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Facts
Assessee, a charitable trust, filed its ITR-7 and Form 10B belatedly for AY 2020-21. The CPC and subsequently the Ld. CIT(A) disallowed exemptions under Sections 11 and 10(23C), converting total income from Rs. 7,83,260/- to Rs. 39,49,400/-, on the grounds of statutory non-compliance due to late filing.
Held
The Tribunal observed that the return was filed within the extended period allowed by CBDT and TOLA, and the audit report was available to the AO before assessment completion. Considering the delay was unintentional (due to auditor being affected by COVID) and the assessee is a registered charitable trust, the Tribunal directed the AO to accept the audit report and grant the claimed exemptions under Section 11.
Key Issues
Whether exemptions under Section 11 and 10(23C) of the Income Tax Act should be denied to a charitable trust due to belated filing of its return of income (ITR-7) and audit report (Form 10B), despite extensions granted due to COVID-19 and the audit report being available before assessment completion.
Sections Cited
Section 250, Section 143(1), Section 139(4), Section 11, Section 10(23C), Section 119, Section 12(1)(b), Section 44AB, Section 139(4A), Section 12AA, Section 80J, Section 119(2)(b), Rule 34(4) of Income Tax Appellate Tribunal Rules 1963
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Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR.
Before: SH. UDAYAN DASGUPTA & SH. KRINWANT SAHAY
ORDER Per: Udayan Dasgupta, J.M. : This appeal filed by assessee against order of Ld. JCIT (A)- 1, Vadodara, u/s 250 of the act 61, dated 08/08/2024, which has emanated from the order of the AO, CPC, Bangalore dated 30/11/2021, passed u/s 143(1) of the Act. 2. The grounds of appeal in Form No. 36 are as under:
1. That the Intimation Order passed u/s 143(1) by CPC, Bengaluru and the order passed by the Addl/JCIT(A)-1, Vadodara, National Faceless Appeal Centre (NFAC), Delhi thereby confirming the Intimation Order passed by CPC are both against the facts of this case and are untenable under the law.
2. That no reasonable and proper opportunity of being heard was allowed by CPC while passing the Intimation u/s 143(1). As such the same is liable to be cancelled. Similarly, the order of the Ld. CIT(A) thereby confirming the same is also bad in the eyes of law and the same is also liable to be cancelled.
3. That the authorities below did not appreciate that this case does not fall within the mischief of section 143(1). As such the intimation passed u/s 143(1) is liable to be cancelled. Similarly, the order of the Ld. CIT(A) thereby confirming the same is also bad in the eyes of law and the same is also liable to be cancelled.
4. That the authorities below did not appreciate that the trust was granted registration by CIT(E) vide order dated 31/10/2018. As such, the registration should have been continued upto AY 2021-22. There was change in the law from AY 2022-23. The CIT(A) did not apply his mind and has confirmed’ the order of the Assessing Officer.
5. That the authorities below did not appreciate that the assessee is a charitable trust and fulfils all the conditions laid down under the law and the assessee is clearly entitled for the exemption as claimed. As such, the order of the CIT(A) thereby confirming the addition made by the AO is bad in the eyes of law and the same is liable to be cancelled and the addition made may be deleted.
That any other ground of appeal which may be argued at the time of hearing of the appeal.”
Brief facts emerging from record are that the assessee is a charitable trust, filed its return of income in ITR-7, on 25th March, 2021, belated u/s 139(4) of the Act 61, for the assessment year 2020-21 (the year under appeal), declaring total income at Rs. 7,83,260/- after claiming exemptions u/s 11 and 10(23C), along with a belatedly filed audit report in Form 10B uploaded and approved on the same date. 3.1 The assessment has been completed by CPC, Bangalore u/s 143(1) on a total income of Rs. 39,49,400/- without allowing the claim for exemptions due to the reasons that the statutory audit report in Form 10B as well as the return in ITR-7, has been filed beyond the time allowed by the CBDT circular ie beyond the extended due dates as prescribed by the board ( CBDT order u/s 119 of the Act , dated 11/01/2021) which extended the dates for filing of 10B audit report till 15th January, 2021 and ITR-7 , till 15th February, 2021 .
The matter carried in first appeal, before the Ld. JCIT (A), has been dismissed by observing that failure on the part of the assessee, to file the audit report in Form 10B and the return ITR-7, within the extended deadline represents failure to meet the statutory requirements and shall preclude the assessee from the benefits of exemptions u/s 11 of the Act. The relevant observation of the Ld. first appellate authority is reproduced for ready reference: “The Income Tax Act mandates that the return of income for the relevant assessment year must be filed by a specific due date as per section 12(1)(b) rws 44AB of the Act. For the assessment year in question, the extended due date was 15th February 2021 as per CBDT’s order u/s 119 of the Act dated 11.01.2021. The appellant's return of income, however, was filed on 25th March 2021, which is 38 days past the due date. The Act clearly states that if the return is not filed by the due date, certain benefits, including exemptions under Section 11, may be disallowed. Further, Form 10B is an audit report that must be filed to substantiate the claim for exemption under Section 11. This report must be submitted one month prior to the due date of filing of return i.e. by 15th January 2021 for the relevant assessment year as per CBDT’s order u/s 119 of the Act dated 11.01.2021. The appellant filed this audit report on 25th March 2021, which was 69 days overdue. The timely submission of Form 10B is crucial as it provides essential details regarding the compliance of the trust or institution with the requirements set out under Section 11, including the proper application of income for charitable or religious purposes.
The statutory provisions are designed to ensure that trusts and institutions claiming exemptions are not only adhering to their charitable or religious obligations but are also complying with procedural requirements. Courts and tribunals have consistently upheld the necessity of adhering to these deadlines, reinforcing that non- compliance, such as late filing, leads to the disallowance of exemption claims. This approach is supported by judicial precedents which affirm that the procedural requirements are integral to the eligibility for exemptions under Section 11.”
Now the assessee is before the tribunal on the ground contained in the memorandum of appeal. The Ld. AR of the assessee submitted that the return and the audit report, both has been filed together on 25th March 2021, during covid period when the period of limitation was extended by TOLA ( Taxation and other laws [ Relaxation and Amendment of Certain Provisions ]Act, which covers the entire period from 20th March, 2020 to 31st March, 2021, and he submits that the return and audit report is filed within the said period, and should have been accepted, as filed within time.
5.1 He further submitted that in the instant case, the return that has been filed on 25th March 2021 within time allowed under section 139(4) of the Act (rws 139(4A), which has been accepted and assessed by the AO, CPC Bangalore, u/s 143(1), considering the same to be a valid return. He further submitted that in the instant case, the audit report in Form 10B which was supposed to be have been filed by 15th January 2021 (extended time period) has been filed on 25th March 2021, belated by 68 days, because the auditor ( one Mr Ratish Chandra) could not complete the audit within stipulated time period because he himself was effected by covid. As such, the contention of the ld. AR is that the delay in filing the audit report in Form 10B, may be condoned and the AO may please be directed to admit the audit report and consider the same for the purpose of assessment because for all practical purposes the audit report was before the AO on the date of completion of the assessment on 30th November 2021, and in the instant case , non consideration of the audit report by the AO has led to disallowances of the exemptions claimed u/s 11 and 10(23C) of the Act 61, by the assessee trust , who otherwise is entitled to the said exemptions. 5.2 In support of his argument he relied on various decisions of various coordinate Benches: i. In the case of Sirur Shikshan Prasarak Mandal vs. ACIT( Exem), in ITA 609/Pune/2024 , Asst year 2021-22, date of order 04/09/2024, ii. In the case of Conference of Religious India, in ITA 2161/Del/2022, order dated 13/10/2022, Asst year : 2020-21, iii. In the case of Susila Educational Trust in dated 30/08/2024, 167 Taxmann.com 326 (Chennai-Trib.) Relying on the above decisions the ld. AR submitted that since in the instant case, the return has been filed by the assessee within the time allowed u/s 139 ( which covers sections u/s 139(4)/ 139(4A)) , of the Act, which is as per the clarification laid down by the CBDT in F No 173/193/2019-ITA-1, dated 23/04/2019, ( applicable for entities registered under section 12AA) and the memorandum explaining the relevant provisions of the Finance Bill, 2017 , which has specifically stipulated the time period as time allowed u/s 139 of the Act , and the same being clarificatory in nature has been made applicable to Asst years 2018-19 and subsequent years .
5.3 He submits that the AO may please be directed to consider the audit report filed belatedly along with the return which was available before the AO on the date of assessment u/s 143(1) completed on 30th November, 2021, and for rendering substantial justice the said audit report should be considered for allowability of claim for exemption u/s 11.
6. Per contra, the ld. DR relied on the order of the ld. JCIT(A) and submits that in the instant case, since the time was already extended by the board number of times and the assessee has filed the return as well as the audit report, both belated , the said audit report in form 10B cannot be considered for allowing exemption u/s 11 and he prays for upholding the order of the ld. First appellate authority.
We have considered the rival submissions and all materials on record and we are of the opinion that the return in the instant case, has been filed within the time allowed u/s 139(4) of the Act and as per the clarification issued by the CBDT in F No 173/193/2019-ITA-1, dated 23/04/2019, ( applicable for entities registered under section 12AA) the return filed by the assessee within the time allowed u/s 139(4) has to be treated as a valid return entitled for exemption u/s 11, and we direct the AO to consider the same accordingly . 7.1 The second issue regarding the late filing of audit report in Form 10B it is seen that the assessment in the instant case, has been made by the CPC Bangalore on 30 November 2021 and audit report has been filed on 25.03.2021 which means the audit report was before the AO on the date of assessment and could not have been ignored because it has been held a number of judicial decisions that the filing of the audit report is directory in nature and it will be treated as sufficient compliance if the said audit report is before the AO on date of assessment. 7.2 We also find that in the instant case, delay in filing the audit report and the return was not intentional considering the fact that the return needs to be filed based on final figures contained in the audit report and the completion of audit itself was delayed in the instant case , because the auditor himself was effected due to the ongoing pandemic. 7.3 We also find that the assessee is a public charitable trust and has been grated registration u/s 12AA vide order dated 31/10/2008 by the ld. Commissioner of Income Tax, Jammu & Kashmir, and the assessee has substantially satisfied the condition for availing the benefit of exemption as a trust, the same could not be denied merely on the bar of limitation in furnishing of audit report in Form 10B and for all practical purposes the audit report was available before the CPC Bangalore on the date of assessment and the same could not have been ignored. 7.4 Similar view has also been taken by various High Courts regarding filing of audit reports, some of which are referred to as under:
Hon’ble High Court of Bombay in the case of Shree Jain Swetamber (i) Murtipujak Tapagachha Sangh vs. CIT 161 Taxmann.com 144 (Bom), where delay in filing audit report beyond due date was condoned because of auditors oversight in considering relevant provisions, Hon’ble Gujrat High Court in the case of Sarvodaya Charitable Trust vs. (ii) ITO [2023] 125 taxmann.com 75 (Guj) wherein the Hon’ble High has held that where the assessee is a public charitable trust registered u/s 12A and has substantially the satisfied the condition for availing the benefit of exemption as a trust, the same could not be denied merely on the bar of limitation in furnishing of audit report in Form 10B.i
(iii) Similar view has also been taken in the case of CIT vs. Gujarat Oil & Allied Industries [1993] 109 CTR 272 (Guj)/201 ITR 325 (Guj) where assessee has filed audit report before completion of assessment the Hon’ble Court has held that the assessee is entitled to deduction u/s 80J of the Act.
We would also like to reproduce the observation of the Hon’ble Bombay (iv) High Court in the case of Al Jamia Mohammediyah Education ... vs Commissioner of Income Tax ... on 15 April, 2024 writ petition No: 1689 of 2024, where the court while addressing a similar issue on belated submission of audit report observed as follows: ( relevant portion reproduced ) 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."
7. Moreover, in our opinion, Petitioner does not appear to have been lethargic or lacking in bonafides in making the claim beyond the period of limitation which should have a relevance to the desirability and expedience for exercising such power. We are conscious that such routine exercise of powers would neither be expedient nor desirable, since the entire machinery of tax calculation, processing of assessment and further recoveries or refunds, would get thrown out of gear, if such powers are routinely exercised without considering its desirability and expedience to do so to avoid genuine hardship.
(v) Similar views on identical circumstances has also been expressed by the Hon’ble Kerala High Court in the case of Mary Queens Mission Hospital vs CIT ( WP No 17059 of 2024 ) order dated 6th August, 2024. (The conclusion is reproduced as under where the Hon’ble court has observed)
I am in respectful agreement with the view taken by the Bombay High Court in Al Jamia Mohammediyah Education Society (Supra).
7. Therefore, these writ petitions are allowed by quashing the orders (Ext.P8 in all cases) issued by the Commissioner of Income Tax (Exemptions), Kochi, dismissing the applications filed by the petitioners under Section 119(2)(b) of the 1961 Act. As a result of this order, the delay on the part of the petitioners in filing the audit report in Form-10B for the assessment year 2022-2023 will stand condoned. Writ petitions are ordered accordingly.
7.5 As such, considering the entire factual aspect of the matter, and being enlightened by the judicial precedents of various High courts cited above , we find that in the instant case a judicious approach should be taken and the delay of only 68 ( sixty eight ) days in filing the audit report in Form 10B has arisen because of the inability of the CA to complete the audit within the stipulated time period being effected by covid , and we also find that the trust is already registered as a public charitable trust and has complied with all the formalities and for all practical purposes the audit report was available before the AO - CPC Bangalore on the date of assessment and the same should not have been ignored. As such, taking a view of judicious flexibility, we direct the AO to accept the audit report submitted in Form 10B and to consider the same for the purpose of allowability of exemption u/s 11.
In the result, the appeal of the assessee is allowed.