Trust gets relief on section 11 exemption denial for late Form 10BB filing during COVID

ITAT Hyderabad set aside CIT(A)'s order denying section 11 exemption to trust for failure to e-file Form 10BB audit report within prescribed time. Trust's delay exceeded 365 days but argued COVID period should be excluded. ITAT found ambiguity in CBDT Circular 15/2022 regarding condonation authority for delays beyond 3 years. Matter remanded to AO for fresh consideration pending CBDT's decision on trust's condonation application. ITAT also directed that if exemption ultimately denied, trust should be assessed as AOP on surplus/profit only, not gross receipts.

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Issues Involved:

1. Condonation of delay in filing appeals and audit reports.
2. Denial of tax exemption under Section 11 of the Income Tax Act, 1961.
3. Assessment of gross receipts as income.
4. Authority and jurisdiction of the CIT (A).

Detailed Analysis:

1. Condonation of Delay:

The primary issue was the rejection of the condonation of delay in filing appeals and audit reports. The appellants argued that the delay was unintentional, citing the COVID-19 pandemic and related disruptions as significant reasons. The Tribunal acknowledged that the pandemic severely affected normal life and operations, justifying a lenient approach towards condoning delays. The Tribunal found that the delay, excluding the COVID period, was minimal and thus condoned the delay for the appeals related to the assessment years 2019-20 and 2020-21.

2. Denial of Tax Exemption:

The denial of tax exemption under Section 11 was a significant issue. The exemption was denied due to the late filing of the audit report in Form 10BB. The Tribunal noted that the appellant was a charitable institution registered under Section 12AA and had not deviated from its objectives. The delay in filing Form 10BB was attributed to unforeseen circumstances, including a search operation and the COVID-19 pandemic. The Tribunal emphasized that the appellant was otherwise entitled to the exemption and that the authorities should have taken a lenient view regarding the late filing. The Tribunal directed that the issue be reconsidered by the Assessing Officer after the Central Board of Direct Taxes (CBDT) decides on the application for condonation of delay.

3. Assessment of Gross Receipts:

The Tribunal addressed the issue of assessing gross receipts as income. It was argued that if a trust loses its exemption, only the surplus or profit should be taxed, not the gross receipts. The Tribunal directed the Assessing Officer to verify the appellant's claim and ensure that only the income or profit is taxed if the exemption under Section 11 is ultimately denied.

4. Authority and Jurisdiction of CIT (A):

The Tribunal found that the CIT (A) exceeded its jurisdiction by making observations regarding the order passed under Section 154, which was not within the scope of the appeal. The CIT (A) does not have the authority to issue directions or findings on issues not before the appellate authority. The Tribunal deleted the findings of the CIT (A) that were beyond its scope of power.

Conclusion:

The Tribunal allowed the appeals for statistical purposes, setting aside the orders of the CIT (A) and directing the Assessing Officer to reconsider the issues in light of the Tribunal's observations. The appeals for the respective assessment years 2019-20 and 2020-21 were allowed for statistical purposes, with the matters remanded for fresh consideration by the Assessing Officer.

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