2023 (7) TMI 293 - AT - Income Tax

Tribunal Rules Late Audit Filing Doesn't Bar Charitable Trust's Tax Exemption; Procedural Compliance is Sufficient.

The ITO, Ward (Exemption), Vadodara Versus Shri Laxmanarayan Dev Shrishan Seva Khendra

The Tribunal upheld the decision of the CIT(A), allowing the Public Charitable Trust's exemption under section 11 of the Income Tax Act, despite the late ... Exemption u/s. 11 - late filing of Audit Report u/s. 12A(1)(b) in the prescribed Form 10B - As per assessee it is a sufficient compliance with the procedure, if the Audit Report u/s. 12A(1)(b) is filed at any stage before the completion of assessment or even at the appellate stage - whether it is permissible to the assessee to produce the audit report at the appellate stage? - HELD THAT:- As decided in the case of CIT Vs. Gujarat Oil & Allied Industries Ltd. [1992 (9) TMI 67 - GUJARAT HIGH COURT] the provisions regarding furnishing of audit report along with the return has to be treated as a procedural provision. It is directory in nature and its substantial compliance would suffice. Benefit of exemption should not be denied merely on account of delay in furnishing the same. Also see SOCIAL SECURITY SCHEME OF GICEA case [2022 (12) TMI 1172 - GUJARAT HIGH COURT] No hesitation in confirming the order passed by Ld. CIT(A) who has directed JAO to verify the Form No. 10B and allow the claim of exemption u/s. 11 and compute the total income. Decided in favour of assessee. ISSUES PRESENTED AND CONSIDERED 1. Whether late filing of the Audit Report in Form No.10B, after filing the return but before or during appellate proceedings, precludes exemption under section 11 when the return was processed under section 143(1) without Form 10B. 2. Whether the requirement to furnish the audit report along with the return under section 12A(1)(b) is mandatory in a manner that denial of exemption is compelled where Form No.10B is filed belatedly, or whether the requirement is procedural/directory permitting condonation and substantial compliance. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legality of accepting Form No.10B filed at appellate stage for claiming exemption under section 11 Legal framework: The statutory scheme requires furnishing of audit report in prescribed form (Form No.10B) in relation to claims for exemption under section 11 and registration under section 12A(1)(b). Intimation under section 143(1) may be processed by CPC where return lacks required attachments. Precedent treatment: Jurisdictional High Court authorities have held that the requirement to furnish the audit report with the return is procedural/directory and substantial compliance may suffice; late production of Form No.10B at or before appellate stage has been accepted in prior decisions of the same jurisdiction. The Tribunal relied on these High Court pronouncements in following that approach. Interpretation and reasoning: The Court viewed the obligation to furnish Form No.10B with the return as procedural rather than an absolute bar to claiming exemption; consequently, where the assessee is a long-established charitable trust that substantially satisfies conditions for exemption, denial of exemption solely on account of delay in filing Form No.10B would be inequitable. The Court emphasized equitable, balancing and judicious approach and recognized that the legislature has conferred discretion to condone delay in appropriate cases. Given that only an intimation under section 143(1) (and not a completed scrutiny assessment) had been issued and the assessee later produced Form No.10B during appeal, the Court concluded the auditing requirement had been substantially complied with and the exemption should not be denied purely on technical grounds. Ratio vs. Obiter: Ratio - The provision requiring filing of Form No.10B with the return is procedural/directory; substantial compliance by filing the audit report belatedly (including at appellate stage) can be accepted and the exemption under section 11 should not be denied solely on the ground of such delay where condonation is appropriate. Obiter - Observations on equitable considerations and the length of organizational existence informing exercise of discretion. Conclusion: The Court confirmed acceptance of Form No.10B filed during appellate proceedings and held that the assessee was entitled to the exemption under section 11, directing the assessing authority to verify Form No.10B and recompute total income and tax liability accordingly. Issue 2 - Whether denial of exemption is mandated when the audit report was not filed by the due date prescribed/ notified by the Board Legal framework: Statutory timelines and prescribed forms are intended to ensure compliance; however, statutory interpretation distinguishes between mandatory and directory requirements. The power to condone delay and the impact of procedural non-compliance on substantive rights (exemption under section 11) are central. Precedent treatment: Earlier High Court decisions in the jurisdiction recognized the furnishing of the audit report as a procedural requirement that permits substantial compliance; such authorities have allowed condonation of delay and directed processing of returns to give effect to substantive exemptions where conditions are otherwise met. Interpretation and reasoning: The Court noted that strict technical denial of exemption on account of delayed filing would subvert the substantive purpose of exemption provisions where the substantive eligibility is not in dispute. The Tribunal applied the jurisdictional precedent that treats Form No.10B filing requirement as directory and that an assessee who substantially satisfies the conditions for exemption should not be penalized by a rigid limitation bar when condonation is within the legislative scheme. The Court observed that CPC's denial based on absence of Form No.10B was susceptible to correction upon production of the document and that the assessing officer should be directed to accept and verify the audit report and grant the exemption if genuine. Ratio vs. Obiter: Ratio - Non-filing of Form No.10B by the due date does not automatically and invariably extinguish the right to exemption under section 11 where the audit report is subsequently produced and the assessing authority is empowered to condone delay; denial solely on limitation grounds is not obligatory. Obiter - The Court's discussion about administrative communications and technical glitches as causative factors for delay and the appropriateness of an equitable approach in such circumstances. Conclusion: The Court held that denial of exemption solely on account of late filing of Form No.10B is not justified where the audit report is later furnished and substantiates entitlement; accordingly the Tribunal affirmed the appellate authority's direction to allow exemption and to have the assessing officer verify the audit report and recompute tax liability. Cross-reference and final determination Both issues were treated cohesively: the Court followed the jurisdictional High Court position treating the filing requirement as procedural/directory, applied equitable and substantial compliance principles, and concluded the exemption under section 11 should be allowed post-production of Form No.10B subject to verification by the assessing authority. The Revenue's grounds challenging condonation of delay and allowance of exemption were dismissed as devoid of merit.