2024 (9) TMI 1835 - AT - Income Tax

Delay in filing Form 10B condoned; exemption under Section 11 granted subject to statutory verification and compliance

ITAT Bangalore (AT) condoned the delay in filing Form 10B and held the assessee eligible for exemption under section 11, subject to statutory compliance. ... Denial of exemption u/s 11 - delay in filing the Form 10B - HELD THAT:- We condone the delay in filing the Form 10B by the assessee and accordingly hold that the assessee is eligible for exemption under section 11 of the Act subject to the compliance of the provisions contained therein. As such we note that, the authorities below have not verified the relevant form 10B filed by the assessee belatedly. Accordingly, we set aside the finding of the ld. CIT-A and direct the AO to allow the benefit of exemption to the assessee after necessary verification as per the provisions of law. Hence the ground of appeal of the assessee is partly allowed for statistical purposes. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether non-filing/uploading of the audit report in Form 10B along with the return of income, though the audit was conducted before the due date, is a substantive bar to claiming exemption under section 11, or is it a procedural lapse capable of condonation. 2. Whether, in the event of procedural non-compliance in filing Form 10B, the Assessing Officer can treat and tax the entire receipts of the charitable trust instead of taxing only the income portion after allowing permissible deductions/expenses. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legal framework Relevant statutory provisions: section 11 (exemption for charitable/religious trusts), section 12A(1)(b) (requirement of audit report in Form 10B), Rule 12(2) (electronic filing requirement) and delegation under administrative instructions (circular authorizing condonation by CIT(E)). Issue 1 - Precedent Treatment The Tribunal followed the line of authority in which coordinate Benches and the relevant High Court held that non-filing of Form 10B along with the return is a procedural omission and not a substantive impediment to claiming exemption under section 11, provided the audit report is available to the assessing machinery before assessment. Decisions referenced include divisional/coordinate bench precedents that treated filing mode/stage as procedural, and a High Court decision (on identical issue) holding in favour of the assessee on the procedural-substantive distinction. Issue 1 - Interpretation and reasoning The Court reasoned that the legislative change making electronic filing mandatory under Rule 12(2) affects the mode/stage of filing but does not alter the substantive requirement that an audit report must exist and be available for assessment. The decisive factor is availability of the Form 10B/audit report to the Assessing Officer before assessment proceedings conclude. The Tribunal noted delegation under administrative circulars enabling condonation applications to be processed by CIT(E), and treated the omission to upload as a clerical/ procedural error where the audit was in fact carried out before the due date. Given coordinate authority and the High Court precedent, the Tribunal concluded that condonation is appropriate and consistent with legal principle distinguishing procedural compliance from substantive entitlement. Issue 1 - Ratio vs. Obiter Ratio: Non-filing/uploading of Form 10B with the return is, where the audit exists and was carried out before the due date, a procedural lapse capable of condonation; the substantive entitlement under section 11 is not lost solely by failure to electronically file Form 10B with the return. Obiter: Administrative delegation and the specific mechanics of applying for condonation (e.g., under section 119 circular) are discussed as contextual support but not newly formulated binding law beyond following higher/coordinate decisions. Issue 1 - Conclusions The Tribunal condoned the delay in filing Form 10B, restored the matter to the appellate authority to consider the claim for exemption under section 11 after necessary verification of the belatedly-filed Form 10B, and set aside the lower authority's finding that denied exemption solely on the ground of non-uploading. Issue 2 - Legal framework Principles governing assessment of income of charitable trusts: section 11 entitles trusts to exemption subject to compliance; taxing authorities must determine taxable income by applying statutory allowances/deductions; procedural non-compliance does not ipso facto convert receipts into taxable income in gross. Issue 2 - Precedent Treatment Coordinate bench precedent (cited by the Tribunal) held that where procedural defects exist in filing, only the income portion (after netting off allowable expenses) is to be taxed rather than treating entire receipts as taxable. This approach aligns with prior Tribunal decisions and the reasoning that substantive tax consequences should follow statutory incidence, not procedural defaults. Issue 2 - Interpretation and reasoning The Tribunal observed that taxing entire receipts due to a procedural omission would be disproportionate and contrary to legislative intent regarding exemption under section 11. Where the defect is procedural and condoned, the correct tax treatment is to assess the net income (receipts less permissible expenses) in accordance with law rather than grossing up receipts as a punitive measure for non-filing. Issue 2 - Ratio vs. Obiter Ratio: A procedural lapse in filing Form 10B does not justify treating entire receipts as taxable; assessment, if any, should be confined to taxable income determined after allowing appropriate deductions/expenses according to law. Obiter: References to specific prior factual matrices where the Tribunal declined to tax entire receipts serve as persuasive guidance but are not expanded into new rule-making beyond the principle stated above. Issue 2 - Conclusions The Tribunal directed that, upon condonation and verification of Form 10B, the matter be remitted to the appellate authority/Assessing Officer to allow exemption under section 11 subject to statutory compliance and proper verification, and it indicated that only income net of allowable expenses should be relevant for assessment rather than the entire receipts. Cross-references and procedural directions The Tribunal expressly followed jurisdictional High Court and coordinate-bench authority on the procedural-substantive distinction, condoned the delay in filing Form 10B, set aside the lower authority's order denying exemption solely on the basis of non-uploading, and remitted the matter for factual verification of the belatedly-filed Form 10B and adjudication of the exemption claim strictly in accordance with law.