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of <h1>ITAT condones delay in Form 10B filing; only net income taxable under Section 11, case remanded to CIT(A)</h1> The ITAT Bangalore condoned the delay in filing Form 10B for audit report submission, following precedents from ITAT Ahmedabad and Gujarat HC. It rejected ... Denial of benefits of section 11 and 12 - delayed filing of audit report by way of Form 10B - HELD THAT:- As relying on Hari Gyan Prachark [2023 (6) TMI 923 - ITAT AHMEDABAD] as followed the verdict of Association of Indian Panelboard Manufacturer [2023 (3) TMI 1374 - GUJARAT HIGH COURT] we hereby condone the delay for filing Form 10B in the impugned case. Taxing of entire receipt, due to procedural lapse it is worthy to note that the coordinate bench in the case of HMV Educational Cultural & Social Trust [2023 (3) TMI 1151 - ITAT BANGALORE] has held that only income portion net-off all the expenses is to be taxed not the entire receipt. We hereby condone the delay in respect of filing the Form 10B and restored the matter to CIT(A) to allow the benefits of section 11in accordance with law. 1. ISSUES PRESENTED and CONSIDERED Whether non-filing or delayed e-verification of the audit report in Form 10B prior to filing the return under Section 139(1) of the Income Tax Act, 1961, vitiates the entitlement of a charitable trust to exemption under Sections 11 and 12A of the Act. Whether the Assessing Officer (AO) is justified in denying exemption under Section 12A and taxing the entire receipts of the charitable trust due to procedural non-compliance related to Form 10B. Whether delay in filing or e-verification of Form 10B can be condoned in the absence of a formal application for condonation of delay before the Commissioner of Income Tax (CIT), in light of CBDT Circular No. 19/2021 dated 03.11.2020. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Effect of Non-filing or Delayed E-verification of Form 10B on Entitlement to Exemption under Sections 11 and 12A - Relevant Legal Framework and Precedents: Section 12A registration and Section 11 exemption require a charitable trust to furnish an audit report in Form 10B under Rule 17B of the Income Tax Rules, 1962. Filing and e-verification of Form 10B are procedural requirements mandated for claiming exemption. CBDT Circular No. 19/2021 delegates power to the CIT to condone delay in filing audit reports. Precedents include decisions by coordinate Benches of the ITAT Ahmedabad in Hari Gyan Parcharak Trust and Shir Visha Oswal Jain Sewa, which held that filing of the audit report is a substantive requirement but the mode and timing of filing are procedural. The Gujarat High Court in Association of Indian Panelboard Manufacturer clarified that non-filing of the audit report with the return is a procedural lapse and does not bar exemption if the audit report is available before assessment. The Ahmedabad ITAT SMC Bench in Gagan Deep Charitable Trust (AY 2021-22) followed these views, holding that non-filing or delayed filing of Form 10B is a procedural lapse that can be condoned. - Court's Interpretation and Reasoning: The Tribunal observed that the assessee had uploaded Form 10B on the date of filing the return but could not e-verify it due to technical glitches and completed e-verification on 08.09.2022, after the date of filing the return. No formal condonation application was filed before the CIT. Relying on the above precedents and CBDT Circular No. 19/2021, the Tribunal held that non-filing or delayed e-verification of Form 10B is a procedural lapse and does not vitiate the entitlement to exemption under Sections 11 and 12A. The Tribunal emphasized that the substantive requirement is the availability of the audit report to the AO before assessment. - Key Evidence and Findings: The sequence of events showed that Form 10B was uploaded on 07.01.2022 but e-verified only on 08.09.2022. The AO denied exemption for non-compliance. The assessee did not file any condonation application before the CIT. - Application of Law to Facts: The Tribunal applied the principle that procedural lapses in filing Form 10B do not affect substantive rights if the audit report is eventually filed and available before assessment. The delay was condoned despite absence of formal application, consistent with CBDT Circular No. 19/2021. - Treatment of Competing Arguments: The Revenue argued that absence of a condonation application justified denial of exemption. The Tribunal rejected this, relying on the Circular and judicial precedents holding that delay can be condoned by the CIT and that procedural lapses should not defeat substantive rights. - Conclusion: The Tribunal condoned the delay in e-verification of Form 10B and held that the assessee's entitlement to exemption under Sections 11 and 12A cannot be denied on this ground. Issue 2: Whether AO Can Tax Entire Receipts Due to Procedural Non-compliance - Relevant Legal Framework and Precedents: Section 11 provides exemption for income derived from property held for charitable purposes, subject to conditions including audit compliance. The ITAT Bangalore in HMV Educational Cultural & Social Trust held that only the net income (receipts less expenses) is taxable if exemption is denied, not the entire gross receipts. - Court's Interpretation and Reasoning: The Tribunal noted that taxing the entire receipt due to procedural lapse is not justified. Only the net income after deducting allowable expenses should be considered for taxation. - Key Evidence and Findings: The AO taxed the entire receipts on the ground of non-compliance with Form 10B e-verification. The assessee challenged this approach. - Application of Law to Facts: The Tribunal applied the principle from the HMV Educational case that procedural lapses do not justify taxing gross receipts; only net income should be taxed if exemption is denied. - Treatment of Competing Arguments: The Revenue maintained the correctness of taxing entire receipts. The Tribunal disagreed based on judicial precedent. - Conclusion: The Tribunal held that taxing the entire receipts was incorrect and only the net income is subject to tax in case exemption is denied. Issue 3: Condonation of Delay in Filing Form 10B Without Formal Application - Relevant Legal Framework and Precedents: CBDT Circular No. 19/2021 empowers the CIT to condone delay in filing audit reports. The Ahmedabad ITAT in Hari Gyan Parcharak Trust and Gagan Deep Charitable Trust condoned delay even where no formal application was filed, emphasizing the procedural nature of the requirement. - Court's Interpretation and Reasoning: The Tribunal held that the absence of a formal condonation application before the CIT is not fatal. The power to condone delay is vested in the CIT and can be exercised suo moto or on appeal. The procedural lapse was condoned in the interest of substantive justice. - Key Evidence and Findings: The assessee did not file any condonation application. The delay was about eight months. - Application of Law to Facts: The Tribunal applied the CBDT Circular and judicial precedents to condone delay despite no formal application. - Treatment of Competing Arguments: The Revenue argued that lack of condonation application justified denial of exemption. The Tribunal rejected this view. - Conclusion: The Tribunal condoned the delay in filing Form 10B without a formal condonation application. Additional Observations and Directions - The Tribunal restored the matter to the CIT(A) to decide on the exemption claim strictly in accordance with law after condoning the delay in filing Form 10B. - The decision aligns with the principle that procedural lapses should not defeat substantive rights of charitable trusts registered under Sections 11 and 12A.
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