2024 (9) TMI 1791 - AT - Income Tax

ITAT Grants 5-Year Registration Under Section 12AB(1)(a), Sets Aside Provisional 3-Year Registration

The ITAT Chennai set aside the CIT(A)'s order granting only provisional registration for three years under section 12A(1)(ac)(vi) and directed that the ... Denial of exemption claimed u/s. 11 - assessee failed to fill the columns in the RoI showing the details of status of registration granted to the assessee after the amendments has been brought in sec. 12A and 12AB [i.e. the assessee has applied for fresh registration u/s. 12AB on or before 30.06.2021 to enjoy the benefit of exemption u/s. 11 of the Act]. HELD THAT:- Due date for filing such an application was extended from 30.06.2021 time to time by various Circulars of the CBDT and the assessee being an old Trust (enjoying sec. 12A registration from year 1994) ought to have applied for registration u/s. 12A(1)(ac)(i) of the Act and then, in such an event, the assessee would have been automatically granted registration from AY 2021-22 onwards for ‘five years’. However, due to bona fide mistake, assessee had inadvertently applied for registration u/s. 12A(1)(ac)(vi) of the Act, [which is meant for new Trust] and in such cases, CPC grants provisional registration for ‘three years’ and in this case, since assessee has filed for registration on 09.10.2022, CPC granted provisional registration to assessee by order dated 18.10.2022 for AYs 2023-24 to 2025-26. Thus, it is noted that due to bona fide mistake in filing of Form under the incorrect provision i.e. when assessee ought to have filed u/s. 12A(1)(ac)(i) of the Act, and instead applied under clause (vi) of sec. 12A(1)(ac) of the Act, the CPC while processing the same gave provisional approval for three years rather than five years. Since we have noted that the assessee has been granted registration u/s. 12AA (supra) from 1994, it ought to have been granted registration automatically by CPC from AY 2021-22 onwards provided it applied for registration u/s. 12A(1)(ac)(i) of the Act. Assessee had challenged the action of the Ld.CIT(E), order dated 18.10.2022, granting provisional registration for ‘three years’ instead of ‘five years’ and the Tribunal vide [2024 (5) TMI 1603 - ITAT CHENNAI] had set aside the order of the Ld.CIT(E) and restored the application filed by the assessee on 09/18.10.2022 in Form 10 to be treated as u/s. 12A(1)(ac)(i) of the Act and to decide granting registration u/s. 12AB(1)(a) of the Act for ‘five years’ from AY 2022-23 onwards Taking note of the CPC’s objection for denying exemption u/s. 11 of the Act i.e. for the failure on the part of the assessee in not filling up column showing details of application filled for registration u/s. 12AB of the Act at the time of filing of RoI, we find that such an objection need to be overruled in the light of the discussion (supra) and we do so and consequently, the relief flowing from the same has to be granted to the assessee. Therefore, we set aside the impugned order of the Ld.CIT (A) and direct granting exemption claimed by the assessee u/s. 11 of the Act. CIT (A) rejecting the appeal preferred by the assessee on a ground which was not raised/flagged by the CPC i.e. delay of less than one month in filing / uploading of Audit Report - As noted that such an issue is no longer res integra i.e. filing of Form 10AB (Audit Report) would be directory in nature and as such if the assessee files the Audit Report before completion of assessment, then, the same should be considered by the Income Tax Authorities for processing of the assessment/appellate order (refer decision in the case of Indian Panel Board Manufacturer [2023 (3) TMI 1374 - GUJARAT HIGH COURT] and Chandraprabhuji Maharaj Jain [2019 (8) TMI 363 - MADRAS HIGH COURT]. ISSUES: Whether exemption under section 11 of the Income Tax Act, 1961 can be denied solely on the ground of non-furnishing details of registration under section 12AB in the return of income.Whether the delay in filing the Audit Report in Form 10AB is a valid ground for denial of exemption under section 11 of the Act.Whether the provisional registration granted under section 12AB for three years instead of five years to an old Trust was valid, and the effect of inadvertent application under incorrect sub-clause of section 12A(1)(ac) of the Act.Whether the appellate authority has the power to condone delay in filing Form 10AB and the consequences of refusal to exercise such power. RULINGS / HOLDINGS: The denial of exemption under section 11 of the Act on the sole ground that the assessee failed to fill the column showing details of registration under section 12AB in the return of income is not sustainable, especially where the assessee had valid registration under section 12AA and had applied for fresh registration under section 12AB.The delay of less than one month in filing the Audit Report in Form 10AB is directory in nature and does not disentitle the assessee from claiming exemption under section 11; hence, rejection of exemption on this ground is erroneous.The provisional registration granted under section 12AB for three years instead of five years due to a bona fide mistake in applying under sub-clause (vi) instead of sub-clause (i) of section 12A(1)(ac) is to be rectified, and the application is to be treated as made under the correct sub-clause, entitling the Trust to registration for five years.The appellate authority (Additional Commissioner) does not have the power to condone delay in filing Form 10AB, which is vested with the Commissioner or Principal Commissioner, but refusal to condone delay on a ground not raised by the assessing authority and contrary to judicial precedents is an error. RATIONALE: The Court applied the amended provisions of sections 11, 12A, and 12AB of the Income Tax Act, 1961, as amended by the Taxation Laws (Amendment) Ordinance, 2020, effective from 1.4.2021, requiring fresh registration under section 12AB for exemption eligibility.The Court relied on binding High Court precedents holding that filing of Form 10AB (Audit Report) is directory and that delay in filing beyond due date does not automatically disentitle exemption claims if filed before completion of assessment.The Court recognized the principle of rectifying bona fide mistakes in statutory applications, holding that inadvertent filing under an incorrect sub-clause should be treated as if filed under the correct provision to protect substantive rights of the assessee.The Court emphasized that the appellate authority must decide appeals on grounds raised by the assessing authority and not on new or unrelated grounds, especially when such grounds are contrary to settled law.