Exemption under section 11(2) restored despite late filing of Form 9A in first year of digital requirements

Archana Foundation Versus ITO (Exemption) -1 (1), Mumbai.

Archana Foundation Versus ITO (Exemption) -1 (1), Mumbai. - TMI The core legal questions considered by the Tribunal in this appeal pertain to the denial of exemption under section 11(2) of the Income-tax Act due to late filing of Form No. 9A and Income Tax Return, the adequacy of submissions regarding condonation of delay, and the applicability of CBDT Circular No. 6/2020 in the context of pandemic-related delays. Specifically, the issues are:

1. Whether the Commissioner of Income Tax (Appeals) was justified in denying exemption under section 11(2) on the ground of late filing of Form No. 9A and Income Tax Return.

2. Whether the Commissioner of Income Tax (Appeals) erred in stating that the appellant did not submit a copy of the application for condonation of delay before the CIT (Exemptions), despite such documents being on record.

3. Whether the Commissioner of Income Tax (Appeals) failed to consider the appellant's application under section 119(2)(b) of the Act for condonation of delay, filed before the CIT (Exemptions), and the impact of COVID-19 on the delay.

4. Whether the Commissioner of Income Tax (Appeals) was justified in not considering the CBDT Circular No. 6/2020 dated 19-02-2020 regarding condonation of delay in filing Form No. 9A and Income Tax Return for AY 2017-18.

Issue-wise detailed analysis:

1. Denial of exemption under section 11(2) due to late filing of Form No. 9A and Income Tax Return

The relevant legal framework includes section 11(1) and section 11(2) of the Income-tax Act, which provide exemption to charitable trusts subject to certain conditions, including timely filing of Form No. 9A as per rule 17 of the Income-tax Rules. The form must be filed before the due date prescribed under section 139(1) for filing returns.

Precedents such as the Supreme Court decision in Commissioner of Income-tax v. Nagpur Hotel Owners' Association clarify that furnishing particulars under section 11 is mandatory before completion of assessment to claim exemption. The Court emphasized that without such information, the Assessing Officer cannot entertain the claim and post-assessment submissions cannot be entertained without reopening the assessment, which the Act does not contemplate.

In the present case, the assessee filed Form No. 9A on 30-03-2018, which was after the due date, leading the Assessing Officer (AO) to deny exemption and make an addition of Rs. 16,19,720. The assessee explained delays due to lack of full-time staff, predominantly senior women trustees unfamiliar with digital filing, and technical issues such as Aadhaar linking for signatories.

The Tribunal noted that this was the first year digital filing of Form No. 9A was mandated, and that the assessee's delay was inadvertent and not a deliberate defiance of the law. The Tribunal found the AO and CIT(A)'s rigid approach lacked leniency given the circumstances, especially since the charitable activities and genuineness of the trust were undisputed.

The Tribunal applied the law to facts by recognizing the technical nature of the breach and the absence of any mala fide intent or misappropriation. The Tribunal also considered judicial precedents favoring leniency where procedural lapses did not affect substantive compliance, such as the Bombay Tribunal's decision in Commissioner of Income-tax-III, Pune v. Sakal Relief Fund, which allowed accumulation benefits despite delay if the form was filed within the time permitted under section 139(4).

Competing arguments from the revenue emphasized strict compliance with timelines and the mandatory nature of filing before assessment completion. The Tribunal, however, balanced this with the practical difficulties faced by the assessee and the purpose of the exemption provisions.

Conclusion: The Tribunal held that exemption under section 11(2) should not be denied solely on the ground of late filing, especially given the first-time digital filing requirement and the bona fide nature of the delay.

2. Submission and consideration of application for condonation of delay before CIT (Exemptions)

The assessee contended that a copy of the application for condonation of delay under section 119(2)(b) was filed before the CIT (Exemptions) and also submitted to the CIT(A), but the latter erroneously stated that no such application was on record.

The Tribunal reviewed the record and found that the application was indeed filed on 23-12-2019 and copies were submitted before the CIT(A) on 23-02-2021 and 16-04-2021. The CIT(A)'s denial of receipt was thus perverse and amounted to a failure in judicial duty.

The Tribunal emphasized that the CIT(A) ought to have awaited the outcome of the condonation petition before passing the appellate order, as the issue was directly relevant to the claim for exemption.

This finding was supported by the principle that appellate authorities must consider all relevant documents on record and not dismiss submissions without due consideration.

Conclusion: The Tribunal held that the CIT(A) erred in denying the existence of the condonation application and in not awaiting the CIT (Exemptions) decision before adjudicating the appeal.

3. Consideration of COVID-19 related delays and CBDT Circular No. 6/2020

The assessee argued that the delay in receiving an order on the condonation petition was due to the COVID-19 pandemic and that the CBDT Circular No. 6/2020, which allowed condonation of delay in filing Form No. 9A and Income Tax Return for AY 2017-18 till the end of the year, should have been considered by the CIT(A).

The Tribunal acknowledged the pandemic's impact on administrative processes and recognized the relevance of the CBDT Circular in providing relief for delays caused by extraordinary circumstances.

The Tribunal found that the CIT(A) did not consider this circular, which was a significant omission given the pandemic's unprecedented disruption.

Applying the law to facts, the Tribunal held that the delay caused by COVID-19 and the relief granted by the CBDT Circular warranted a lenient approach in condoning the delay.

Conclusion: The Tribunal held that the CIT(A) ought to have taken the CBDT Circular into account and that failure to do so was improper.

4. Treatment of discrepancies in figures across Form No. 9A, Form No. 10B, and ITR-7

The CIT (Exemptions) rejected the condonation petition citing discrepancies in figures across the various forms filed by the assessee, attributing this to inadvertent negligence by the assessee and their consultant.

The Tribunal observed that while discrepancies existed, they were minor and could have been explained if an opportunity was granted. The Tribunal criticized the CIT (Exemptions) for not adopting a lenient and procedural fairness approach by refusing to provide an opportunity to clarify.

The Tribunal noted that such minor errors should not defeat the substantive compliance and bona fide nature of the trust's activities and filings.

Conclusion: The Tribunal found the rejection on this ground to be harsh and urged for a more equitable approach.

Significant holdings include the following verbatim excerpts and principles established:

'It is abundantly clear from the wordings of sub-section (2) of section 11 that it is mandatory for the person claiming the benefit of section 11 to intimate to the assessing authority the particulars required, under rule 17 in Form No. 10. If during the assessment proceedings the Assessing Officer does not have the necessary information, the question of excluding such income from assessment does not arise at all.'

'The formality of filing form no-9A r.w.r -17, digitally made applicable first time w.e.f A.Y 2017-18... being the first year there should have been a lenient view to be taken by the A.O and Ld. CIT(A).'

'None of the facts submitted by the assessee... we don't see any foul play or advertant defiance by the assessee in complying with the requirements of the Act and benefit of exemption on this technical; breach can't be denied to the assessee.'

'Finding of the Ld. CIT(A) about non furnishing the copy of petition for condonation of delay is perverse... Ld. CIT(A) was duty bound to wait for the outcome of petition filed before Ld CIT(Exemption) by assessee. His denial... proves his gross negligence and fractured delivery of justice.'

The Tribunal's final determination was to allow the appeal, direct deletion of the addition made by the AO, and restore the exemption under section 11(1) of the Act. The Tribunal underscored the importance of procedural fairness, leniency in first-time digital compliance, and recognition of pandemic-related delays in the administration of tax exemptions for charitable trusts.