rs. 39,32,700/-. Being aggrieved from the above order, assessee filed appeal before the Ld. CIT(A) and the Ld. CIT(A) dismissed the appeal of the assessee by stating that neither the Ld. AO nor the CIT(A) are empowered by the statute to entertain the appellant’s application for condonation of delay of 235 days in filing Form 10B and the appellant has the option to approach the duely empowered authorities for condonation of the delay in filing Form 10B and to claim the benefits of Sections 11 and 12 of the Page 2 of 10
ITA No.- 3657/Del/2023 Bhagwant Kishore Memorial Educational Society. Act. Being aggrieved with the above order passed by the Ld. CIT(A), this appeal filed by assessee for adjudication.
Heard rival submissions and carefully scanned the material before us.
In the course of hearing, the Ld. AR while reiterating the grounds of appeal, submitted that the assessee is a charitable society registered under the Societies Registration Act, 1860. The society operates a recognized primary school, New Vidhya Vihar Model School, in Delhi. For the A.Y. 2021-22, the society filed a return of income declaring NIL income. During the year total receipts of the society from trust activities aggregated to Rs. 39,32,700/- which consisted of school fees and interest amounting to Rs. 39,12,200/- and Donation amounting to Rs. 20,500/-. The society's total application exceeded the receipts, resulting in NIL taxable income. The accounts were audited by M/s Anil Ram & Associates. After filing the return of income, CPC issued two notices for proposed adjustments u/s 143(1)(a) of Income Tax Act, 1961 stating that the Trust or Institution registered u/s 12A/12AA/12AB has not E-filed the Audit Report in Form 10B one month prior to Page 3 of 10
ITA No.- 3657/Del/2023 Bhagwant Kishore Memorial Educational Society. the due date for furnishing return u/s 139(1). Hence the exemption claimed in Sr. no. 2 [exemption claimed u/s 11(1)(d)) and Sr. no. 4i to 4viii of Part B-TI is not allowable in accordance with the provisions of Section-12A(1)(b) of the Income tax Act. Both these respective notices dated 25.05.2022 and dated 01.07.2022 were send to the e mail ID of the chartered accountant and remained unnoticed and therefore, could not be responded. After receiving the intimation u/s 143(1) of the Act, the matter was taken with the auditors, who conducted the audit of the society who in turn explained that they bonafide believed that society was not required to obtain and file the audit report in Form No 10B as the total income being Nil was less than Rs. 2,50,000/- (the maximum amount which is not chargeable to tax). Realizing the confusion in interpretation of the law and the auditor M/s Anil Ram & Associates filed audit report in Form No 10B dated 08.10.2022 vide ack no 627453800081022.
6. Per contra, the Ld. Sr. Departmental Representative (“Ld. Sr.
DR) relied upon orders passed by both the lower authorities. Page 4 of 10 ITA No.- 3657/Del/2023 Bhagwant Kishore Memorial Educational Society.
7. By bare perusal of impugned order passed by the Ld. CIT(A), observed as under:
“7.1 Further, Section 119 empowers the Board to issue orders and guidelines regarding the condonation of delay in compliance with any provision of the Act. Section 119(2) reads as follows: Section 119(2) (a) ... (b) the Board may, if it considers it desirable or expedient so to do for avoiding genuine hardship in any case or class of cases, by general or special order, authorise any income-tax authority, not being a Joint Commissioner (Appeals) or a Commissioner (Appeals) to admit an application or claim for any exemption, deduction, refund or any other relief under this Act after the expiry of the period specified by or under this Act for making such application or claim and deal with the same on merits in accordance with law." 7.2 In this context, the Central Board of Direct Taxes (CBDT) issued Circular 3/2020 dated 03-01-2020 and Circular No. 16/2022 dated 19th July, 2022. The relevant excerpts from Circular No. 16/2022 dated 19th July, 2022 are as follows: "Condonation of delay under Section 119(2)(b) of the Income-tax Act, 1961 in filing of Form No. 10B for Assessment Year 2018-19 and subsequent years – Reg. In exercise of the powers conferred under section 119(2) of the Income- tax Act, 1961 (hereinafter referred to as 'Act'), the Central Board of Direct Taxes (CBDT) by Circular No.2/2020 (F.No. 197/55/2018-ITA-1] dated 03.01.2020 authorized the Commissioners of Income-tax to admit applications of condonation of delay in filing Form No. 10B for AY 2018- 19 or for any subsequent Assessment Years where there is delay of upto 365 days and decide on merits.
Further to the powers delegated to Commissioners of Income-tax as discussed above, the CBDT hereby directs that where there is delay of beyond 365 days upto three years in filing Form No. 10B for Assessment Year 2018-19 or for any subsequent Assessment Years, the Pr. Chief Commissioners of Income-tax / Chief Commissioners of Income-tax are authorized to admit such applications of condonation of delay under section 119(2) of the Act and decide on merits.
ITA No.- 3657/Del/2023 Bhagwant Kishore Memorial Educational Society.
The Pr. Chief Commissioner/ Chief Commissioner or Commissioners of Income-tax, as the case may be, while entertaining such applications for condonation of delay in filing Form No. 10B, shall satisfy themselves that the applicant was prevented by reasonable cause from filing such Form within the stipulated time.
4. Further, the Pr. Chief Commissioner/Chief Commissioner of Income- tax, as the case may be, shall preferably dispose the application within three months of receipt of the application." 7.3 It is evident from the CBDT Circulars and Section 119(2)(b) of the Act that the Assessing Officer (AO), Joint Commissioner of Income Tax (Appeals) [JCIT(A)], and Commissioner of Income Tax (Appeals) [CIT(A)] do not have the authority under Section 119(2)(b) of the Income Tax Act to grant condonation for the delay in filing Form 10B. 7.4 Therefore, neither the AO during return processing nor I, the JCIT(Appeals) when finalizing the appeal, are empowered by the statute to entertain the appellant's condonation application for Form 10B. 7.5 The appellant has the option to approach the jurisdictional Commissioner of Income Tax, Chief Commissioner of Income Tax, or Principal Chief Commissioner of Income Tax for the condonation of the delay in filing Form 10B and to claim the benefits of Sections 11 and 12 of the Act.”
8. The impugned order exhibits that the Ld. CIT(A) dismissed the appeal simply due to want of jurisdiction by stating that both he and the Ld. AO not empowered to condone the delay in question. It is established by law that the requirement of filing Audit Report in Form 10B is procedural in nature and therefore exemption claimed by u/s 11 of the Act may be given in certain circumstances. Not filing of Audit Report alongwith the return of income is a procedural omission only and cannot be impediment in law in claiming the Page 6 of 10
ITA No.- 3657/Del/2023 Bhagwant Kishore Memorial Educational Society. exemption. So far the reason for condonation of delay is concerned, the Ld. AR submitted that the Auditors who conducted the audit of the society, bonafidely believed that society was not required to obtain and file the audit report in form 10B as the total income being NIL was less than Rs. 2,50,000/- and due to confusion in interpretation of law, filed audit report in form 10B dated 08.10.2022.
9. In this context, similar matter has decided in the favour of assessee in the case of Hari Gyan Pracharak Trust vs. DCIT vide order dated 16.06.2023 by observing as under:
“7. We have carefully considered the order passed by the authorities below and the judgment passed by the Hon'ble Jurisdictional High Court in case of Association of Indian Panelboard Manufacturer (supra) on the issue involved. While passing order in favour of the assessee, the Hon'ble Jurisdictional High Court has been pleased to observe as follows:
"5.6 The Tribunal further committed an error in appreciating the import of Section 1192(b) of the Act inasmuch as the application contemplated hereunder is only a 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. 5.7 The tribunal misdirected itself in yet another way when it observed that The Finance Act, 2015 with effect from 1.4.2016, Page 7 of 10
ITA No.- 3657/Del/2023 Bhagwant Kishore Memorial Educational Society. 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 108 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 fling of audit report as stated above.
The moot aspect that 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 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. 6.1 The appellant assessee has to be held to be eligible and entitled to exemptions under Section 11(1) and 112) of the Act and the alleged ground of non-filing of audit report alongwith return of income which was at the best procedural omission, could never to an impediment in law in claiming the exemption. 6.2 Accordingly the substantial questions of law have to be decided in favor of the appellant.
They are accordingly decided. The appeal is allowed."
In view of the ratio laid down by the Hon'ble Jurisdictional High Court holding that non filing of Audit Report along with return of income is a procedural omission and cannot be an impediment in law in claiming the exemption, we allow this appeal condoning the delay in filing the Audit Report in Form No. 10B. However, we also upon condoning the delay, restore the matter to the file of the Ld. CIT(A) to pass order in regard to the exemption claimed by the assessee strictly in accordance with law.
In the result, assessee's appeal is allowed for statistical purposes."
ITA No.- 3657/Del/2023 Bhagwant Kishore Memorial Educational Society. 10. On the basis of foregoing discussion, legal position and order of the Co-ordinate Bench as cited above, we inclined to allow this appeal for condoning the delay in filing the Audit Report in Form 10B and restore the matter to the file of the Ld. CIT(A) to allow exemption u/s 11 of the Act to assessee and pass order in accordance with law.
Consequently, this appeal of assessee is allowed as indicated above for statistical purpose.
Order pronounced in the Open Court on 14.08.2024